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With Cadillac tweaks, GM heeds China taste for models with curves

By Fang Yan, Ben Klayman and Hui Li

BEIJING/DETROIT (Reuters) - Chen Dong, the 42-year-old owner of a cellphone wholesale business in Beijing, is a big fan of Hollywood movies and the Chicago Bulls basketball team, and sends his daughter to college in the United States.

He thought of stretching that love of all things American to his car, but instead opted for a new black Audi A6 sedan over a rival Cadillac - underscoring the challenge facing General Motors Co as it seeks to promote Cadillac in China and transform it into a fully-fledged global luxury brand.

"The Cadillac SLS was one of our options, but we thought the look was just way too aggressive," said Chen, who also called in at BMW, Volvo and Infiniti showrooms. "The Cadillac's (exterior) lines were not smooth."

GM's Cadillac problem is that many other car buyers in China feel the same as Chen: that Cadillac's edgy look, with its sharp, angular lines and creased edges - inspired by the design of American stealth military planes - is a turn-off, say analysts and, indeed, Cadillac marketers' themselves.

The U.S. automaker now seems ready to phase out the angular look to woo more buyers in China, the world's biggest market for cars and a beacon for global luxury brands - where a Mercedes S-Class 300 sedan can set you back $157,000.

GM Chief Executive Dan Akerson wants Cadillac sales in China to reach U.S. levels by 2015 or 2016, part of a broader push to globalize and revive the brand from decades of neglect and turn it into a serious rival to BMW.

"Successful global automotive companies must have a major global luxury brand that ... wins around the world, and in China," Akerson said at the Beijing auto show earlier this year.

Focusing on China with Cadillac is a must for GM. Demand for luxury cars in the world's second-biggest economy is forecast to grow to 2.7 million cars a year by 2020, overtaking the United States as the world's leading luxury car market.

It's a high-stakes, high-risk push.

If GM can't convince the Chinese to fall in love with Cadillac, the 110-year-old American luxury car brand will face a leaner future battling for business even on its home turf behind global powerhouses BMW, Mercedes and Toyota Motor's Lexus luxury brand.

Research firm LMC Automotive forecasts GM will sell more than 35,000 Cadillac cars in China this year, up from about 30,000 in 2011. It predicts those sales will climb to just over 75,000 in 2018, still less than half last year's U.S. total of more than 152,000. The United States and China account for nine of every 10 Cadillacs sold globally.

CONFUCIAN CONCEPT

Chinese car buyers' antipathy towards the Cadillac design has a partly cultural basis, too. The preference for smoother, curvier cars stems from 'Zhongyong,' a Confucian concept that stresses harmony, according to Fu Liming, who teaches transportation design at Jilin University in northeast China.

"In cars, the Zhongyong concept translates into unified lines and curves," Fu said. "Cadillac's design isn't soft, its angles and arcs aren't smooth enough."

GM has reached a similar conclusion, independently, and is toning down the Cadillac design, according to the brand's China sales and marketing chief Kevin Chen, who said the company's research found some Chinese buyers passed up Cadillac because its design was too "futuristic" and "bold".

"If you ask our customers what's the motivation for choosing Cadillac, they would say design. If you ask Audi buyers why they don't choose Cadillac, they'd say it's too bold," he said.

China is not the only market GM is focusing on, but as the luxury auto market there has grown so fast, GM is altering Cadillac's design to please local buyers: "instead of too much futuristic and too advanced, more towards modern contemporary design," sums up GM's Chen.

Like Cadillac, several foreign luxury car brands are piling into China, drooling over the success there of German brands. Nissan Motor's Infiniti and Honda Motor's Acura face similar challenges to Cadillac. That's in part because China's economy is no longer growing explosively. Its upscale car market is crowded and dominated by Germany's Audi, BMW and Mercedes-Benz.

GM's crosstown rival Ford Motor Co is also staking its luxury brand Lincoln's global survival on China. With plans to launch the Lincoln there in 2014, Ford executives admit they are late in the game. But "the market is enormous," global marketing chief Jim Farley told Reuters in Beijing on an August visit. "You can't ignore the size of the luxury market here."

GLOBAL DRIVE

GM's drive to make Cadillac a global brand took shape after its 2009 bankruptcy and restructuring. While Cadillac has been sold around the world, a pre-bankruptcy GM lacked the financial clout to boost demand beyond the small numbers sold outside the United States. Don Butler, GM vice president of marketing for Cadillac, said that changed with Akerson's arrival in late-2010, as the new CEO pushed for the brand to go global.

One key element of that makeover is to go where Cadillac has not gone in recent years, prompting the creation of two main products: a full-size Cadillac XTS sedan that GM launched in the United States in June, and the new compact ATS sedan, Cadillac's smallest and most-affordable model that GM hopes will be a viable alternative to the BMW 3-Series.

The addition of the XTS and ATS will push up Cadillac's coverage of the U.S. market's luxury segment, for example, to 80 percent from 50 percent. That will rise further in the next three years as Cadillac introduces 10 all-new or significantly refreshed products, including the ELR plug-in electric coupe and possibly a flagship sedan.

But Cadillac's problem is not just lacking full market coverage in the United States. In China, its cars have a reputation for being big gas guzzlers. That, say dealers, is a big minus in China where even luxury car buyers are thriftier than their U.S. counterparts.

While GM is tweaking its Cadillac designs for the China market, the Detroit automaker is not going for a full visual makeover. Its challenge: how do you tone down the design while also ensuring a unique and differentiated style?

As many luxury car buyers in China have chauffeurs, GM has stretched the wheel base of the SLS to make its rear seats more comfortable. China is also the only market where the SLS comes with a 2-liter turbo engine.

GM produces the SLS - the only Cadillac car it makes in China - at a joint venture plant with SAIC in Shanghai. It also plans to make the new XTS there. Akerson said in April that Cadillac would add a new model each year in China through 2016. To help boost China sales, GM also aims to add 30 Cadillac dealers by end-2013, raising its total to 200.

This is all good news for dealers like Liu Guilin, general manager of a Beijing Cadillac dealership, which now counts largely on the SRX, a sports utility vehicle, to win customers.

"The edgy design works pretty well for the SRX because SUV buyers want to stand out in the crowd, but that's not something people look for in a business sedan," Liu said.

GM still has some way to go to convince potential buyers.

Qi Lin, a 28-year-old state-owned company employee in the northeast port city of Tianjin, had enough money to buy a luxury car and looked at the Cadillac CTS - but bought a Hyundai Sonata.

"The CTS's interior looked too conservative. It's not for young buyers like me," said Qi, who was also worried about the car's gas guzzling 3-liter engine.

(Additional reporting and writing by Norihiko Shirouzu; Editing by Ian Geoghegan)

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