Cadillac Courts the Young and Rich With Crucial Compact SUV

(Bloomberg) -- Cadillac is preparing to unveil one of the most important models in its comeback tour.

The XT4 compact sport utility vehicle making its world debut this week at the New York International Auto Show may not have the flair of the tail-finned Eldorados of the ’50s and ’60s or the $100,000 price tag of today’s Escalade. Yet the vehicle towers in importance as Cadillac’s new entry point for young luxury buyers in both the U.S. and China.

Cadillac Courts the Young and Rich With Crucial Compact SUV

“It will be leading the charge for us as an interceptor of young affluent buyers -- very valuable long-term customers,” Cadillac President Johan de Nysschen said in an email. “It has, therefore, an important job to do in reshaping perceptions. And it obviously has to do a big job in expanding volume.”

The XT4 has a lot resting on its shoulders as General Motors Co. tries to bring Cadillac back to the upper echelon of luxury. U.S. sales for the brand, which has been having a hard time attracting first-time luxury buyers, dropped 8 percent last year, under-performing the wider market. A 51 percent expansion in China helped drive Cadillac to its second-highest annual sales total ever, but it still trails Germany’s Audi, BMW and Mercedes-Benz by a wide margin.

Young Buyers

“Cadillac has improved the product but they have not been able to move the needle on the brand,” said Alexander Edwards, president of Strategic Vision Inc., a San Diego-based market research firm. “It hasn’t caught on with younger buyers.”

Only 9 percent of buyers under 29 years old said they would consider a Cadillac in the future, while at least a quarter would shop Audi or BMW, according to a 2017 survey by Edwards’ firm. The brand’s average buyer is 59 years old.

Cadillac Courts the Young and Rich With Crucial Compact SUV

The XT4 is targeting one of the fastest-growing segments of the market for young drivers -- small SUVs. Demand for premium vehicles that size is expected to grow 13 percent in the U.S. to 245,000 this year and more than 10 percent in China to 405,000, according to researcher IHS Markit.

Rivals are also looking to cash in on growing SUV segments, with Lexus introducing the UX to the U.S. in New York this week and Volkswagen AG showing a five-passenger version of its larger Atlas. Ford Motor Co.’s Lincoln will show off its new Aviator mid-sized SUV as it also tries to regain footing as a leading luxury brand.

Cadillac has put its best effort into the XT4, de Nysschen said. It’s the first vehicle designed under Cadillac’s new product development system, and GM now has specific standards for quality, ride and comfort that are unique to the brand. The model will compete with the Audi Q3 but is larger, de Nysschen said.

Lost Ground

By 2020, Cadillac will try to make up for lost ground with a handful of new models, including a large, prestigious sedan and three crossover SUVs including the XT4. It’s part of a $12 billion push to remake the brand.

The effort is overdue. GM has been trying to remake Cadillac since the late 1990s. The brand had momentum in the early 2000s with the CTS sedan, but financial problems led to budget cuts. Cadillac suffered from a lack of new vehicles, while Toyota Motor Corp.’s Lexus and the German luxury brands flooded the market with refreshed cars and SUVs.

Things only got worse when GM went bankrupt in 2009. For several years after, the company spent a lot of its cash feeding brands like Chevrolet and GMC that were more likely to generate big sales volume and profits, said Stephanie Brinley, an analyst with IHS Markit. Cadillac didn’t get a lot of new models, and it today only sells two SUVs: the full-size Escalade and the mid-sized XT5.

“The lack of SUVs is hurting them because it takes them off the consideration list for a lot buyers,” Brinley said.

China Strength

Cadillac’s bright spot is China, which now accounts for about half of the brand’s sales. GM will build the XT4 at a plant in Kansas City and another in Shanghai to avoid a 25 percent tariff on cars imported into the world’s biggest auto market.

Driven by strength in China, Cadillac logged its second-highest total sales ever last year -- surpassed only by 1978 -- and it’s on track for a new global record in 2018, de Nysschen said at an industry conference in New York on Tuesday.

GM still needs to succeed in the U.S., said Kevin Tynan, a Bloomberg Intelligence analyst. American buyers tend to buy more options and GM has to split about half of profits from China with its local partners. That means Cadillac may need to sell two or three XT4s there to match the profit it makes off one in the U.S.

Cadillac is still a work in progress, said Strategic Vision’s Edwards, noting that part of the problem has been marketing. Cadillac’s “Dare Greatly” campaign has not made an impact in terms of changing perception that it’s an also-ran luxury name, he said.

The brand may be in for a reboot in this respect too. Chief Marketing Officer Uwe Ellinghaus left in December after four years. Former McDonald’s Corp. CMO Deborah Wahl, who also worked at one point for Chrysler, has taken over the job and will have to establish the brand with new buyers.

“The messaging has not been done in a persistent and consistent way,” Edwards said. “If they don’t make changes, they will continue to fall behind.”

©2018 Bloomberg L.P.