Can GM's Cadillac Compete With The European Premium Brands?

| About: General Motors (GM)

Summary

GM’s record profits depend in part on the performance of its most premium brand - Cadillac.

Cadillac sales are on track to approximately match last year’s 277,868 unit number. However, the sedan models are underperforming in the mix.

I tested 10 premium sedans from Cadillac, Audi, BMW, Jaguar and Volvo in the $34,000-$77,000 range.

All of these cars are tightly grouped overall. I preferred the Audi A4 and Volvo S90 as the most flawless sedans.

The Cadillac CT6 is near the top contenders, with the most features and an easy-to-learn infotainment system.

Founded in 1902, Cadillac (General Motors (NYSE:GM)) is one of the oldest auto brands in the world, named by founder Henry Leland for the French explorer who founded Detroit in 1701. Cadillac had its breakout year in 1912 when it pioneered the industry's first electric starter. No longer did you need to hand-crank the engine to start - a heavy and dangerous procedure.

Under the leadership of Charles Kettering (here), other innovations followed. Freon-based air conditioning and electric lighting come to mind. For decades to come, Cadillac was simply "The Standard of The World." This is the era from which "This is the Cadillac of… (fill in the blank)" derives.

In the 1950s, Cadillac led the large-tailfin design movement, and the cars continued to be very large throughout the 1960s and into the 1970s. However, some time in the 1970s, the brand lost its way. Mercedes (OTCPK:DDAIY) and BMW (BAMXY) (OTCPK:BAMXF) started producing far better-performing premium cars.

By the time we got to the 1990s, Audi (OTCPK:AUDVF) joined the premium automotive segment leadership along with Lexus and Infiniti. Most recently, Volvo (OTCPK:VOLVY) and Jaguar (NYSE:TTM) have undergone a dramatic shift, and Hyundai (OTC:HYMPY) recently formed a premium car division called "Genesis."

Cadillac started its own transformation - along the lines of subsequent Jaguar and Volvo brand revivals - with the 2003 CTS, and now sells only one "relative relic" in its model range, the Escalade SUV. Interestingly, the Escalade is also Cadillac's biggest sales success on an overall basis - transactions prices, relative lack of discounting and recent growth.

As we can see in the table below, Cadillac's Escalade sales were up 4% year-over-year in the US:

US sales

1H 2016

1H 2015

y/y growth

Escalade

10464

9910

6%

Escalade ESV

6553

6401

2%

17017

16311

4%

Click to enlarge

As you can see in the table above, the two versions of the Escalade - the short wheelbase one and the ESV long wheelbase version - are not too far apart.

Cadillac does sell the Escalade abroad as well:

Global sales

1H 2016

1H 2015

Escalade (All)

20383

19462

5%

Click to enlarge

As you can see in the table above, the vast majority of Escalade sales come from the US. That said, international growth was stronger abroad than in the US, bumping the overall year-over-year growth rate from 4% to 5%.

SUVs are simply not Cadillac's problem. Cadillac's problems are the non-SUVs, mostly four-door sedans. They are the reason Cadillac was down 9.5% overall in the US market for the first half of 2016 and down 1.5% on a global basis.

In order to rectify this weak overall sales number, Cadillac is developing 11 (yes, eleven) new models over the next five years according to this video interview with CEO Johan de Nysschen here. You can see some of these new models described on this website here.

Considering that Cadillac was going through two of its most important product transitions in the first half of 2016 - the XT5 and the CT6 - a slump in sales was to some extent anticipated and should improve in the second half of 2016. Still, all those 11 other models are mostly years away - 2019-2020 being the big ones - and we need to consider the "here and now" of Cadillac's competitiveness as well.

Cadillac vs. BMW, Jaguar, Audi and Volvo: Comparing the latest

Over the last few months, I was able to test 10 new premium sedans to see how Cadillac's sedans stack up against some of its main competitors. Not all vehicles compared are in the same size-class. Some are diesel, some are gasoline and some are hybrid. Here is the list:

BMW 3-series: 340 (gasoline), 328 (diesel), 330e (hybrid)

Jaguar XE: 2.0 diesel and 3.0 liter gasoline

Jaguar XF: 3.0 liter gasoline

Volvo S90: 2.0 liter gasoline

Audi A4: 2.0 liter gasoline

Cadillac CT6: 3.6 liter gasoline

Cadillac ATS: 2.0 liter gasoline

The prices also ranged widely from the mid-$30,000 range in terms of base price to $77,000 for the one with the highest level of equipment (Cadillac CT6). Some were equipped with all-wheel drive, some with manual gearbox, and there were other differences.

Let's start with infotainment.

The BMW cars have very little functionality to offer. There is no Android (NASDAQ:GOOG) (NASDAQ:GOOGL) Auto or Apple (NASDAQ:AAPL) CarPlay. However, just navigating between the radio channels and smartphone inputs is extremely easy thanks to the industry's best scroll wheel.

Jaguar has the oddest configuration. The base system is the worst of them all, but starting this Summer, there is a new upgraded system available as an option. It is bundled with some other features and costs close to $2,000 as an option package. It is very much worth it, as it offers improved functionality and customizability - but no Android Auto or Apple CarPlay.

Audi and Cadillac have one thing in common: Apple CarPlay and Android Auto are available right now. The systems have absolutely every feature imaginable. However, they differ in the way you operate them. Cadillac has a simple-to-use touchscreen. Audi has a complicated battery of knobs and buttons, which takes a few days to get used to.

