It’s no secret that Cadillac is booming in China. Sales jumped 45.9 percent to 116,406 units in 2016, with China being the luxury brand’s only growth market for the year. That impressive growth rate is showing no signs of slowing down: during the first eight months of 2016, sales of the luxury brand have increased 66.5 percent. Suffice to say, Cadillac is hot in the Land of the Red Dragon… but why?
Sales Summary - August 2017 - Cadillac - Global
| Market | August 2017 / August 2016 | August 2017 | August 2016 | YTD 2016 / YTD 2015 | YTD 2017 | YTD 2016 |
|---|---|---|---|---|---|---|
| Total | +13.5% | 32,084 | 28,256 | +21.6% | 221,566 | 182,212 |
| United States | -8.1% | 15,016 | 16,346 | -5.4% | 98,316 | 103,918 |
| China | +51.4% | 15,014 | 9,914 | +66.5% | 107,377 | 64,489 |
| Canada | +9.9% | 1,275 | 1,160 | +18.9% | 8,905 | 7,487 |
| ROW | -6.8% | 779 | 836 | +10.3% | 6,968 | 6,318 |
As initially reported by Cadillac Society, the biggest reason for Cadillac’s growth in the world’s biggest automotive market is actually quite simple: Cadillacs have become much more affordable in China.
Since the 2012-2014 timeframe, prices on new Cadillac models have decreased roughly 30 percent, according to a pricing analysis performed by GM Authority. The decrease in prices is the result of General Motors assembling the majority of the Cadillac lineup locally in China, rather than importing the vehicles into the country from external markets. With the exception of one model (the Escalade), all Cadillac vehicles currently sold in China are made there.
That is a significant change compared to the 2010-2014 timeframe, when only one model — a stretched Cadillac STS called SLS — was assembled in China, while other vehicles were imported from North America. Imported vehicles are subjected to a hefty import tariff by China, thereby making them significantly more expensive and therefore, uncompetitive, when compared to locally-produced vehicles.
As of September 2017, Cadillac’s lineup in China consists of five vehicles:
- CT6/CT6 PHEV: produced at the new Cadillac China plant (Cadillac Jinqiao)
- XT5: produced at the new Cadillac China plant (Cadillac Jinqiao)
- XTS: produced at GM China Shenyang Norsom plant
- ATS-L: produced at GM China Shenyang Norsom plant
- Escalade: imported from the GM Arlington factory in Texas, USA (subject to Chinese import tariff)
By producing the majority of its vehicles in China, Cadillac is able to avoid the country’s hefty vehicle import tax and, as a result, price its vehicles competitively in the marketplace. That wasn’t the case in years past, as Cadillacs sold in China were significantly more expensive than the competition (and even more expensive than they cost in the United States), making the vehicles not attractive purely from a pricing standpoint. Of course, having good marketing and other supporting operations helps as well, but not nearly as much as having a car that’s adequately priced to its segment and market.
2017 Cadillac Escalade
2017 Cadillac CT6
2016 Cadillac ATS-L
2017 Cadillac XT5
Cadillac XTS
Comments
Instead of “The imported vehicles were subjected to a hefty import tariff, thereby making them significantly more expensive (and therefore, uncompetitive) when compared to other vehicles in their respective segments.”
I would write:
“Imported vehicles _are_ subjected to a hefty import tariff, thereby making them significantly more expensive (and therefore, uncompetitive) when compared to locally produced vehicles.”
This applies to all automobile imports in China.
China is using protective tariffs in oprder to build a national industry the same way as the USA did after the Civil War in order to become an industrial power by itself instead of just supplying raw materials as cotton to the British industry and importing industrial goods, as is typical for a colonial situation.
Yes, right now we have people unable to cross borders but money can cross borders at will (well, if you have your own bank, anyway, as individuals have to pay transfer rates that gouge the exchange).
Exactly the opposite to what John Kenneth Galbraith told us to avoid 50 years ago.
