Did General Motors Just Disrupt the Luxury-Car Business?

By John Rosevear Markets Fool.com

Cadillac marketing chief Uwe Ellinghaus with the brand's new XT5 crossover -- one of five models included in a new service that adds a luxury twist to the idea of car-sharing. Image source: General Motors.

Continue Reading Below

Earlier this month, General Motors' (NYSE: GM) Cadillac brand rolled out a new service aimed at affluent urban customers who might not want to own a car. It's inspired by car-sharing, and -- like ride-hailing and car-sharing services -- the idea behind it could turn out to be quite disruptive.

Cadillac's BOOK is a subscription service -- with a twist

BOOK is essentially a subscription service with an intriguing twist. For a flat monthly fee, members get access to any of several top-of-the-line Cadillacs, delivered right to their homes. Insurance and other costs are included, there's no mileage limit, and -- here's the twist -- BOOK members can swap the Cadillac they have for another model any time they want, up to 18 times a year. There's no long-term commitment: Membership is month-to-month. Details (including those car swaps) are handled via a cellphone app.

The vehicles included are top-of-the-line Platinum-trim versions of the Escalade SUV, XT5 crossover, and big CT6 sedan, as well as the high-performance CTS-V and ATS-V models. The range opens up some obvious possibilities: For instance, one could drive a high-performance CTS-V in the summer, and then swap it for an SUV during the winter months. Or when traveling (as the service expands), one could arrange for a familiar Cadillac instead of a rental car.

At $1,500 a month, BOOK isn't cheap -- but it's not outrageous, either: That fee is roughy comparable to a loan payment on a top-tier Cadillac. "We are targeting luxury buyers who are probably under more time pressure than short of money," Cadillac marketing chief Uwe (pronounced OOH-vuh) Ellinghaus told me in a recent interview. Such buyers, he said, might be happy to pay the high fee "for simply a hassle-free experience," he said.

Continue Reading Below

An upscale alternative to low-cost mobility services

"Throughout the industry, we all talk about the big megatopics: connectivity, electro-mobility, autonomous driving, and of course car- and ride-sharing," Ellinghaus said. "These are all things that we have to handle or deal with one way or another. But I also think that within these huge areas, like for example car- and ride-sharing, we need to acknowledge that we need to differentiate our brands."

When it comes to car-sharing, including GM's own Maven car-sharing service, the current trends are toward "affordable ways to get from A to B," he said. That's a good thing for many, of course. But Ellinghaus and other Cadillac executives had to confront this question in internal GM discussions last year: Is Maven the right thing for Cadillac and for the affluent customers that the brand is working hard to reach?

They felt that it wasn't. "Premium customers tend to have high expectations toward every touch point with a brand," Ellinghaus said. Current car-sharing and ride-hailing services that use mainstream vehicles work for many, but they don't meet premium expectations. Cadillac saw an opportunity.

"We said, let's create something for the other bookend of the car-sharing spectrum. This is where the quality of the car does make a difference. People want a top-notch luxury experience more than anything else when they subscribe to such a service."

BOOK is a way to introduce the fast-improving Cadillac brand to new customers

Ellinghaus said this isn't just a way to bring in some incremental profit or dabble with yet another "mobility" idea. BOOK will also play a part in the ongoing project to elevate the prestige of the Cadillac brand and help to introduce it to new customers, he said.

"We might be able to conquer people that are not aware just how much Cadillac has changed -- and all for the better, how capable our cars are -- and who are simply not yet ready to go to a dealer and do a test drive. But if they can get this great experience and they don't have to go anywhere -- we deliver at home -- they [can] test the water [and find out] if Cadillac is the right brand."

The hot-handling 640-horsepower Cadillac CTS-V isn't a practical daily driver for many. But what if you could get one for aweekend whenever you wanted?Image source:General Motors.

"I am wholeheartedly convinced that it will win many additional buyers" for Cadillac, he said. That should reassure Cadillac's dealers, who might rightly be concerned about a GM-sponsored effort to "disrupt" the idea of luxury-car ownership.

The service will refer BOOK members who want to "keep" their vehicles to a local dealer, of course. But there are also ways in which BOOK can complement a dealer's sales effort, Ellinghaus said. Are you a German-luxury-car loyalist intrigued by the latest Cadillacs, but wary of the brand's checkered history? Want a monthlong test-drive before buying? Most brands can't easily make that happen, but now Cadillac can.

BOOK is another idea that could change our model of car ownership

Cadillac's BOOK is an idea that almost seems obvious in retrospect -- and those are the kinds of ideas that can turn out to be disruptive. As a Foolish colleague asked when I first described BOOK to her, "Why don't all luxury-car brands already have something like this?" That seems like an excellent question, and it seems likely that they will if BOOK catches on -- which also seems likely.

One could imagine it catching on with non-luxury brands, too. To take another GM example, imagine a Chevrolet subscription: A well-appointed sedan or crossover for everyday family-car use, a pickup truck when you need one for a special job, and maybe a Corvette or a four-wheel-drive Colorado for the occasional weekend getaway -- all for a flat monthly fee comparable to a loan payment on a loaded Chevy.

Substitute your favorite automotive brand and try that thought experiment yourself. For the price of a monthly loan payment on one of your preferred brand's premium models, would you consider a BOOK-like subscription? Let me know.

10 stocks we like better than General Motors
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and General Motors wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 4, 2017

John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.