GM: Cadillac Suddenly Grows Over 20%. Say What?

| About: General Motors (GM)

Summary

Cadillac has grown over 20% for three months straight. That’s a dramatic acceleration.

The growth spurt is driven by two new models - one flagship sedan and one SUV/crossover that’s $15,000 less than the sedan.

That SUV/crossover model alone is selling at a 113,000 a year rate. Think about that for a moment.

As a result of the dramatic acceleration in Cadillac’s sales growth, it is now on track for 300,000 units in 2016.

By all reasonable measure, Cadillac should be worth dramatically much more than Tesla, which is at $36 billion. Total GM is at $50 billion today.

General Motors (NYSE:GM) is now a very solidly profitable company, and it is an article of faith in the automotive industry that the most profitable part of an automaker is its luxury division. This goes for other automakers as well, such as Audi and Porsche inside the Volkswagen Group (OTCPK:VLKAY).

It is with this as a background that we must analyze the case of Cadillac suddenly growing over 20% for several months in a row.

Actually, did you even know that Cadillac has been growing over 20% to begin with? Let's look at the numbers for 2016 thus far, month by month:

2016 sales

2016

2015

change

September

30061

24609

22%

August

28228

22811

24%

July

24769

20484

21%

June

25785

22660

14%

May

22237

23119

-4%

April

19983

24369

-18%

March

22442

22229

1%

February

18096

18565

-3%

January

20625

20173

2%

Click to enlarge

As you can see in the table above, something dramatic started happening in the month of June. Until then, Cadillac had been right about flat for four out of five months, and then down 18% in one. Basically, not a good first five months of the year for Cadillac.

But look at the data series after then: 14% in June, 21% in July, 24% in August and 22% in September.

These are some of the very fastest growth numbers in the automotive industry, and it's particularly noteworthy that it's a luxury division inside a decently profitable automaker, suggesting that this is all very profitable growth. The causes of this growth spurt need to be explained.

I researched the numbers and found the undeniable answer. Cadillac launched two new models this Spring - the CT6 flagship sedan, and the XT5 crossover-SUV.

In the U.S. market, the CT6 started selling in March and the XT5 followed a month later, in April. As you may understand, it takes a couple of months until inventories of a new car are widely available among the many dealerships, and sales are naturally modest for the first two months in particular.

And this is exactly what happened here. Let's start by looking at the CT6 sedan:

CT6

2016

2015

change

% of total 2016

September

2242

0

N/A

7%

August

1870

0

N/A

7%

July

1234

0

N/A

5%

June

1516

0

N/A

6%

May

1119

0

N/A

5%

April

561

0

N/A

3%

March

395

0

N/A

2%

February

0

0

N/A

N/A

January

0

0

N/A

N/A

Click to enlarge

As you can see in the table above, sales started in March and have since grown rapidly to the point where CT6 is now constituting 7% of Cadillac's unit sales. With this being the sedan flagship, it should also help with revenue and profitability.

The base CT6 starts at $54,490, but the "Platinum" version of the CT6 starts at $84,490.

When you study the CT6's data series above, it sure seems like sales are still increasing, and could have the potential to approach 10% of Cadillac's unit volume. We will find out in the coming months.

Let's turn to the XT5, the all-new crossover/SUV:

XT5 sales

2016

2015

change

% of total 2016

September

9421

0

N/A

31%

August

8523

0

N/A

30%

July

8130

0

N/A

33%

June

6719

0

N/A

26%

May

4266

0

N/A

19%

April

381

0

N/A

2%

March

0

0

N/A

N/A

February

0

0

N/A

N/A

January

0

0

N/A

N/A

Click to enlarge

As you can see in the table above, within only a month after sales began in April, it took off like a rocket. It went to over 30% of sales after only three months in the market.

When you add the CT6 and XT5, we see that their combined sales are now just the tiniest hair below 40% of Cadillac's total. Could they reach 50% by year-end? Again, we'll find out in three months.

Think about what just happened here: All it took for Cadillac to see its growth rate surge from essentially zero, to over 20%, is for it to start delivering two all-new models. What does that tell you about this business? It's very product-cycle-driven.

Cadillac sold 212,264 vehicles during the first nine months of 2016. That would put it on track to handily exceed the 277,868 number it achieved in 2015. With monthly sales now around 30,000, we are looking at a full-year 2016 number for Cadillac at approximately 300,000.