Keynes – correct, but stagflation just needs a little direct-regulation of CEO pay and shareholder dividend, that’s all
Friedman – failed, on every measure, proof = GFC
Since then we’ve learned the joys of free trade, and supply China with a bounty of raw material.
Free trade killed Britain as it simultaneously built up Germany and the US. We refuse to learn from history. Also, income stagnation is only possible with cheap imports.
Pretty hard to turn around when everything you buy is made in Asia. And add to this food chemicals, pharmaceuticals, food products and almost all electrical and electronic products in any manufacturing.
Imagine to power China has over the US. An embargo would shut down the majority of businesses in the US including a large part of the food industry. That’s real power. Big guns and military junk is really a big joke by the military complex to give the illusion of safety that can never be used against a real opponent which isn’t a third world country. So it will never happen.
Free trade is not free trade when they implement tariffs and we (the USA) don’t, when they have lax pollution and worker safety regulations and we don’t.
At the very least, the USA should put tariffs on other countries that put tariffs on our goods. The US is still the world’s biggest market (by economic buying power) and if they want access to our market, then we should have access to theirs.
That being said, the average American exports 3x as much as the average Chinese person, that’s based on stated export worth divided by population. It’s not like we are getting crushed right now. But the Chinese should not have the right to export so much to us while denying us access to their markets, on a level playing field.
Yes the US implemented tariffs (and this was one of the causes of the Civil War), but that doesn’t mean we have to stand for it now. The Chinese communists take our technology and don’t pay us for it, they think only physical items should be paid for, and even then they don’t want free trade. US companies and citizens can’t own property or assets in China, but they can own all of that here. And if you think you can own stock in a Chinese company, think again and read the fine print – your “ownership” rights have no legal backing.
JDN was very stupid to move Infiniti’s global HQ from Tokyo to Hong Kong. Nothing against the Chinese people or Hong Kong, but a Japanese company should not be HQ’d in another country, especially a country with an untrustworthy government like the Chinese communists.
I am all for free trade, and it does work, when actually free. But what you are seeing with communist China today is not free trade. And no I didn’t vote for Trump (or Hillary), but it’s about time the US used the power of their large market to stand up to trade and ownership abuses by the PRC.
You don’t understand the term “free trade”. The US does not have a free trade agreement with China. The US trades with China. The TPP agreement, which the US lead negotiating, was to be the agreement to counter China and give the US more competitive power in the world. But Trump pulled out. And now, in the ultimate irony, China may join TPP with all the other Asian countries leaving the US out in the cold. That’s level 10 stupidity and without trade, the American standard of living will continue to decline. Third world America?
Jack, you are correct. Very few people understood that the TPP would have been a tremendous benefit for the US, not a detriment. Interestingly, Bernie was also vehemently opposed to the pact. Blinders on both sides of the political spectrum, unfortunately.
Jack Wood, I get a little tired of people saying “You don’t understand X”, to me or anyone else here, without any support for that view. In fact I do know what the term “free trade” means, and I do know that the US does not have a free trade agreement with China (although the US and China are both part of the WTO). I would think that if you actually read my statement above, you would realize that I did not think the US and China had a free trade agreement.
As far as TPP, on paper that looked good and perhaps it will still be worked out with US participation. If not, the US will by no means be left out in the cold. TPP was supported by Obama, opposed by Bernie Sanders, opposed by Trump (who apparently thought that China was going to be part of it, per his debate performance). It was originally supported by HIllary Clinton, but then she claimed she was against it, due to details she didn’t like (and didn’t explain). Since the TPP details were not available to the general public (but politicians like HIllary were able to look at them), who knows what might be good or bad about it. Hillary being Hillary probably only opposed TPP because Sanders was gaining momentum, but it’s theoretically possible that something was added to TPP that she had reason not to like.
The bottom line though is that the USA is such a big market, we can make our own trade agreements with other countries. Or if we wish to join TPP as a block at some point in the future, there is no way they are going to tell us they don’t want us. So there’s no real rush to join TPP if it isn’t right.
