The Second Coming Of Cadillac

Now its cars are cool. Will bold design and lots of horsepower keep the brand rolling?

Until recently, Kevin McManus wouldn't have been caught dead in a Cadillac, a car he associated with Florida retirees. Then the 35-year-old vice-president at a big Wall Street firm saw the new Cadillac XLR roadster at the 2002 New York Auto Show, and he couldn't take his eyes off it. The car's angular styling, classic sports car dimensions, and 320-horsepower engine led him to ditch his BMW 540 for a $76,000 XLR. Says McManus: "The first time I saw this car, I could tell it had personality."

General Motors Corp. (GM ) has done the seemingly impossible, taking a tired, defeated luxury brand two decades past its peak and turning it 180 degrees in a remarkably short time. Just look around -- Caddy is cool again. Escalade sport-utility vehicles and CTS sedans are showing up in Miami's trendy South Beach district and in photo spreads in the young men's magazine Stuff. The brand is even testing well in that hotbed of European sports cars, California. And with three new models coming out over the next year, Cadillac is apt to turn plenty of heads. "It's not all the way back, but it's on the same path as Harley-Davidson (HDI )," says Art Spinella, president of CNW Marketing Research in Bandon, Ore.

That's good news for GM, which launched a $4.3 billion campaign to resurrect the fading brand three years ago. Cadillac broke with decades of stodgy tradition with the distinctive stealth-fighter angles and aggressive-looking grills that appeared on the Escalade and the CTS sedan. But to really change its stripes, GM engineered its new Cadillacs to drive more like sports cars than cruisers and marketed them with rock 'n' roll advertising aimed at younger boomers. Respectful reviews in car-buff magazines have helped shake up assumptions about Caddy; so has the brand's carefully orchestrated presence at glitzy events like the Oscars. Even dealer showrooms are starting to adopt a more chic look. Sales are up 5% this year, putting Cadillac on pace to sell 200,000 units for the first time since 1994. Most impressive of all: The average age of the Cadillac buyer has dropped to 59, from 64 in 1999.

STEEP CLIMB AHEAD. Resale values are rising, too, which is critical for competing in the leasing market. The Auto Leasing Guide, which calculates the value of a car once its three-year lease has expired, estimates that the CTS retains about 47% of its sticker price. That's way up from the residual value on older Cadillacs like the Seville (36%), and is creeping up on the BMW 3 Series (55%). The SRX's residual of 51% is within hailing distance of the Lexus RX 330's 58%.

In Detroit, GM executives are encouraged, but wary of how steep a climb they still face. The Cadillac name still doesn't command the prestige of Lexus (TM ), Mercedes-Benz (DCX ), or BMW, which have come to dominate the luxury market. With younger buyers craving a sportier ride, Cadillac urgently needs to trade its image of sedentary comfort to one of heart-pounding performance. "We're not there yet," admits Cadillac General Manager Mark LaNeve. "A lot of people still think Cadillac makes big floaty boats."

Cadillac's knottiest problem is that it is not winning buyers from luxury imports. Right now, 50% of CTS buyers traded in something other than a GM car. But only half of that group traded in an import, and those makes were mostly Honda (HMC ), Toyota (TM ), and Nissan (NSANY ). "I don't see us losing many buyers to Cadillac," says Tom Purves, chairman and CEO of BMW U.S. Holdings.

For the next two years, changing that view will be the unit's top priority on both the new-product and marketing fronts. Early on in its bid to revitalize the brand, GM unleashed TV ads that showed classic Cadillacs morphing into the new models. New ads, due early next year, will focus on performance. The idea is to emphasize engineering and speed instead of heritage. "We want to dive more deeply into the technology of these cars and how they're made," says Gary Topolewski, chairman and chief creative officer of Chemistri, Cadillac's ad agency.

BMW TERRITORY. But the real test will be in the new models Caddy plans. It just launched the Corvette-derived XLR convertible and the sporty-handling SRX crossover SUV. In the fall of 2004, the STS sedan, a replacement for the aging Seville, goes on sale. All three have Cadillac's bold new look, although the harsh lines and sharp edges have been softened a bit since the CTS launched in early 2002. The XLR got off to a promising start months before its late-summer launch when Neiman Marcus (NMG ) put a special violet-hued edition of the car in its 2002 Christmas catalog and sold all 99 of the $85,000 cars in 14 minutes. Dealers say they're sold out until next year.

The XLR is a niche car, but its big price tag and sleek looks are meant to give Cadillac a more high-end image. The lower-priced SRX and STS will challenge some of the best-selling imports in the business. With the nimble-handling SRX, GM is taking aim at the wildly successful Lexus RX 330. It's even offering a V-8 version loaded up at $58,000 -- squarely in BMW territory. That's intended as a big statement about Caddy's performance pedigree.

Even more crucial to luring a new generation of drivers will be the STS, which next year replaces the Seville -- a classic Caddy land yacht. Delayed by six months so GM could make the car more competitive with BMW's brisk-selling 5 Series, the STS will be larger than the CTS. Inside, the car will more closely resemble the XLR, swapping the plastic of the CTS interior for luxurious eucalyptus and aluminum appointments. Says Wesley R. Brown of Iceology, a consumer research firm in Los Angeles: "When the STS hits, the brand could start to position itself more strongly for younger affluent buyers."

To bang home the idea of high performance, Cadillac is considering the kind of activities that would have been unthinkable just five years ago. For one, it's heading out to the racing circuit. Just as BMW and Mercedes burnished their image by selling high-performance editions of their cars, Cadillac will launch a high-octane V-version of each of its new cars. First up: the 400-hp CTS-V, which is about to be put to the most rigorous test, the Sports Car Club of America racing series. Says LaNeve: "I hope the V-series obliterates forever the image of Cadillacs being nonperformance luxury cruisers."

In a more competitive, global market, Caddy will never again see the likes of its glory days of the 1950s, when 8 out of 10 luxury cars sold in the U.S. were Cadillacs. Still, it just may became a cool car of choice -- and not just for retirees.

By David Welch in Detroit

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