The global market for luxury crossovers is booming.Cadillac's new XT5 is avery good one that is giving sales in China a boost. Image source: General Motors.
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General Motors (NYSE: GM) said that worldwide sales of its luxury brand, Cadillac, rose almost 24% last month.
It may come as a surprise to U.S. investors, but August was Cadillac's second month in a row of 20-percent-plus global sales growth. It's a sign that a key part of CEO Mary Barra's plan to transform GM is slowly gaining traction, even if it's hard to see here in Cadillac's home market.
WhyCadillac is finding strong growth in China
GM has ambitious global plans for Cadillac, but at the moment, most of the brand's sales are made in two key markets, the U.S. and China.
It's China that is the big story here. Cadillac's sales in China nearly doubled last month (up 93.4%) from August 2015. That was driven in large part by strong demand for the all-new XT5 crossover, which lands in a "sweet spot" of the Chinese new-car market: Premium midsize crossover SUVs.
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China has also been a strong market for a variant of Cadillac's compact ATS sedan. The ATS has received a mixed reception in the U.S.: Critics like its sharp handling and taut body structure, but dislike its tight back seat.
In China, GM has been able to address that concern with a variant called the ATS-L. Made and sold only in China, the ATS-L has a longer wheelbase that allows for more room in the back seat. That's a critical market consideration in China, where adults often ride in back, and it has made the ATS-L a strong seller.
Year to date, Cadillac's sales in China are up 31%.
A turnaround at home will take longer to unfold
Cadillac's U.S. results have been less impressive, with sales down 6.2% this year through August. While Cadillac is growing quickly in China as its latest models find a receptive audience that is new to the brand, the challenge for the brand is different in its home country.
U.S. luxury-car buyers have known Cadillac for decades -- and for the most part, they haven't liked what they've seen. For a long time, Cadillac's core buyers in the U.S. weren't those driving German cars, they were people looking for a plush ride at a price well below the German competition.
The problem is that Cadillac has moved away from its traditional plush rides while moving its prices a lot closer to the Germans'. The price increases are arguably justified by the dramatic improvements in Cadillac's latest products, which at long last truly do rival their peers from Germany. But the price increases have alienated Cadillac's traditional following.
If Cadillac's products continue to be excellent, it will almost certainly draw more buyers away from the German brands -- in time. But meanwhile, sales growth has been hard to find. Cadillac's dealers, who despite the sluggish sales are being pushed to upgrade their level of service, haven't been happy.
Cadillac has great potential, but it will require patience
GM's long-term plan for Cadillac is ambitious. The company has committed $12 billion to a big overhaul of its old luxury brand, and expects it to see significant growth -- and a significant jump in prestige -- over the next decade or so. As I mentioned above, Cadillac's transformation into a top-tier global luxury brand is a key part of Barra's plan to push GM's profit margins above 9%, sustainably, by early next decade.
The Cadillac Escala concept, unveiled last month, hints at the brand's upcoming styling direction. Image source: General Motors.
In the near-term, the biggest factor holding Cadillac back in the U.S. and China is its lack of crossover SUVs. Crossovers have become the hot product all around the world, and while the XT5 is a very good one, Cadillac would greatly benefit from having models above and below it in its global product portfolio.
Those models are known to be in development now, but it'll be a couple more years before they're shipping to dealers. In the meantime, U.S. sales growth is likely to be sluggish at best -- but the brand's positive reception in China should help push its global growth story along.
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John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.