I do overall though favor free trade, as it is clearly a big factor in the increased standard of living for the US and people around the world. As Marco Rubio pointed out, the US has only 5% of the world’s population, so it wouldn’t make sense to trade only with ourselves. Or another way to look at it would be to imagine if every state of the US refused to trade with the other states – every state producing its own food, clothing, cars, computers, smart phones, etc. – how inefficient that would be, though actually it could not truly be done at all.
So yes, trade is important to our standard of living. But we also don’t have to accept a bad trade deal, such as they erect tariffs to specific products and we just accept everything that comes our way. Or that allows them to steal our intellectual property without compensation. Or that allows them to own property here, but we can’t own property there, etc.
The US is fortunate in having the size to make trade agreements that are truly free trade. China and other countries want access to our markets so badly, that they won’t “leave us out in the cold” unless we accept whatever deal is offered. We don’t have to be wimps about trade any more.
That being said, I don’t think Trump has a very good handle on trade agreements, because he keeps telling us that NAFTA is so bad, yet he never explains why he thinks it’s bad or what he would change about it. I could name a few things that could be modified (like Canadian dairy protection), but Trump merely outright says it’s a bad deal because Mexico sells us more than we sell to them. What he doesn’t mention is that the US sells more to Brazil than vice versa. Heck my dentist sells more to me than he buys from me – is that the result of a bad trade agreement? In any case though, the China situation is much more clear as to why we are getting a bad deal, so that’s something I hope will be addressed.
That is a good distinction, Observer7. We have edited the story taking into account your suggestion so as to communicate this point more with more clarity.
Cheers!
Alex
Alex pointed out earlier, the Cadillac margins in China aren’t as generous as they are in the US.
It’s great that sales are up.
Just wondering how many Chinese Cadillacs they need to sell to equal the margins GM gets in the US?
150 Chinese = 100 US? Higher? Lower?
Or is it fuzzier than that?
Carl, I don’t think it’s as simple as comparing margins. Companies look at a basket of performance & fiscal measures, eg. EBITDA, profit, dividends, ROI etc.
If you took the Chinese margin (for example) and compared that with the level of investment (GM & SAIC money) in Chinese facilities, you would probably find they were similar to US investment ROI, or better. Remember the cost of infrastructure and personnel costs are degrees cheaper (lower costs & standards of living in China) than the same capital & personnel investment in the US.
You really need to dig into Annual Reports to get these real measures. I think also, the SAIC/GM costs might be partially (or grossly) obscured because the SAIC investment is under written by the Chinese Govt., but I could be wrong.
fleetman – the margins are part of the overall financial equation, and the overall equation is that GM makes significantly less in China than it does in North America. Specifically for the 2016 calendar year:
GM North America: $12 billion profit on revenue of $119 billion
GMIO (mostly China): $1.1 billion profit on revenue of $11.7 billion
The EBIT/DA numbers paint the same picture… just with slightly yet proportionally higher figures for both.
So even with the higher sales volume and lower costs in China, it’s still not all that attractive… essentially 10 times smaller than GMNA.
Will the new XT4 be assembled in China, too? Will it be a plug-in hybrids as the CT6? Will China also have the hybrid XT5?
“Will the new XT4 be assembled in China, too?”
Yes, I see no reason to think that it won’t be.
“Will it be a plug-in hybrids as the CT6?”
Most likely, yes.
“Will China also have the hybrid XT5?”
Unknown at this point. Maybe. But if an electrified XT5 does end up coming to market, then it will likely be available in other markets served by Cadillac as well.
There is also significant discounting in some cases. 15-20% discounts not unusual according to an unnamed dealer in Beijing. Just like Buick, future Cadillacs will be heavily influenced by “what sells in China”. The Escalade will of course be the exception, it’s always going to sell better here.
Not exactly the case regarding future Cadillacs being “heavily influenced by what sells in China.” Just like it’s not the case for BMW, Audi, Mercedes, or other luxury automotive brands. Why? Because while the Chinese sales volume is noteworthy, its accounts for very little profit.