Why are these two new products such a success?

I first drove the Cadillac CT6, in a configuration that was close to $77,000. This CT6 is a technological wonder, with more features than just about any other car in the market. It's also an extremely lightweight construction, hundreds of pounds lighter than all other luxury sedans in the market, adjusted for their sizes.

For those who wonder how the all-new Cadillac CT6 compares against some of the best sedans from Audi, Jaguar, Volvo and BMW, I addressed that in a previous article.

Basically, the Cadillac CT6 holds up very well, and is on par with the very best in the industry. However, more recently I got a chance to spend a few days in the new Cadillac that's selling even better, per the tables below - the XT5 crossover/SUV. This one starts at a more modest $39,990, although the version I drove was the $63,495 Platinum trim.

In other words, the XT5 is approximately $15,000 less than the equivalent CT6. This should immediately catch your attention. Knowing nothing else, if the price was the same, would you rather get the SUV version or the sedan? I suppose most people would pick the SUV.

But here, Cadillac makes it really easy for you: The SUV version is $15,000 less than the sedan. Small wonder that it sells more than 4x as much as the sedan.

Before you ask, or try to correct: Yes, I know perfectly well that the CT6 and XT5 are based on two different platforms. They are not technically two versions of the same car. But their 3.6 liter V6 engine is the same, and they appear to be the same overall "class" of vehicle to most consumers - one a longer sedan, and one a shorter/taller SUV/crossover.

Other than the basic value proposition, how does the XT5 drive? The answer is that the XT5 is very competitive. It sounds simple, but I could not find a single significant weak point about this car.

Sometimes, a car will have a few extraordinary strengths. For example, a Range Rover diesel will have a fantastic engine, transmission, steering and handling. However, it may have a horrible infotainment system and some other annoyances.

In the case of the Cadillac XT5, I found that there weren't many "out of the park" enthusiastic traits, but rather it managed to stay away from any potholes in the user experience. Of all the 250 or so cars I have driven in the last couple of years, I don't think I have driven one with as few weaknesses or annoyances as the Cadillac XT5.

Are the seats the best? No, Volvo XC60 has better seats. But the XT5's are good.

Is the engine the best? No, Jaguar and Range Rover has better engines. But the XT5's is good.

And the list could go on for a long time. Nobody beats the Cadillac on features and on infotainment ease-of-use. It also looks fantastic, even though that's subjective. The overall body size is very similar to many of its main competitors, so that's close enough to a draw.

All in all, it's no wonder that the annualized rate of unit sales for the Cadillac XT5 is now exceeding 113,000, based on the September 2016 data. Consider that Tesla (NASDAQ:TSLA) will most likely not sell more than 80,000 cars in 2016, and quite possibly a bit less. I'm not going to mention the (dramatic lack of) profitability. GM does not break out Cadillac's financials, but is there any doubt that Cadillac makes money on its most popular car by far?

Seriously, let's say that Tesla's fully-diluted market cap is $200 multiplied by 162 million fully-diluted (pre-merger) shares, or $36 billion. What's Cadillac's XT5 franchise worth? Considering greater unit sales and most likely a far better bottom line, more than $36 billion? What is all of Cadillac worth, seeing as the XT5 is a third of it? $100 billion?

It starts to get absurd. All of GM has a market cap of $50 billion today, and Cadillac is only a very small part of that - like below 3%.

But now you know these six things about Cadillac:

  1. Cadillac is growing over 20% every month in 3Q 2016.

  2. The XT5 and CT6 are the two new growth engines driving that number.

  3. Of those two, the XT5 is by far the bigger contributor.

  4. Part of the XT5's success is favorable pricing compared to the sedan version.

  5. The XT5 alone is on a 113,000 a year unit run-rate.

  6. Cadillac is on track to hit 300,000 unit sales this year.

For much of the next year, there's a bit of a pause in terms of very significant new Cadillac models coming to market. The major all-new vehicles will be mostly 2018-2020. There are at least three all-new SUVs being launched by Cadillac 2018-2020. Let's see how Cadillac could grow its sales in a profitable manner in the light of this cadence.

Disclosure: I am/we are short TSLA.

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 short TSLA. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers. Cadillac provided the cars for review.