GM Vows to Show China That Cadillac of Autos Isn’t Audi

GM Vows to Show China That Cadillac of Autos Isn’t Audi

As Vincent Qiu weighed his options for buying a new sport-utility vehicle in Beijing, he was drawn to the Cadillac SRX.

The SUV’s aggressive chrome grille, massive vertical headlamps and sharp creases along the body make the vehicle unique on China roads, where the rounded and organic shapes of Volkswagen AG (VOW)’s Audi and General Motors Co. (GM)’s Buick are popular.

“You can easily spot Audis on the roads, but not Cadillacs,” Qiu, 41, who runs an office-supply company, said last week in an interview. “But it is a big-ticket purchase and in the end my wife talked me into playing it safe and buying something that is more popular.” He bought an Audi Q5.Qiu’s purchase underscores the challenge Detroit-based GM faces as its races to establish Cadillac as a premium brand in China, where Audi outsold the 110-year-old icon 14-to-1 in 2012. GM aims to more than triple Cadillac sales by 2015 in China to 100,000 as it brings out a new model every year through 2016.

Chief Executive Officer Dan Akerson, who is slated to be in Shanghai tomorrow to break ground on a new Cadillac assembly plant, has said the luxury brand is “a priority” in the company’s $11 billion China investment plan through 2016.

“It’s estimated that 40 percent of luxury vehicles will be sold in China by the end of this decade,” Akerson told analysts June 12 during a presentation in suburban Detroit. “We have about five or six years, in my opinion, to really establish Cadillac as the premium brand on the same footing as you see from our competition.”

Mulally Visit

Punctuating the attention that Detroit is paying to China, Alan Mulally, the CEO of Ford Motor Co. (F), the second-largest U.S. automaker, will also visit this week. Ford’s Mulally will be in the southeastern city of Nanchang for the start of a factory of Jiangling Motors Corp., a Chinese commercial-vehicle maker in which Ford is the largest investor, and a celebration at the Changan Ford engine plant in Chongqing.

While behind GM in China, Ford is growing quickly with a lineup of new vehicles and ambitious plans for its Lincoln luxury brand, which is scheduled to go on sale in China during the second half of next year. The Dearborn, Michigan-based automaker is investing $4.9 billion in China to try to catch up with market leaders GM and Volkswagen.

“China is massively important to us,” Matt VanDyke, global director for the Lincoln brand, told analysts June 13 at a conference hosted by Deutsche Bank. The “brand values” that Ford has for Lincoln in the U.S. “will really translate very well to our target customer in China — inviting, elegant simplicity. Warm, comfortable environments will be very, very important for us there.”

Status Seekers

China became GM’s largest market in 2010 and while the Detroit company lags behind luxury competitors, it’s No. 1 among foreign automakers in total sales on growing deliveries of Buick, Chevrolet and small, commercial vehicles sold under the Wuling brand.

“The challenge for them in China luxury is really to position into the Chinese status-seeking, consumer-branded culture, because the Chinese luxury consumer starts out thinking German equals car, French equals wine,” Brian Johnson, an industry analyst with Barclays Plc, said last week in a telephone interview.

GM makes this effort from a position of strength, having generated 13 quarters of net income that boosted its stock to a two-year high earlier this month. The company has returned to the Standard & Poor’s 500 Index and is introducing redesigned high-margin models in the U.S., such as the Chevrolet Silverado and GMC Sierra full-size pickups.

U.S. Lineup

Cadillac’s resurgence in the U.S. should help it in China. A new compact sedan called the ATS and new full-sized sedan named the XTS have helped boost Cadillac deliveries in the U.S. 38 percent through May to 69,750, the biggest year-to-date increase since 1976.

“For the first time, they have a sedan-coupe lineup that mirrors the major German competitors,” Johnson said.

The new plant in Shanghai, which is scheduled to open in late 2013 or early 2014, is one of four assembly plants GM is adding in China. The company already has 17 manufacturing facilities in China, including 13 vehicle-assembly factories, GM said in a May 7 e-mail.

“This is another one of our keys to additional growth,” Bob Ferguson, head of Cadillac, told analysts and investors last week of the new Cadillac plant.

At another factory, GM said it began local assembly of the Cadillac XTS in March. The XTS “has huge potential,” Ferguson said. “Spacious luxury cars are very much in demand there.”

The new car will help increase Cadillac sales in China 50 percent this year to about 50,000 vehicles, Ferguson said. “The reception to the car is absolutely excellent.”

Akerson’s strategy is to build Cadillac into a powerhouse on par with its profitable truck lineup in the U.S.

“It’s our objective to be the overall sales leader in both the two largest markets in the world — the United States and China,” he told the analysts.

–Tim Higgins and Craig Trudell in Southfield, Michigan, and Tian Ying in Beijing. Editors: Jamie Butters, Bill Koenig, John Brecher.

To contact the reporters on this story: Tim Higgins in Southfield, Michigan, at thiggins21@bloomberg.net; Craig Trudell in Southfield, Michigan, at ctrudell1@bloomberg.net; Tian Ying in Beijing at ytian@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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