The reality is that future Cadillacs will take the Chinese market into consideration. But make no mistake: they won’t be “heavily” influenced in the slightest. Instead, Cadillac will make cars that are desired universally — whether that be in the USA, China, Europe, Russia, Australia, or South America. A worldwide brand making cars for the world.
Perhaps in China there is an appreciation of the many fine qualities of the current crop of Cadillacs, untainted by the relentless negativity that attends American considerations of the marque.
Frankly, lots of Americans do a lot of empty complaining about Cadillac, and by and large those who are complaining the most about Cadillac aren’t luxury consumers in the first place. It’s like hearing from someone who doesn’t drink try to dictate to you what a good champagne is based on a novel they read 20 years ago.
For them, they just latch onto weak and distant ideas of what Cadillac was 30 to 40 years ago, and uphold that as some kind of consumer behavior that has never changed. When they don’t see the current range of Cadillac upholding those ideals, they loose their minds and complain, at length, on the internet (or on GMA).
New Cadillacs are designed for China including larger side mirrors, back seats and wheelbases to name a few. Keep in mind that the Chinese partner benefits from 50% of those sales.
“New Cadillacs are designed for China including larger side mirrors, back seats and wheelbases to name a few.”
Nothing could be farther from the truth. The cars you are describing are designed for global markets and the qualities you mention are valued by consumers universally.
Nearly all of the above, but it also has to do with China’s pending move, too, eliminate large polluting vehicles, so you better get one while you can. China has declared that in the very near future, most new vehicles will have to be electric.
China looks at ending sales of gasoline cars
China’s industry ministry is developing a timetable to end production and sale of traditional fuel cars, state media on Sunday cited a Cabinet official as saying.
The reports gave no possible target date, but Beijing is stepping up pressure on automakers to accelerate development of electrics.
https://www.cnbc.com/2017/09/10/china-looks-at-ending-sales-of-gasoline-cars.html
With China leading the world to electrification and having the world’s largest auto market, electrification will happen with or without the US. And because all the growth for US companies is in China, they will follow.
China _ France and a number of other countries have declared the end of if ICE powered private vehicles, and will no doubt step up the timetable that is now a dictum or under consideration.
Probably a bit too late, but we have to try to end the impact that ICE power plants have on the environment. It will also have to be accompanied by restrictions on existing ICE vehicles given the life span of modern vehicles. Those restrictions will probably be fees for using an ICE powered vehicle through annual state and federal fees and/or a carbon tax per mile, and a Gas Guzzler style tax added to the new vehicle cost and in addition, a continuing annual combination of those fees/taxes.
China is in the drivers seat because it essentially controls one of the necessary minerals needed for battery construction and controls other resources around the world needed for Lithium Ion battery construction.
An extensive review of the whole lithium ion supply chain, from mine
[PDF]An extensive review of the whole lithium ion supply chain, from mine
https://s1.q4cdn.com/…/161214-Benchmark-approved-for-distribution-Lithium-ion-s…
NeW globAl litHium ioN bAttery CApACity uNder CoNstruCtioN. Source: Benchmark Mineral Intelligence … with more than 70% of new demand in China …
If it were not for big sales in China, Cadillac would be in trouble . Chinese sales are what is helping pay the bills so Cadillac can re-invent itself and the question is going to be if it is going to work to help sales in the U.S..
There was a good article in the New York Times two days ago about how GM is being helped by the high sales rate of Cadillac in China . Domestically Cadillac sold less than 200,00 vehicles for the 2017 MY .
In China, Cadillac has a good reputation / image where here in the States Cadillac is struggling . As times goes on more of Cadillacs cars are going to be designed for that market and hoping that we like what they are producing .
And with A&S going away we are going to see a softer design which is where JDN is taking Cadillac . All of this is what the man is quoted as saying in the NYT’s article .
So just why did he take the home of Cadillac to New York when he is basically building his cars for Chinese tastes . He may as well moved to Peking .
