Cadillac, after years of struggle, has found its Sweet Spot: China

Editor’s Note: This is an example of the section automotives you do usually find in Prime News

 

A sales surge there means for the first time Cadillac is selling more vehicles abroad than at home

Of all the world’s booming premium-car companies, the biggest surge is happening for a brand many American buyers long passed by.

Cadillac sales are growing at the fastest clip since the Reagan administration. The buyers are half a world away, in a place where it is supposed to be hard for U.S. companies to sell.

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Shanghai entrepreneur Zhenyu He with his Cadillac CT6

Shanghai entrepreneur Zhenyu He sees Cadillacs as a symbol of American grandeur. A calendar of vintage Caddys pinned to the wall of his boyhood bedroom inspired his recent purchase, a $120,000 metallic-black Cadillac CT6 with night-vision mode and an air ionizer.

“It sets me apart and represents American heritage,” said Mr. Zhenyu, 40 years old, most of whose friends drive BMW s.

Cadillac’s global sales this year through July were up 23%, beating its premium-car peers. In China, the world’s biggest auto market and site of one of every four sales, Cadillac through July sold 69% more vehicles than a year earlier. It was the first time Cadillac sold more vehicles abroad than at home.

By tripling its China sales in five years, Cadillac has vaulted past Lexus, Land Rover and Volvo to become the country’s No. 4 luxury player, according to research firm LMC Automotive.

Cadillac remains far behind the leading premium brands, in China as elsewhere. Chinese luxury-car buyers flock overwhelmingly to a mighty trio from Germany, so prominent the car-conscious call them simply “B-B-A”: BMW, Benz and Audi .

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One issue for parent General Motors Co. has been that executives, frustrated by Cadillac’s years of U.S. slippage and failure to gain traction in Europe, haven’t invested in their luxury brand with the same gusto as rivals such as Daimler AG and BMW AG. The recent success in China is starting to change the equation.

Under Cadillac President Johan de Nysschen, the division is spending $12 billion over five years for such projects as developing electric cars and fleshing out a skimpy model lineup. Up against Silicon Valley firms investing in moonshot automotive technologies, Cadillac says it is close to releasing a semiautonomous system that allows drivers to take their hands off the wheel for extended periods.

“We need the China volume to make all of these investments work,” Mr. de Nysschen said in a recent interview.

GM, in turn, needs Cadillac to work. For auto makers, luxury models are the most profitable. Industrywide, premium models account for just a tenth of vehicles sold but 35% of profits, by GM’s calculation. The parent company wants to boost its operating margin globally to 10% over the coming years, from 7.5% last year, which would be hard to do without success in luxury vehicles.

Mr. de Nysschen arrived in 2014. GM Chief Executive Mary Barra had dispatched company President Dan Ammann to find an executive to revive a nameplate synonymous for decades with the finest things in life but enduring a slow fade. Although its cars were mechanically improved, they were stacking up at lots, forcing dealers to ladle out big incentives to move them.

At Geneva’s annual motor show that spring, Mr. Ammann arranged a meeting with Mr. de Nysschen, a South African native who had spent years overseeing Audi’s U.S. resurgence and was then about two years into a job leading Infiniti. They dined privately in a hotel overlooking Lake Geneva.

Mr. de Nysschen’s debut at Cadillac came a few months later at a dealer meeting in Las Vegas. The gathering had a euphoric feeling, some who attended say, a sense that GM had finally found a Cadillac chief with luxury bona fides.

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Cadillac President Johan de Nysschen

Mr. de Nysschen tempered the enthusiasm. “Things are going to get worse before they get better,” several people say he cautioned.

Mr. de Nysschen has emphasized brand image, even if it means sacrificing market share and cutting into dealers’ sales. Cadillac started shipping dealers fewer cars and grew stingier with sales incentives, which don’t square with the image of a luxury brand.

Determined to elevate customer service to match the biggest luxury players, he has enforced strict new brand standards, requiring larger dealers to invest in costly extras such as roadside assistance. The strategy has pushed Cadillac’s average transaction price in the U.S. steadily higher since he arrived, to about $54,000 in the first half of this year, second only to Mercedes, according to J.D. Power.

Mr. de Nysschen, 57, has spent much of his time at GM preaching that Cadillac must adopt a luxury mind-set, to differentiate itself from the rest of the company’s brands.

