General Motors’ prestige luxury brand, Cadillac, is looking to reach an 11 percent operating margin in 10 years.
“We’ve got about a 10-year runway to get this brand to where it is making the kind of overall contributions to General Motors profitability that Mary (to Mary Barra, CEO of General Motors) expects from it,” Cadillac President Johan de Nysschen told Reuters at the Beijing auto show last week.
de Nysschen didn’t provide the increments in which Cadillac plans to achieve those targets before the 10-year target. However, it is targeting to increase its global sales to 500,000 units per year by the year 2020, roughly twice the amount of vehicles it sold globally in calendar year 2015. This year alone, the brand is targeting a 25 percent growth in sales volume to more than 100,000 units in China.
Comments
Volume does not equate to profit margin. Generally to increase margin a company has to reduce costs and/or increase selling price. The selling price part of the equation can be attained if Cadillac moves it’s products higher up the luxury ladder.
They would need to greenlight products like CT8, Escalade variants + a halo vehicle or two.
Volume equates to revenue and (if done right) increases in income/profit.
The addition of new models, especially crossovers, should take care of volume, profit, and associated margins.
Volume is not the only path to margin. Look at Porshe which has one of the top profit margins in the entire industry and they sell ‘only’ about 200K units per year worldwide.
To get margins you do not have to have BMW like volumes.
I’m not/wasn’t disagreeing with you since you are correct as it relates to margins not necessitating sales volume. The problem, though, is that margins at low volumes don’t really do much.
Imagine you have an incredibly high margin of, say, 25%. And imagine you are Porsche and you sell the 1,000 cars you usually sell a month in the U.S. at an ATP of $100,000. That equates to a net contribution margin of $25 million, right?
($25,000 margin per car x 1,000 cars).
Then, imagine, you are Cadillac running a margin of 11% selling 25,000 cars a month at an ATP of, say, $65,000. That equates to a net contribution margin of $178 million.
($7,500 margin per car x 25,000 cars).
Cadillac ends up making way more profit (and revenue) thanks to higher volume. And isn’t that ultimately the goal?
I agree. I also feel the advertising and or marketing of the car doesn’t show the elegance of the car. I can remember when Cadillac meant elegance and style of success. They featured beautiful diamonds and fashion with the cars.
I should add that it also depends how you calculate margin. If you start factoring in break-even (fixed and variable costs), then the more you sell, the higher your contribution margin becomes.
That’s economies of scale at play, and Cadillac needs to desperately grow its economies of scale by increasing the top-line of its business, namely revenue as a result of sales volume.
Well put. Increased volumes help cover the fixed costs, like the overhead of being in NY.
Hey, speaking of profit, and connecting with the millennial market, and the line of bespoke Cadillac fashion-wear that was part of the brand’s “unwavering commitment to the fashion community …” — well, there wasn’t much (like NO mention) of the fact that the outfit they hooked up with (GILT) … well, read for yourself:
“NEW YORK — Once emblematic of New York technology and innovation, Gilt Groupe has agreed to be acquired by Hudson’s Bay Company for a quarter of its private valuation.” That was earlier this year.
I don’t remember Cadillac, or fashion/trend leader Melody Lee or Uwe. bringing it to the media’s attention. Not their core business by a long shot, but you wonder what the whole men’s fashion week thing cost, using a(n apparently desperate) fashion outlet to showcase the Cadillac apparel line. And a helicopter flying an XT5 around Manhattan after getting clearance from the FAA and the Coast Guard, and filming with 44 cameras. Money well spent!!
Me, I just chalk it up to another misjudgment that makes you wonder: exactly what is Cadillac doing right these days?
So, Glit sold for 75% off. Kinda like the ELR.
If they only sold the hi performance version of their cars then their margins would be huge! But normal people would be left out and that would make them sad, and that just doesn’t work in this day and age! Sad if you ask me!
The Future is not in the past, or in some special marketing plan or in selling more performance.
The Future is selling compelling new products that people want. The increase in volume will come naturally with the right product selections.
The areas we will see the growth and profits will be in the SUV and CUV segments. These are the areas all Luxury makers are now focusing. Sure many offer various sedans and some low volume coupe and convertible models but they all are getting into many variations of CUV models as this is the fastest growing and one of the most profitable segments there are. When you see Porsche and Bentley go to SUV and CUV models you know that is where the segment is and where the money in minted.
Cadillac has large plans for these models already and we will start to see them in the next couple years. They will build their new image on these models with higher quality and compelling styling. Todays market is what have you done lately not what did you do 70 years ago.
These models are not only connecting with the older people but also many younger people as they are very versatile, comfortable and today are becoming very image/style conscious.
Cadillac will continue to improve and complete their car lines but the future is in CUV and SUV models.
I see the CUE and SUV as a perfect reset button for Cadillac as nearly all makers are new to this segment. This give Cadillac a chance to impress new people with out preconceived notions of their past. You can not compare these models to the poor models they made as they are totally different. Also they can not be compared to the long lines of the German cars as they are fairly new to this segment too.
GM has the ability to take these platforms and make them a true Cadillac but be very efficient with the use of GM platforms. I expect to see more changes to the point they will not be reflective of other GM models.
We will still see performance models but they alone will not fix Cadillac. Also the Marketing will continue to evolve as each new model arrives. The Dare program is not just one slogan that hangs around and get stale. It will change as Cadillac changes. I expect at some point they will Dare the Customer to drive and compare their products when all the updates of the present administration are in place.
You dare them to compare now and they will not be as impressed as they will with the new updated and replaced models. You want to dare them on the old Cue or the new Cue? The old poor dash or the new improved dash? You have to have the product in place to market it. You tell them the ATS is Gods gift to the auto world and then you change it to the CT4 next year what kind of message does that send?
This is do able and only tempered by economic and global situations you can not predict. A lot can happen and happen fast with the China’s, Iran’s , N Korea, Syria, Euro Eco Union, Saudi and Russia’s of the world.
It’s good for a company to have a goal , but to reach the 500,000 mark with the products they have now is going to be tough . The company is in a self imposed hiatus until 2020 . Cadillac has only two SUV’s , the Escalade with sales that are flat-lined and the new XT5 . The XT5 has to sell better than the SRX and that is achievable and the CT6 will surely help in the sales figures with a freshening of the CTS to help bolster sales . To help GM , Cadillacs ATP’s need to grow even more but does nothing to sell 500,000 units world wide .
The 10 year runway is 5 years after the hiatus with several new models coming with JDN’s influence . That is really what the Corporation is gambling on , 2020 – 2025 . Alot can happen that far out , the economy’s of other nations which are slowing right now and the home market that is SUV/CUV crazy .
Atleast Cadillac is not looking at the short term profit like in the past , however it is JDN and his team to create the right product for the time and add to the health of GM .
I think the XT5 will help the transaction prices increase with the Platinum model added to the mix, include the CT6 also. Don’t know how much of a volume the Platinum will generate but will make Cadillac look good on paper.
It will be interesting of how far volume will go with the XT5, same as for CT6.
Same target as Tesla @ 500,000. Who will do it?
Is that 11% gross, or net?
I only ask because BMW’s been operating at 20.53% gross profit for the past five years.
(Just asking for comparison purposes.)
It’d be nice if Cadillac’s margin, gross or net, was as transparent for the past five years.
Or what the ramp-up to 11% will look like over the next ten years …