China is becoming a big powerhouse and their economy will eclipse ours in the next few years . So now that the Chinese have gained so much knowledge in the manufacturing of automobiles it is just a matter of time that their vehicles will start to flow into our country and decimate our auto industry . GM , Ford and FCA will continue to put their names on autos , bbut the biggest difference is that the will be produced in China as the companies continue to make profits for their top CEO’s and stockholders who could care less where the cars are built as long as their portfolios / stock continue to grow in price .
GM isn’t in the business of producing cars anymore but to make money , that is the goal .
Zach, yes GM is the business of making money by whatever means possible. The problem (for GM) is that after they teach the Chinese all of their technological secrets in making cars, if the US allows China to export cars without tariffs, eventually they will be coming with Chinese nameplates and all-Chinese profits. This has already happened many times, with Chinese companies building almost exact replicas of car brands that had once been built under the foreign-brand name in the exact same Chinese factories. And there’s nothing under Chinese law that the foreign company can do about it. China even has a car brand “Chery” which is a clear ripoff of “Chevy”.
I wouldn’t expect GM to turn down the short-term profit opportunity in China, but long-term the foreign car companies are all hurting themselves by playing the game on China’s terms. It’s up to governments such as the US to at least insist that if China is going to put a stiff tariff on cars, then we’ll put stiff tariffs on their products across the board. Yes that would hurt the American consumer, but China would almost certainly react by alleviating their tariffs on US-made cars. GM might not be beholden to ensuring good jobs for Americans, but the US government at least can do its part to open free trade where it is now closed by China.
“If it were not for big sales in China, Cadillac would be in trouble; Chinese sales are what is helping pay the bills”…
This is completely incorrect.
Even with the sales gains by Cadillac in China, the market accounts for a tiny portion of GM’s global profits.
To wit, in the first quarter of 2017, GM reported the following:
– GM North America: $3.4 billion EBIT-adjsuted on revenue of $29.4 billion
– GMIO (which includes China, which accounts for 95% of GMIO financial results): $300 million EBIT-adjusted on revenue of $2.5 billion
This sort of pattern can be seen in all of GM’s earnings, whether quarterly or annually, for the last decade.
So no, China does not pay the bills. It adds sales volume and a tiny bit of revenue but very little profit.
Make no mistake: the United States was, is and will continue to be the biggest profit center for GM and for Cadillac. The next best opportunity from a financial standpoint is Europe, but Cadillac’s full-scale entry into the market is still a few years out and its the brand will be fighting an uphill battle in that market against the entrenched German and Italian brands.
Alex Luft, actually China is quite a large profit center for GM. You have to look beyond GMIO for the joint venture profit (SAIC-GM, SAIC-GM-Wuling, etc.), which gets reported as equity income on the 10K statement. For fiscal year 2016, GM reported $2 billion in equity income from the China joint ventures.
GM reports a large profit in North America (GMNA), a loss in Europe (GME), a loss in South America (GMSA) and a profit in “international” (GMIO) which is mostly China but non-joint-venture, as I understand it. However, I wonder how much of the losses outside the US are attributed to shared R&D and US HQ overhead, which would still be the same (other than models developed for sale outside the US) if not for the foreign market presence. In other words, I don’t totally agree with the profit and loss figures outside North America, given that models developed for the North American market can be sold in other markets, but part of the “cost” expensed in foreign markets is development of the home model.
I don’t trust the PRC Chinese government to do anything but allow Chinese companies to make copies of GM cars for export, which will ultimately hurt GM. And possibly nationalize GM’s part of the joint ventures. But for now the profits flowing from China are hefty, probably representing 25% of the profit for 2017, when all is said and done, as my best guess.
I’m not sure why you see Europe as a big possible source of future profit for GM. Unless of course they offer something unique and American, rather than German-wannabes, but that’s not the direction JDN is headed. By the way GM sold Opel and Vauxhall this year, so at least they won’t be losing any more money for GME.
Drew,
When you say that “China is quite a larger profit center for GM” — is that your personal take on the figures?
Because if I were interpreting them, I’d characterize the results as anything but “large”.
