General Motors (NYSE:GM) seems to be involved in the quest of rejuvenating sales of Cadillac, its premium automobile brand. Currently, the pre-tax margin for the company stands at 8%. But, with a revitalization of Cadillac, the pre-tax margin could be higher at 10%. Earlier, it did seem that General Motors was somewhat successful in revitalizing Cadillac, but by the end of 2013 it became apparent that sales of the brand had lost momentum. Sales in the United States fell by 7% in the first quarter of 2014, despite introducing a number of new models in the country.
Launch of New Models
The Cadillac portfolio witnessed a downsizing in 2012, when it was left with only three cars to manufacture and sell. However, by the end of the year, two additional models were launched. The launch of the XTS full size sedan was meant for the existing target market of the brand. The ATS compact sedan was rolled out to compete with the German compact luxury cars that were doing extremely well in the market.
Following the launch of these products in 2013, sales of Cadillac picked up by 22%, despite the falling or stagnating trend of sales in its Escalade, CTS and SRX vehicles. The step had worked wonders for the company. However, this success was not long lived since sales began losing momentum by the end of fiscal year 2013. Deliveries experienced a decline ever since that time. ATS and XTS volumes decreased by 11% and 34%, respectively, in July when compared to the prior year. ATS and XTS sales experienced a decline of almost 21% and 24%, respectively, on a YTD basis. The launch of these two models only seemed to have done well in the first year when they were rolled out. They peaked at their launch and then settled down and stagnated.
The reasons for this are simple. The ATS model, which was launched to compete with German cars, was unable to steal any market share from the foreign manufacturers and created difficulties for General Motors. XTS, for the current target customer base, was launched in a market that has no more room to grow. This year, Mercedes has managed to bag sales that are twice the amount of those from Cadillac, while BMW has secured sales of three times more than those of Cadillac.
GM to Produce Cadillac SRX in the U.S.
The company announced a $185 million investment to move production of its SRX crossover vehicles to its Spring Hill Tennessee factory from Mexico. This is marked as a move that will bring back more work to the non-unionized factories in the United States, by the automobile manufacturer. The production is expected to move from the Ramos Arizpe factory in Mexico to the Tennessee factory by late 2015. The launch of the second generation SRX is expected around the same time too, with cars beginning to show up in showrooms by early 2016.
This move is expected to help retain about 1,800 jobs in Spring Hill, but no comments were made about future job creation. There was no comment by General Motors about which vehicles are set to replace the SRX in the Mexico factory. Besides this, General Motors also said that it would invest almost $350 million at the Spring Hill factory for its portfolio of Ecotec engines. The Spring Hill plant currently manufactures some of the Chevrolet Equinox sports vehicles that are also being manufactured by two other plans of General Motors.
What's In Store for the Future?
It may come as a surprise to many, but the older models of Cadillac have all recorded gains in its sales numbers in 2014. Escalade SUV sales have grown by 35% year to date. A remodeled version of this brand was launched late last year and this refreshed model has proven to attract more consumers to it.
The SRX crossover has also recorded increase in sales numbers because small utility vehicles are gaining popularity with customers. General Motors might not be able to make a lot of money out of this trend since no current refreshments in the model are expected by the company. The redesigning of the model is expected to come in 2016, as mentioned before.
By 2017, the company has plans of launching two more crossover models. But what is evident from all of this is that instead of redesigning the range that could earn the company more sales, it focuses on adding other models in the hope that it would pay off. Based on this, it could be said that Cadillac may not be able to become a very major competitor for vehicles like the Audi, BMW, and Mercedes.
Although GM is taking a bold step and launching new models to its portfolio, it might find that the success from launching these models could be limited, especially if they target the wrong market like they did with the ATS and XTS models. There could be a boost in sales when the new models come in, but if they are launched in a market where there is no room to grow -- or in a market where there is tough competition that the models cannot hold up against -- it might find itself in a situation where it will have to invest redesigning its models or adding more to the collection.
Based on the response that the company has achieved from refreshing its older models, it would be wise if the company focuses more on that. Although it would be playing safe by doing so, at least it would gain a boost in its sales through it and be able to maintain or even improve its bottom line. The non-unionized factories, plans of launching new models and also redesigning the current range could all lead to positive growth in the company's revenues and cutting down of costs. Even if revenues from launching new models could be short lived, the fact of the matter is that the company is making a move in the right direction.
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