General Motors Corp.'s $4 billion bet on Cadillac appears to be a winner.
For years, the leader in luxury sales in the U.S., Cadillac was slumping badly by the late 1990s. Capitalizing on a stodgy Cadillac lineup, foreign rivals like Toyota Motor Corp.'s Lexus and Bayerische Motoren Werke AG vaulted ahead with fresh, new models.
Humbled, GM went back to the drawing board, figuring that a radical new styling approach -- one inspired by the Stealth fighter -- would rekindle Cadillac's long-lost cachet.
The first car with the new look, the $35,000 CTS sedan, hit showrooms last year. Its edgy, futuristic look brought criticism early on, but it became a strong seller.
Together with the popular Escalade sport-utility vehicles, the CTS powered Cadillac to a 16 percent sales increase last year, its largest jump in more than two decades. This year, two more new-look Cadillacs hit the road, and dealers say initial indications are demand will be strong.
"A few years ago, Cadillac's outlook was not great," said GM's chief executive, Rick Wagoner. "We took a huge bet on a couple of products, and it's playing out nicely."
"I think they're back," said Denny Clements, head of Lexus in the U.S. "The CTS is a breakthrough vehicle for them."
Cadillac dealers said the CTS has drawn customers who would ordinarily have considered only imports.
"It has attracted a lot of buyers that we hadn't seen before," says Tom Keery, owner of Frost Motors Inc. in Newton, Mass. He adds that CTS buyers at his showroom have traded in Volvos and Lexuses.
The new Cadillacs hitting the market this year are taking on some of the industry's toughest competition. Cadillac said the SRX, a $40,000-to-$50,000 SUV based on the same underpinnings as the CTS, will outperform rivals like the BMW X5 and Mercedes M-Class, offering what the company said is a balance between sporty handling and SUV-style space for hauling people and stuff.
Unlike its German rivals, the SRX, which hits showrooms this fall, will have a third row of seats that automatically folds into the floor. It also boasts computerized shock-absorbers that adapt to different road conditions for a better ride, Cadillac said.
"The SRX is the vehicle that we're really waiting with bated breath for," said Tim Kelly, a Cadillac dealer in Chattanooga, Tenn.
While the SRX could increase profits, Cadillac is counting on another model -- the $75,000 XLR sports car -- to help it pull off a new, and highly ambitious, strategy: Instead of expanding sales by offering models that start below $30,000, GM wants to move Cadillac upmarket.
Counter to downmarket moves that have helped European rivals BMW and Mercedes prosper in recent years, the idea at GM is to limit the Cadillac brand's accessibility in an effort to restore its prestige.
The XLR, which will arrive in showrooms this summer, boasts Corvette-style performance -- it shares underpinnings with a future version of the legendary Chevy sports car -- and technology like radar cruise control that the brand never offered before. Response already has been strong.
Cadillac offered 99 copies of a special edition of the XLR as a featured gift through the Nieman Marcus Christmas catalog last year at $85,000. All 99 sold out within 14 minutes, with 2,000 more disappointed buyers on hold, making the car one of the catalog's hottest sellers ever.
The good news notwithstanding, Cadillac still has a long way to go. Other than the CTS and its Escalade family of giant SUVs, which have become popular among rappers and professional athletes, the other cars in Cadillac's lineup recorded double-digit sales declines last year.
As a whole, Cadillac was fourth in the luxury-sales rankings, well behind Lexus, BMW and Mercedes. Despite the success of the CTS, Cadillac's biggest seller by far remains the DeVille, a large sedan favored by the country-club set. GM officials are trying to figure out how to balance the need to keep these buyers with the desire to move the brand upscale to compete with European rivals.
For GM, the success of the upmarket strategy is much more important than Cadillac.
Robert Lutz, GM vice chairman and product-development chief, said the company wanted to re-establish the pyramid of brands that was critical to its success for most of the past century but got muddled with overlapping offerings in the 1980s and '90s.
Moving Cadillac up the price ladder makes room for upgrading Buick and Pontiac, brands where GM is investing billions in new models it hopes will be able to compete with low-end luxury makes from rivals.
GM illustrated its vision most dramatically at the Detroit auto show last month, where it showed off a concept version of an ultraluxury Cadillac that might compete in the $200,000-plus range with the likes of Rolls-Royce and Bentley. Powered by a 1,000-horsepower, 16-cylinder engine that GM said still gets 20 miles per gallon, the sleek sedan was ranked best in show by a leading industry magazine.
"Whether we do that car or not is open to debate," said Lutz, who is the driving force behind the car. "What is highly likely is that we would use that proportion and that aesthetic concept and that design direction, and use it for a Cadillac that goes way upmarket."
Karen Lundegaard, staff writer for The Wall Street Journal, contributed to this report.