“GM has been asking its people…to walk into a meeting in the morning and plan all day on what they’re going to do for Chevrolet, GMC, Buick. And then by 3 o’clock it’s Cadillac’s turn,” Mr. de Nysschen told Automotive News shortly after his arrival. Before long, he announced that Cadillac’s management team would relocate from Detroit to Manhattan to tap New York’s status as global trend setter and luxury-brand hub.

At first, the newcomer’s blunt talk irked some colleagues who had done their own tours of duty through Cadillac and saw that fixing the brand was easier said than done.

One thing holding Cadillac back was that GM hadn’t populated its portfolio with crossover SUVs—sport-utility vehicles built on a car rather than truck chassis—leaving Cadillac sedan-heavy during a drop in demand for passenger cars in the U.S. That predicament has left Cadillac bleeding market share during an overall boom in U.S. vehicle sales.

What was a problem for the U.S., though, wasn’t in China, where sedans remain popular.

There, personal ownership of cars caught on just a few decades ago. The century of auto history that imbued Americans with firm images of the various car brands, and where they fit into self-image, is absent in China.

“There is no Chinese person whose grandfather owned a Cadillac,” said Uwe Ellinghaus, marketing chief of the brand.

In the U.S., the average age of Cadillac buyers hovers around 60. In China, it is the mid-30s.

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A Cadillac dealership in Shanghai

Cadillac began in 1902, when a company that had been run by Henry Ford took a new name in honor of Antoine de la Mothe Cadillac, a French explorer who founded Detroit two centuries before. GM, also not very old, acquired Cadillac in 1909. Its decades of prestige started eroding in the 1980s as engineers began such money-saving techniques as building Cadillacs on the same underpinnings as Oldsmobiles.

By the late 1990s, as Cadillac was losing ground to Lexus and premium German brands, GM sought to boost the growth of its mainstream marques through a joint venture with China’s largest auto maker, state-owned SAIC Motor Corp. Today, GM jointly operates 17 assembly plants in China and, with Buick as its main brand, vies with Volkswagen AG for the sales lead.

In 2004, the joint venture began selling imported Cadillacs. A TV commercial featured a female fighter pilot chasing three Cadillacs through the desert as the voice-over said, “Cadillac: Dare to be the first.”

Kevin Wale, GM’s top executive in China from 2005 to 2012, says it took a long time to persuade Detroit to give Cadillacs a small, four-cylinder engine, which appealed to Chinese for tax reasons but struck some Detroit executives as blasphemous. GM was also slow to add extra creature comforts such as the rear-seat TV screens favored by Chinese luxury-car owners, who often are chauffeured.

Cadillac offered a USD 93000 model with rear massage seats in 2006, but it turned out there was a bigger problem. Cadillac had introduced a new styling theme, a mix of sharp edges, blocky forms and blade-like headlamps and taillamps. It wasn’t well received in China.

“Chinese premium consumers care about how people view them,” said Yale Zhang, managing director of Automotive Foresight, a Shanghai consultancy. “If the car looks so much different from B-B-A, they won’t get accepted from their friends.” SAIC eventually asserted itself with gentle nudges to soften the styling, one former GM executive said.

Cadillac these days adapts more carefully to Chinese tastes. The ATS small sedan, which was panned in the U.S. for a cramped rear seat, was introduced in China with a longer wheelbase. The CT6 model owned by Mr. Zhenyu, the Shanghai entrepreneur, has a plush rear seat with dual high-definition TV screens that retract into the headrests.

Cadillac introduced a crossover SUV in China last year as popularity of such models began to rise. It accounts for nearly 40 % of the brand’s Chinese sales.

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Cadillac XT5 crossovers and other vehicles at an auto exhibition in Guangzhou, China, last November

Until a few years ago, most Cadillacs sold in China faced a 25% tariff imposed on imported vehicles. Now, 90% are built in Shanghai, mostly at a recently opened $1.3 billion GM factory, the company’s most advanced assembly plant anywhere. Inside, young Chinese workers in blue pants and white-collar shirts pick parts from automated carts that roam the floor. Huge robots laser-weld them. A web-like conveyor system ferries components below ground before they pop up on the assembly line at just the right moment

Local production has made it possible for Cadillac to price its vehicles more competitively, a little below the German big three. Cadillac also has opened hundreds of dealerships in recent years, under a strategy that predated Mr. de Nysschen.

Inside one bright Cadillac dealership in Shanghai, framed photos of U.S. presidents and their Caddy limos adorn the walls. Inscribed above in Chinese characters is a definition of Cadillac: “Something that is the most outstanding or prestigious of its kind.”

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