Amid all the drama surrounding GM, every so often I see something that strikes me a smart. In Geneva, Cadillac announced it’s aspirations for Europe (WSJ 3/8/10 Sub required, NYT 3/2/10).
After a number of high profile failures to enter the European market in a big way, the folks at Cadillac want to be a niche player and are willing to accept the lower volumes that go along with such a strategy. By keeping volumes low, and presumably margins high, they expect that they can be profitable from year 1.
I think this strategy is sound and will succeed. Cadillac’s current design language is unique and appealing. There has always been a segment of the automotive market that is interested in something different and Europe is no different than the United States in this regard. In Europe where Mercedes-Benzes, Audis and BMWs are common and cover a multitude of uses including taxis, rental cars, executive cars and the vehicles of choice for captains of industry, there is an opportunity for something “different.”
For example, in a part of the world where station wagons (called “Estates” and sometimes “Avants”) are enormously popular, Cadillac has a terrific entry in the CTS Sport Wagon. Ironically, in the U.S. the CTS Sports Wagon is expected to be a niche product at best, I bet it could be the brand’s best seller in Europe.
Here’s the challenge for Cadillac in Europe. Quality. European luxury car buyers have become accustomed to a very high quality standard and expect it to be met. If Cadillac can meet this expectation, then I think they will be a successful niche brand and could probably expect measured year over year growth. Long-term, they will need to figure out how to offer a diesel, but initially I think they can get the ball rolling without one.
The industry needs more niche brands and I’ll bet Cadillac can have a very nice piece of business in Europe, as long as they keep their volume aspirations in check. Ultimately, that may be the biggest challenge of all.
Please comment below, I’d love to know what you think…
Tags: Audi, BMW, Cadillac, Diesel, marketing, Mercedes Benz, Strategy
Julian, thanks so much for weighing in so thoughtfully. I agree with virtually every point you make which is why I think Cadillac must keep its volume aspirations in check. I would hope that engines from Opel would be a possibility (although I have no idea if technically that would be difficult/expensive). The distribution network is critical and the press I’ve read indicates that it is in place, if not, then that’s a whole different kettle of fish.
Cadillac will struggle in Europe. Sure, their designs are now very compelling, but they face huge challenges on a number of fronts:
– Drivetrains: With EU emmissions regulations, over 80% of BMW 3 Series sold in Europe have engine displacements of 2L or less. This is similar for Audi A4 and Merc C Class. To have appropriate drivetrains to compete in Europe requires massive investment, which requires high sales volumes to justify. I don’t think The General has the appetite for that scale of appetite for uncertain investment.
– A legacy of failure in Europe: Customers who have previously bought Caddy’s in Europe have been let down a number of times. Poor after-sales service, terrible residuals and dealers that are here today, gone tomorrow means that there is very little reason to trust again.
– Distribution, distribution, distribution: Setting up a dealer network in Europe requires either a huge amount of manufacturer cash, or a promising business case to get retail partners to invest. They will struggle on both fronts here. Ask yourself a question – with your OWN hard-earned cash, would you open a Cadillac dealer in Europe. I don’t think so.
The product is unrecognisably better now and yes, the Cadillac brand does conjure up some nostalgic sentiment of bygone glory, but with European competitors at the top of their game (and continuing to improve), Cadillac success in Europe is a long shot – at very best.