Cadillac’s Global Expansion Carries Unexpected Benefits For GM

At this point, it’s clear that General Motors has been serious about turning Cadillac into a top-tier performance luxury brand for a few years now. The General’s strategy seems to consist of two primary objectives:

1. Revamp Caddy’s lineup and turn it into a true red-blooded luxury brand
2. Significantly grow Cadillac outside the United States in international markets such as China and Europe, among others

The first element is already taking place with cars like the ATS, next-gen CTS, and several future Cadillacs… but it’s the globalization plan that can place General Motors into a more advantageous position as a business, leading it to increase profit margins while decreasing risk.

It’s no secret that GM CEO Dan Akerson has made it a primary goal to accomplish both — boosting the profit margins while de-risking the business. And while it may be clear to see how selling more Cadillacs will contribute to The General’s profit margin, the de-risking part is a bit less straightforward. Here’s the deal: GM earns a pretty penny by selling full-size trucks such as the Chevy Silverado, GMC Sierra and, of course, the SUV version of the same vehicles, including the Tahoe, Suburban, Yukon, and Escalade. Unfortunately, U.S. mileage standards (CAFE) may hurt sales of large pickups in the near- to mid-term future. And this represents a considerable threat to GM as a business. So to hedge against the threat of declining truck sales (and thus declining profit), the automaker needs to make up the potential loss in profit elsewhere. Enter high-profit luxury cars. Enter Cadillac.

The Wreath and Crest brand is first being restored in the U.S. — where growth is tough to achieve due to a saturated marketplace and a lack of real market growth. Fortunately, China is next up on the list, although Cadillac faces several barriers to expansion there, with the biggest one consisting of hefty tariffs imposed by China on U.S.-built cars. The taxes can raise prices as high as 21 percent on imported autos from the U.S., placing most Cadillacs out of the competitive price range of Chinese luxury car buyers.

But as luck would have it, the U.S. has filed a complaint earlier this week with the WTO to reduce China’s tax; and just in case that doesn’t pan out, GM is already building plants that will build Cadillacs in China, for China. Either way, selling more Cadillac globally seems like a good way to protect GM’s bottom line in the face of (potentially) declining truck sales, wouldn’t you say?