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Forbes Magazine Article on '05 STS

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The New STS: Cadillac's Next Winner?


March 23, 2004

Dan Lienert

Can Cadillac sustain its winning streak?

That's one of the biggest questions in the auto business for 2004.

Cadillac, the luxury division of General Motors, is preparing its new STS sedan for an introduction at next month's New York International Auto Show. The vehicle, which will be the sole nameplate in the new Seville line, will go on sale in the third quarter of this year with an estimated price range of $43,000 to $65,000.

The STS (which stands for Seville Touring Sedan) may be Caddy's most ambitious car yet. The completely redesigned sedan is gunning for big game, setting its sights on displacing Mercedes-Benz's E-class and BMW's 5-series sedans.

Although Cadillac's U.S. sales increased by 8% in 2003 (216,090 units, versus 199,748 in 2002), the STS is far from assured of success. Cadillac's trucks were what drove overall sales up in 2003. The new SRX sport utility sold 5,049 units in its first year, and Cadillac's stretched Escalade ESV sport utility gave the division 12,866 extra sales it would not otherwise have had.

Cadillac's passenger car sales, which increased by less than 1% in 2003, have not been as successful as the brand's overall performance. New products at Cadillac's low end (the CTS sedan) and high end (the XLR convertible) have done well, but the mid-luxury sedans have been disappointing. Sales of the DeVille sedan were down by 3% last year, and sales of the outgoing Seville sedans--which the STS is replacing-were down by 13%.

If this sounds as if we're looking to find faults with a brand that has otherwise been one of the auto business's biggest comeback stories in recent years, it's only because in order to mount a serious challenge to BMW and DaimlerChrysler's Mercedes-Benz, the new STS has to be perfect. While the excellent XLR is a bona fide competitor to Mercedes' SL-class roadsters, the stakes and volumes are much higher in the mid-luxury sedan segment in which the STS will compete. An overhauled model boosted BMW's 5-series sedan sales to 46,964 last year, an increase of 15% over 2002. Mercedes sold 55,683 E-class sedans last year, an increase of 31% over 2002. The Seville last year was on the slide while these vehicles were on the rise: It sold only 18,747 copies, a little over one-third of last year's E-class sales.

But Cadillac is feeling that the time is ripe for an overhaul of the STS. It hopes to be able to work the same kind of magic on its midsize sedan that it has on its other models. Company officials often talk about how they want to restore Cadillac as "the standard of the world" for luxury cars.

One of the ways Cadillac plans to do that is to take a page out of Mercedes' playbook: All Mercedes sedans are rear- or all-wheel drive, and the STS will abandon its front-drive setup to come in rear- or all-wheel-drive configurations. This will make the car sportier, as will the optional 4.6-liter, 320-horsepower V-8 engine, which it shares with the SRX and XLR. The less expensive 3.6-liter, 255-horsepower V-6 from the CTS and SRX will also be available, although Cadillac is planning for now to offer all-wheel drive only on V-8 STS models.

The STS will feature the same angular, modern styling that graces other Caddies. Its edgy looks would give it some sort of advantage over Mercedes' more traditional styling, but BMW is carrying out the same sort of experiments with angular, aggressive looks. Still, Cadillac is gaining market share. One trump card it has over the Germans is that customers are complaining more and more about the quality of German cars, and less and less about the quality of American cars. According to Consumer Reports, Buicks now break down less often than BMWs.

While the fit and finish of its vehicles remain to be perfected, Cadillac has made great strides with the quality of its materials and interior components. The new STS offers the same premium interior materials, such as eucalyptus wood, leather and real aluminum, that can be found on the XLR. Like the Corvette, the new STS will have a magnetic ride control suspension--a smooth, high-tech unit that adds value to the package.

Cadillac will build the new STS with the CTS and SRX in Lansing, Mich. Ultimately, the new vehicle may not have the chops to take on Mercedes and BMW. After all, the E-class/5-series is about the highest level it can hope to challenge seriously; it can barely touch the S-class/7-series range-toppers at Mercedes and BMW, which have V-12 engines available and prices that stretch into the $120,000's.

The good news for GM executives is that Cadillac is catching up to Mercedes. In 2002, Mercedes outsold Cadillac in America by 7% (213,225 units versus 199,748); in 2003, Mercedes outsold Cadillac by only 1% (218,551 units versus 216,090). Mercedes could be looking more and more in its rear-view mirror as Cadillac gets closer, and Caddy's new STS is a critical product for a division that wants to get in the passing lane.

Forbes Fact

Cadillac first used the Seville nameplate on coupe editions of the Eldorado series in 1956. The Seville badge returned in 1976 after a hiatus, as Cadillac used the European name to indicate that the car would be an import fighter. Cadillac last overhauled the Seville in 1998, making it the first Cadillac built in both left- and right-hand-drive editions since 1941.

As Cadillac readied the new STS for introduction this year, it was offering only the SLS (Seville Luxury Sedan) in the Seville lineup. The SLS went out of production in December and takes its name to the grave; "STS" will be the only name Cadillac will use from now on in the Seville series.

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I think if Cadillac makes a great effort to make sure that their cars remain relatively free of defects then Cadillac will have an excellent chance to bypass Mercedes and BMW in sales.

The cat is out of the bag when it comes to Mercedes; too many people are complaining about quality failures in those cars and too many people are spending way too much of their precious time at dealerships getting essentially crap fixed on those cars. Most people who lease a Mercedes won't lease it again and generally end up with a Lexus or Infiniti. Good for the Japanese, but it would be better if those dissatisfied Mercedes customers could be coaxed into buying a Cadillac. Something along the lines of an "incentive" would work.

As for BMW, with the exception of the MINI Cooper, their cars are as well starting to slide a bit too much in their lack of quality.

Everyone I know that owns a MINI Cooper LOVES it and even those who lease them, lease them a second time around. In Europe, it was voted as car of the 20th century. It's also cleaning up in Europe with awards all around. Can't wait until the convertable MINI and the diesel MINI arrive in the states.

If you really want to make people safe drivers again then simply remove all the safety features from cars. No more seat belts, ABS brakes, traction control, air bags or stability control. No more anything. You'll see how quickly people will slow down and once again learn to drive like "normal" humans.

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