The right (and right-hand drive) products, improved quality and the right dealers: that’s why Cadillac will succeed second time around, according to Bob Lutz, General Motors vice-president for product development and chairman GM North America.
The right dealer is Pendragon; it has signed a solus agreement with General Motors to import and distribute Cadillac and Corvette models, and it plans to do so from a network of 18 ‘Experience Centres’ built over the next three years. The first, nestled among other premium brand showrooms on London’s exclusive Park Lane, has started taking orders, with the first deliveries of the right-hand drive CTS saloon due in January.
Other RHD cars will follow, largely dictated by the model replacement cycle, while UK buyers will be able to purchase any Cadillac or Corvette in left-hand drive. Targets next year are modest – Ton van Soest, chief executive officer at Netherlands-based Kroymans Corporation, which took European responsibility for the distribution of Cadillac and Corvette in October 2003, says he would be “very happy with a couple of hundred cars”.
This is within a European total of 4,000, of which Corvette will account for 1,200 – this year Cadillac will sell 2,400, Corvette 600.
Pendragon recognises it needs to put in place the structure ready for the future supply of right-hand drive models and, longer-term, diesel variants. Chief executive Trevor Finn, who started discussions with Cadillac at the Geneva Show in March, says: “We will invest £25m-£30m in facilities as we roll out the Experience Centres in major markets over the next two to three years.”
He has set up Cadillac GB, which will initially operate out of Pendragon’s Loxley head office near Nottingham and is headed by franchise group leader Mark Axten. Experience centres in Birmingham and Manchester will open next year, followed by dealerships in Scotland, south Wales, Leeds, East Midlands, north and south London and along the M4 corridor in 2006. Typically three- or four-car showrooms, some will be dual-branded within an existing Pendragon dealership. Once a vehicle parc has been established, Pendragon will also open standalone aftersales centres.
“We need this level of presence as a statement of intent and to get the footprint down,” says Finn. “The investment is based on a business plan over the next three years.”
Cadillac GB will offer Pendragon greater opportunities to make money than the usual franchise arrangements through finance, contract hire deals and greater control over residual values, with the company collecting cars from the dock. However, Pendragon’s share price actually slid by eight points on the announcement, ending the day at 267p.
Tim Richmond, motor retail analyst at stockbrokers Arden Partners, says the fall reflects the stock market reacting to an expected dip in short-term profits as Pendragon invests in establishing the business. “It’s a new venture which will cost in year one, and there are risks involved, which is why analysts have downgraded profit forecasts,” he says. “But you have to look at those companies which are looking to build their business. Short-term pain for long-term gain is fine.”
Finn is reluctant to talk in detail about sales targets, pointing out that product sign off will dictate the figures (and, in fact, the speed of network expansion), although he hopes to be selling “north of 4,000” units after three years. Many of these customers will currently be driving BMW, Audi and Mercedes-Benz cars. “Buyers are nowhere near as loyal as they used to be,” says Finn. “They will be attracted by Cadillac because they are looking for something different.”
Cadillac GB is expected to lose £4m-£5m in year one, breaking even in year two and making profits of up to £5m in year three. “On a £25m investment, that’s a 20% return, which is pretty good,” says Richmond.
The news follows three years of limbo for the Cadillac brand. It was originally sold in the UK for three years, from 1998 to 2001, from a handful of dealers and GM planned to reintroduce the brand two years ago as a sister franchise to Saab. Those plans were scrapped due to delays with the CTS and GM’s focus on getting its European operations into profit (a task yet to be achieved).
The presence of Lutz at last week’s news conference to announce the UK launch of Cadillac shows just how serious GM is about this marque. Lutz is now proclaiming Cadillac as GM’s “best shot” at a global brand.
Will Cadillac succeed? An analyst’s view
A senior city analyst, who asked not to be named, gave AM the following perspective:
“GM is concerned about the ongoing loss of market share from volume brands like Opel/Vauxhall to premium in Europe and, Saab apart, it has no offer.
Cadillac is not the ideal material with which to work but GM probably reckons it’s got more hope than developing another high end Vauxhall Omega type vehicle. And, at the current exchange rate, GM can probably make money at surprisingly low volumes, even at a discount.
“It seems very unlikely they can win any significant market share. Residuals will be disastrous which changes the whole economics of premium brand ownership.
“There’s still lots of baggage attached to the brand in the UK and Europe. They’ll have to spend hundred of millions on marketing to build awareness that the cars have changed and are credible.
I don’t think the Germans will be too worried. However much they complain about quality issues, you can’t seem to drag the Germans out of their domestic premium brands.”