General Motors Co. will begin production on two new Cadillac models next year, in a sign that the auto maker is betting on sustained demand for luxury vehicles despite warning signs of a slowdown in the North American economic recovery.
The company announced on Thursday that it will invest more than $300-million (U.S.) to prepare its assembly plants in Oshawa, Ont., and Lansing, Mich., to build the new vehicles, which it says will compete with top-tier luxury brands like BMW, Audi and Mercedes-Benz.
"We're constantly looking at where we need to launch new products to be competitive in the segments," said Jason Easton, a spokesman for GM Canada, adding: "We are in need of a replacement Cadillac, most definitely."
GM reported that its profit nearly doubled in the second quarter, with earnings of $2.5-billion or $1.54 a share. That compared with $1.3-billion or 85 cents in the same quarter a year earlier.
The company raised its vehicle prices and snapped up U.S. market share from Toyota and Honda as those companies struggled to reopen plants following the March 11 earthquake and tsunami in Japan. GM's sales were up 7 per cent in the second quarter.
But GM warned that the second half of the year will probably not be as strong as Japanese producers return to the market and the U.S. economic recovery continues to look unstable.
GM will spend $117-million to prepare its assembly plant in Oshawa to build the new large front-wheel-drive Cadillac XTS, which the company says will appeal to older, more traditional luxury Cadillac enthusiasts. The model will be built on the plant's flexible production line.
Another Cadillac model, called the ATS, will be assembled at GM's Grand River plant in Lansing and is aimed at younger buyers who might otherwise go for the BMW 3-Series or other German performance sedans. GM is investing $190-million in the Lansing plant.
Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc., said GM had fallen behind better-known luxury manufacturers like Lexus and BMW.
"It's one of the fundamental problems GM has had. Over the last three or four decades they've allowed their luxury brand to become a second-tier player," he said.
Mr. Easton said GM is confident there will be demand for the new models, despite continuing uncertainty in U.S. markets. It will be 2012 before the first of the new cars hit showrooms, he said, giving more time for the U.S. economy to stabilize.
"I think you just have to look at luxury car sales in Canada, which continue to increase and improve. There's quite a battle going on at the top if you take a look at BMW and Mercedes and how hard they're fighting for market share," Mr. Easton said.
Most luxury car buyers are also financially stable enough to be shielded from the worst effects of an economic slowdown, he said.
Michael Hatch, chief economist for the Canadian Automobile Dealers Association, agreed. "The typical luxury car buyer is less affected, quite frankly, by recession," he said.
GM and its Canadian subsidiary were bailed out by the U.S., Canadian and Ontario governments two years ago and restructured its operations, closed plants and introduced new models to compete more effectively and reverse its mounting losses.
In Canada, the company shut down a truck plant in Oshawa and a transmission plant in Windsor, Ont., and cut its work force.
GM's Oshawa plant builds many GM models – from the Impala and Camaro to the Chevrolet Equinox and Buick Regal – and employs more than 4,500 people.
Since 2009, the Oshawa assembly plant has rehired all of the workers it laid off during the recession and created an additional 300 jobs, Mr. Easton said.
With reports from CP, AP and AFP