1. The “equity income” line on the combined income statement can include but is not limited to income from non-direct operations (such as GM’s joint ventures in China). So of the $2.131 billion reported on the “Equity Income” line, some is attributed to the joint ventures… while some is completely unrelated. So there’s that… and you’re partially correct on this. Let’s continue.
2. Let’s paint a clear picture here: for the sake of this conversation, we could (incorrectly) state that the $1.97 billion in “Equity Income” for the 2016 calendar year is attributed completely to China (which it is not — but let’s just say so anyway for the purpose of simplicity).
So, that would be $1.97 billion (rounded) plus $300 million (from “pure GM” GMIO earnings)… giving us roughly $2.3 billion in cumulative earnings for GMIO. Again, that’s not completely China, as this figure also includes JV results from the likes of GM-Uzbekistan, Shanghai OnStar, etc. So I would strip out a billion or so to arrive at what is likely the “true” GM China earnings. But again, let’s just call it $2.3 billion for the sake of this dialogue.
So, for the 2016 calendar year, GM China would have made $2.3 billion (the real number is about a billion less than that if we want to get really picky with the numbers). It derived that return by selling 3.87 million vehicles.
Meanwhile, GM North America made how much? $12 BILLION. It did so by selling roughly 3.9 million vehicles.
Bottom line: $12 billion in North America vs. $2.3 billion in China, by selling roughly the same amount of vehicles.
Both are roughly as intensive from a resource standpoint. North America delivers 5-6 times the return as China for GM.
For the amount of overall effort and resources (not to mention attention) that is placed on China, you’d think these numbers would be flipped… or GM would be making so much more in China. But it’s not. So to say that China is “quite a large” profit center for GM isn’t exactly on point.
PS: GM North America pays the majority of R&D on its products sold in China, and China pays very little. So in reality, GMNA is actually more profitable than I noted above.
Though no one really asked, I’ll provide it anyway…. GM China’s biggest expenditures include (from biggest to smallest):
1. Vehicle line tooling and plant construction (split between ‘GM China’ and its joint ventures aka SAIC, which makes up Shanghai-GM)
2. A small amount of R&D for market-specific vehicles from PATAC (Chevrolet Sail and Cobalt, Buick GL8, Cadillac ATS-L and the now-discontinued Cadillac SLS)
3. Localization of product; for instance, translating the infotainment systems engineered in Warren into Chinese or reconfiguring certain suspension systems specifically for China
4. Marketing
5. Operational expenditures
Oh and Drew — as for this:
“I’m not sure why you see Europe as a big possible source of future profit for GM. Unless of course they offer something unique and American, rather than German-wannabes, but that’s not the direction JDN is headed. By the way GM sold Opel and Vauxhall this year, so at least they won’t be losing any more money for GME.”
First and foremost: YOU DO NOT KNOW THE DIRECTION JDN OR THE TEAM ARE HEADED IN.
Unless you have been in the Tech Center and have seen the in-dev product or have actually gotten a hold of the future product plans from Cadillac’s HQ in New York or Detroit, YOU DO NOT KNOW. So stop with this nonsense of constantly putting down something about which you have no clue.
Now, everyone here is well aware of your ill-conceived position (if you can call it that) on the supposed direction that Cadillac is going in (sport luxury). To summarize:
1. You own a DTS, a car that is ten years old (or more?)
2. You despise that Cadillac isn’t making boats like the DTS any longer, and is not planning on dong so. Heck, outside of Lincoln, no one is doing that any more. And Lincoln is only doing that because it has no other options.
3. You earnestly believe that just because you have a couch on wheels and that this product is desirable to you, that the whole wide world wants such a car… when in reality, the opposite is the case.
So you’re upset… and you take any chance to criticize, bash and otherwise put sticks in the wheels of the team at Cadillac just because they’re not making cars that meet your very outdated idea of what Cadillac “should be”. But in your quest to continually degrade them, you have missed the point I’m making, and that point is as follows.
Europe is a large market that presents a significant opportunity for Cadillac, in terms of 1) sales volume and 2) profit. The brand has had extremely limited presence in the market during its history. It currently has something like 25 dealers in all of Europe… most of them are just delivery and service centers with no showrooms or any kind of product offensive. So, imagine what can be done with 1) proper product, 2) proper go-to-market and distribution (including expanding the dealer network), and 3) proper marketing.
