General Motors Co. (NYSE: GM) is finally finding its footing in China, the world's largest auto market thanks to Cadillac. Sales of the company's luxury brand were up a whopping 69% in China through July, partially accounting for 23% increase in overall global sales of the brand over the same period. It is the first time that Cadillac has sold more cars abroad than at home. In the past 5 years, Cadillac has tripled its sales in China.
This is desperately needed good news for General Motors Co., which continues to struggle with dwindling domestic sales, and was never able to gain ground in the European market. Cadillac sales overall are growing at a pace they have not seen since the 1980s, mostly due to growth in China.
The success is the result of an ambitious expansion campaign that General Motors began in 2014 with the goal of rising from 4% of China's luxury auto market to 10% by 2020. To reach that goal, General Motors invested $14 billion into China to open five new Cadillac factories between 2014 and 2018. These factories made it possible for Cadillac to produce up to 5 million vehicles, or nearly double the number of vehicles General Motors sold in the U.S. in 2013. The ability to build vehicles locally allowed Cadillac avoid the country's import tariff, which previously made the cost of the vehicles prohibitive for many buyers.
Cadillac, once known as the quality "Standard of the World" for luxury vehicles, has endured a decades-long slow decline. In the 1970s and 1980s, General Motors shifted its focus from luxury models to less-costly mass-market lines. The Cadillac brand suffered from a lack of investment, producing problematic cars in stagnated designs that relied heavily upon the loyalty of an aging demographic. A revival helmed by the introduction of the brand's flashy Escalade in the early 2000s was cut short by recession, bankruptcy, and bailout.
But former Audi executive Johan de Nysschen, appointed the President of General Motors Cadillac Division in July of 2014, has taken aggressive measures to regain Cadillac's association with vintage American grandeur.
Cadillac's efforts to reinvent its stodgy image have fallen flat in the U.S., but hip, heavily-aired television ads targeting young Chinese consumers appear to be working: the average American Cadillac buyer is over 60, while the average Chinese buyer is just 33 years old. Steep promotional discounts on the vehicles have also lured customers away from more costly brands, though Nysschen seems to be stepping away from this tactic as it doesn't quiet mesh with their luxury profile.
In addition to the investment in China, Nysschen is spending $12 billion over 5 years to develop electric models and beef up its line of models. Cadillac is also trying to compete with Silicon Valley firms in the realm of autonomous vehicles, and is close to releasing one of its own. Nysschen is banking on robust sales in China supporting these projects.
Cadillac, now the fourth most popular luxury vehicle brand in China, is still far behind the holy trinity of German premium automakers, BMW (ETR: BMW), Daimler AG's Mercedes Benz (ETR: DAI), and Volkswagen's Audi (ETR: VOW3), which together account for 75% of the Chinese luxury market.