Volvo is sort of like the Cadillac, except it has a much better and larger screen. However, Android Auto is not yet available - but it will be available later this year as a software update. Certainly at that point, Volvo will be in contention for the very best system.

Engines: All over the map

My favorite engine is Jaguar's new four-cylinder diesel. It's super-smooth and has all the power most people would want. Fuel economy has not yet been rated, but believe most people will achieve close to 40 MPG in real-world driving, based on my preliminary test.

BMW's four cylinder diesel is a lot noisier. It's like a tractor, but in a good way. Does that make it worse than the Jaguar? Maybe, maybe not. I preferred the Jaguar.

The difference between the gasoline engines are minimal. The Jaguar V6 was of course better, but the four cylinder engines from Volvo, Audi and Cadillac are all so good and similar these days that it's hard to coin a winner or loser in this group. BMW was the only one with a hybrid variant that I tested, and of course that's a premium offering.

Seat comfort: These are mostly excellent

In terms of seating position and related, I rank them as follows: Volvo, BMW, Audi, Cadillac and Jaguar. It's a very tight spacing there with even the last one in the group being extremely close to as good as the best one. I don't think anyone will pick a car based on any difference here.

Overall, Volvo, BMW and Audi have the best seating position, including the best space for the foot pedals.

Interior design

Volvo and Audi tie for the most beautiful and functional interior design, but they have very different styles. Volvo is spartan, whereas Audi is filled with buttons. It's a matter of taste than objectivity there. They are the best.

BMW is a classic design that's very conservative. It is a safe choice.

Cadillac and Jaguar are not bad, but their interiors don't look as elegant and sophisticated as the others. Still, they are very good - but they are faced with superb competition.

Ease-of-use

Some interfaces are very good, but only after you have spent a few days learning them. Audi and BMW fall into this category.

Volvo and Jaguar are much easier to learn, but their interfaces are not as great even after a few days.

Cadillac is the one that is extremely easy to learn and also very good over time. It's not a pretty one, but it doesn't get any easier to use - even from the first hour.

Overall verdict

BMW: The biggest problem is the high cost of optional equipment, in combination with lacking Android Auto and Apple CarPlay. BMW excels in terms of seating position and driving dynamics as well as offering the widest range of powertrains.

Jaguar: The XE is essentially a copy of the BMW 3-series, except with a totally different infotainment system. The chief rationale for buying the Jaguar XE should be its new and truly class-leading diesel engine, which is a marvel of smoothness and efficiency.

Volvo: The new Volvo S90 is extraordinarily beautiful, comfortable and well-balanced. What's there not to like? In the U.S., we won't get a diesel engine, and the plug-in hybrid will be more expensive when it arrives in early 2017. Still, even from the beginning, as it arrives in U.S. dealerships this month, it is very close to being tied for the best sedan I've driven.

Cadillac: The CT6 is an amazing performer with the only major odd aspect being its high seating position, which is noticeably different from the Germans. It's not as sporty, where you would sit deep down inside a bucket. Other than that, this is a most competitive car with an abundance of features, many of which cannot be found in any competitor right now.

The smaller Cadillac ATS is, like the Jaguar XE, an almost perfect copy of the BMW 3-series. It has a superior infotainment system, but unlike the Jaguar it lacks a diesel. Make of that what you wish - it's up to your priorities, diesel vs. the best infotainment system.

Audi: The all-new A4 is an elegant techno-design inside and out. I cannot find a meaningful weak spot with this car. The car may not feel as "emotional" as a BMW 3-series and certainly not like the spa-serene Volvo, but it also avoids seemingly every conceivable annoying pothole, figuratively speaking. I wish it were available with a diesel in the U.S.

Summary: A close field.

There is no obvious major winner or loser among these premium sedans. Reasonably equipped, they will be mostly between $50,000 and $75,000. BMW, Cadillac and Volvo offer or will offer plug-in hybrids. BMW and Jaguar offer diesels right now.

As a result, I hesitate to rank these cars because they are so close to each other. I could make case for every one of them, depending on the buyer's needs and preferences. Do you emphasize the infotainment system, or do you need a diesel? Right now, you can't get the best of those in one car.

That said, I think Volvo S90 and Audi A4 rise to the top, followed by the Cadillac CT6. The BMWs, Jaguars and smaller Cadillac ATS are very, very close.

I encourage the buyer to set those priorities beforehand and then spend time in the car figuring out what annoys the driver - seat, seating position, ergonomics and ease of use. All of these cars have the requisite quality, handling and smoothly performing gasoline engine that are all excellent in terms of what the average user will be able to notice.

Conclusion: Cadillac is back

What this sedan comparison shows is that Cadillac is a serious contender among the top premium sedans in the $34,000-$77,000 range. It is not the obvious winner, but it's also not a laggard. It's got some advantages, and falls slightly short on some metrics. All in all, it's a very competitive segment, and Cadillac is in the race near the top.

All in all, in 2016, Cadillac is on track to approximately match its 2015 unit sales number of 277,868 vehicles (here). Considering improved profitability per car, that would contribute positively to GM's already stellar profitability.

Disclosure: I am/we are long GOOGL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: At the time of submitting this article for publication, the author was long GOOGL. However, positions can change at any time. The author regularly attends product launch events, press conferences and equivalent, hosted by most major automakers, including those mentioned in this article. The automakers provides the cars for review.