And what can be done is a lot.
Even selling a measly 1,000 cars a month in the highly-competitive market will be an extra $53 million USD in revenue for Cadillac and GM (assuming an ATP of $53,000). I predict that they can do much better than that with the correct product and distribution network, which they currently do not have. So, Cadillac will push into Europe around the 2021 calendar year, just as it is launching its new product offensive. And that is what presents the opportunity for Cadillac in Europe. The more longer-term approach is re-introducing Chevrolet into Europe… but that’s a different topic that you can feast your eyes on here:
http://gmauthority.com/blog/2017/02/what-if-gm-sells-opel-to-make-room-for-chevrolet-in-europe/
Alex, yes I think GM/Cadillac is making a mistake by dropping the values and history that made them successful, in order to become soulless clones of the Germans (and without the German badge, in a market already crowded with German cars and German-wannabes). And the proof is in the numbers, the declining sales of Cadillac in North America every year – which is as you point out the most important market to GM.
I realize that you love your ATS-V and you look for winding mountain roads to give it a whirl, whenever you can. Hey that’s great, you love it. What are the peak sales of the ATS-V compared with the peak sales of the DTS? And that’s even with Cadillac pushing the ATS-V hard in promotion, while ignoring the DTS.
The reality is that most drivers don’t care about “sporty” features and don’t drive in a weaving, aggressive manner. They just want to get from here to there comfortably, safely, and in style, which is what Cadillac used to focus on. They cared about the 1st Class cruisers more than the track times on the Nurburgring Nordschleife. Now Cadillac management is caught up in the German “sports” fad, and it is a fad, but the pendulum will eventually swing back to the public embracing 1st Class rides. In fact BMW already seems to see that coming and is edging slowly that way toward the territory abandoned by Cadillac, while Cadillac continues to pursue the ghosts of the old BMW.
Like it or not, and currently accurate or not, Americans have a view of Cadillac as offering comfortable 1st Class rides rather than sporty ones. And if they want the German type of car, they’ll buy a car with a German badge. Which leaves today’s Cadillac in a bad position. They no longer offer cars with a 1st Class “Cadillac ride”, so people who want that will test drive them and be disappointed. Meanwhile, those who want German-like cars will be unlikely to consider them. You might wish that Cadillac had built the company from scratch as a “sports luxury” brand, but that’s not reality and that’s not how the public perceives the brand.
Forget about my preference in cars, or yours. What do the sales numbers say? The sales numbers say that Cadillac continues to fail in the sedan market, there’s no other way to put that.
I don’t expect a car brand to cater to my taste, but I do expect them to try to make cars that the public wants, rather than the type of cars that the executives prefer personally. I realize that JDN loves sporty cars, as do most car executives. But the German-like market is already saturated. Wouldn’t it make sense to build something else? Lee Iacocca saved Chrysler by offering vehicles and features that no one else had, not by trying to make clones of other people’s cars.
You say that JDN has some great plan. I say I doubt he’s got anything other than trying to make Cadillac even more German-like. It hasn’t worked for over 20 years, but if only he could just keep at it. I mean a guy named Johan, that’s the way to beat the Germans, right? I say an American icon should be American, and build cars for American tastes, not German ones. You can say “you’re wrong Drew” but Cadillac’s dwindling sedan sales say otherwise. Doubling down on a losing strategy does not make sense, no matter how much you love your ATS-V.
“The Truth About Cars” had it mostly right when they said “Cadillac RIP” when the DTS was killed off. They viewed that as the last real Cadillac. But the final nail may actually be when the XTS dies and “Art & Science” angular styling is killed off, in favor of German rounded bloating. Which is exactly what JDN is doing, starting with the XT4. Yes it’s sad to me as an American with deep American roots to see the death of Cadillac. Clearly that doesn’t matter to others, and I can understand why, but I do wish GM had some people with deep American roots to make the case for classic American luxury rather than Euro-cloning.
But what should matter to GM is sales and profits, and obviously Cadillac will no longer be bringing much of those to the company, given their current direction. Perhaps if GM had actually embraced real Cadillac values and marketed them, they wouldn’t have gone bankrupt as they did 9 years ago. And there’s a broad, unmet market for Cadillac if they would embrace 1st Class rides with American styling once again, which could bring in immense profits to GM, not just in the US but worldwide. Or not. Keeping on the same losing German-wannabe track now – priceless.
Alex Luft, the reason that the joint ventures are included as “equity income” is that GM does not own them outright, thus they are treated more as investments in accounting terms. But if you look at the SAIC-GM and SAIC-GM-Wuling portion of the 10K, you can see where they have the figures. Also it has been stated in the media such as The Detroit News that GM made $2 billion in the joint ventures in 2016 and about the same in 2015.
According to GM’s accounting, Europe and South America lost about $1 billion total in 2016. GM in total netted out a little less than $10 billion after tax in 2016.
For 2017 it appears that GM’s China operations will do substantially better than in 2016, and North America will likely be about flat with 2016 (though Cadillac itself, substantially worse than 2016). Also, many of the GM cars sold in China were actually R&D’d in the US, making that portion of their cost “free” if GM chose to look at it that way. Thus I’m thinking China will be around 25% of GM’s profits this year.
I don’t disagree that on a per car-sold basis, it matters to GM a lot more to sell a car in the US than in China. Probably to the tune of perhaps needing to sell 3-4 cars in China to each one in North America, for the same overall profit, at this point. Noting of course that there’s never a fixed “per car” profit, because this can vary by model as well as by overall sales – the higher the overall sales of a model, the higher the per-car profit, etc., due to lowered fixed costs per unit.
But my point is that China is not insignificant to GM’s profit, and the ratio is not 11:1 or so as your earlier figures indicated. Which is understandable because GM presents their earnings in a confusing way, with the bulk of the profits from the China operations reported as equity income (unlike their other global operations).
China is now the largest and fastest growing auto market in the world. Like it or not the mfg are all going to base many new product to their needs.
It is going to be you either sell in China or you fail. No other market in the world will supply growth as China will.
The same will apply to many consumer goods too. The sheer numbers on new consumers with some income can not be over looked.
As for the economics they were given away back in the 90’s and ice our goverment opened that Pandora’s box it can not be closed.
Like it or not China’s economy can collapse and we can not let that happen. Nor can China let us collapse either. We have mutual economic ties no matter if either party likes it or not.
There will be a dance and struggle to hold and edge but neither side will shut out the other.
Yes, China is the world’s largest automotive market by raw volume. But it is completely unattractive from a profit standpoint.
China’s nature as a high effort, low return market can be seen on GM’s income statement as I have mentioned in a comment earlier. The sales volumes are sky high, the profit margins are razor thin, and the remaining profit is nearly non-existent.
I find this very imbalance very intriguing from a general business standpoint.
I don’t see any global automaker investing in making market-specific product for the needs of a low-profit market. What I do see is manufacturers either recycling legacy product for a low-cost alternative or introducing products specific to the market that are also sold in other developing markets.
Prime example: the current Chevrolet Sail and GM’s entire next-gen vehicle program for developing markets (potentially codenamed AMBER). The Chevrolet-branded vehicles that will come out of this program will be sold in China, Central/South America, Mexico, Russia, CIS, etc… but they won’t be specific to China. They also won’t be available on developed markets (North America, Australia, Europe).
Buyers in China look at cars like we look at computers in the United States as while there’s brand loyalty, no one is going to pay double just for a specific nameplate when there’s not much difference and it helps that Cadillac of China is willing to do the small things like stretching the wheelbase for added rear passenger legroom.
All three German luxury automaker selling cars in China offers stretched-wheelbase versions of their cars there. Cadillac doing so is nothing special.
Going forward, I expect Cadillac to no longer partake in this practice, however — as the cars should right-size themselves across the board.