At his Houston Cadillac store last weekend, Carl Sewell had an unusual experience: He helped a mother secure a baby seat into a car she was considering. Young- shopper sightings were once a rarity for Sewell.

“It’s a pretty diverse group that’s coming through the door now,” said Sewell, who owns four Cadillac dealerships in Texas. “The new ATS is bringing in the ideal buyer: younger and better educated.”
Cadillac’s $33,095 ATS small model drove a 49 percent rise in sales last month for General Motors Co. (GM)’s luxury line, outpacing a forecast from researcher Edmunds.com that the brand would grow by 37 percent. It was the sixth consecutive month of gains for Cadillac, which is rolling out 10 new models by 2015 and building on buzz it earned at the New York auto show last week for the debut of the stylish redesign of its CTS sedan.

“Cadillac’s performance certainly exceeded expectations, and the ATS was the driving factor,” said Jeff Schuster, auto analyst with LMC Automotive in Troy, Michigan. “They have a lot happening with their lineup and the vehicles are hitting with consumers.”

Cadillac’s strong showing came as U.S. automakers rode a newfound success in sedans to their best monthly sales in more than five years. With Detroit’s best car lineup in decades, GM’s sales rose 6.4 percent; Ford Motor Co. (F) gained 5.7 percent on the strength of a record month for its Fusion family car; and Chrysler Group LLC jumped 5 percent.

U.S. Cars
U.S. light-vehicle sales in March climbed 3.4 percent to 1.45 million, the highest monthly total for the industry since August 2007, according to researcher Autodata Corp. Full-year sales may rise to 15.5 million, the best year since 2007, according to Edmunds, which raised its forecast from 15 million this week.

The Dodge Dart, one of four Chrysler cars to set sales records last month, and Fusion are among small and mid-size models dealing blows to Japan’s Toyota Motor Corp. (7203) and Honda Motor Co., which reported smaller gains for March than analysts estimated.

GM rose 0.5 percent yesterday to $27.93 in New York. The shares dropped initially following the release of the Detroit- based automaker’s sales results, which fell short of analysts’ forecast of a 12 percent gain. The stock rallied during a conference call in which GM executives detailed Cadillac’s results.

GM fell 0.5 percent to $27.80 at the close today in New York. Separately, GM said its first-quarter sales in China rose 9.6 percent to 816,373 vehicles.

“Cadillac is doing well,” said Christian Mayes, a St. Louis-based analyst with Edward Jones & Co. who attributed the shares’ recovery in part to Cadillac’s sales surge. “They’re in the process of refreshing the brand and that gets some more interest.”

Better Margins
Cadillac’s success is critical to Chief Executive Officer Dan Akerson’s goal to boost operating profit margins in North America to 10 percent by mid-decade, from 7.4 percent over the last three years.

“Cadillac makes more money than our average portfolio,” Chuck Stevens, GM chief financial officer for North America, said last week during a forum in New York. “As we continue to fill out the lineup in the portfolio and grow Cadillac, that’s going to have a net benefit from a margin perspective.”

The ATS, introduced last year, is aimed at changing perceptions about Cadillac. Engineered to take hot laps on Germany’s Nuerburgring race course, the small sports sedan is marketed with frenetic ads showing young drivers speeding down a mountain road in Morocco or other exotic locales.

Consumer Reports magazine praised the ATS in its May issue, saying its “impeccable fit and finish is among the best we’ve seen from GM” while the vehicle’s “sharp handling, eager performance and responsive steering give up nothing to the best European sports sedans.” It was named North American Car of the Year by a jury of journalists at this year’s Detroit auto show.

Brand Momentum
“We’ve got tons of anecdotal stories of people being surprised that Cadillac has a vehicle like this,” Don Butler, U.S. vice president of Cadillac marketing, told analysts and reporters yesterday during a conference call. “That’s why we expect the momentum to continue to grow.”

GM has been trying to restore Cadillac’s faded luster for more than a decade with models designed to look like stealth fighter jets. Once marketed as the “Standard of the World,” Cadillac ceased being an adjective for greatness after a series of shoddy cars and disastrous downsizing in the 1980s and 1990s.

Brian Hamilton still has battle scars from the first time Cadillac fielded a small car. He became a Cadillac dealer three decades ago just as GM (GM) rolled out the Cimarron model, a thinly disguised Chevrolet compact with some extra chrome and tufted velour seats.

“It was kind of a disaster,” recalls Hamilton, whose dealership is west of Lincoln, Nebraska. “It was just a re- badged Chevy Cavalier.”

Falling Behind
Cadillac ended a six-decade run as the top-selling U.S. luxury brand in 1998 and hasn’t placed higher than third since 1999. Cadillac’s U.S. sales fell 1.7 percent last year to 149,782 and it ranked fifth among luxury brands, trailing leaders BMW, Daimler AG (DAI)’s Mercedes-Benz and Toyota’s Lexus line.

So far this year, Cadillac’s sales are up 38 percent and it has surpassed Honda’s Acura brand to rank fourth among luxury brands. While Cadillac’s models are much improved, its image is still marred by years of selling cars that were less than luxury, Schuster said.

“The capabilities are all there and the characteristics are there of a true premium sports sedan,” Schuster said. “But I think the brand just isn’t quite there yet. It just takes a lot of time to increase a brand’s image.”

New CTS
The next step comes later this year with the new CTS, which is longer, lower and lighter than the current version of the car. It received raves for its rakish front end, with cascading LEDs framing the headlights. “It’s like a Long Island nightclub up in there,” wrote the automotive website Jalopnik.
“It’s a big muscular sedan with a lot of movement in its design,” said Rebecca Lindland, an analyst with Rebel Three Media & Consultants, who attended the CTS unveiling in New York. “It will turn heads for all the right reasons.”

The challenge for Cadillac is to move the CTS up the price ladder to around $50,000 to make room for the ATS as the brand’s entry level car, Schuster said. Previously, the CTS had been Cadillac’s starter car, with prices starting below $40,000.

“I’m not sure consumers are ready to spend BMW 5 Series money on a CTS,” Schuster said. “The vehicle is there, but there’s a question of whether they can get the premium price for it.”

Cadillac’s pricing problems show up in the incentives it offers. GM’s average incentive spending on the ATS in February was $3,700 per car, compared to $333 in September, when the new model went on sale, according to TrueCar Inc., a Santa Monica, California, researcher that tracks auto sales.

Luxury Growth
Those discounts should decline as Cadillac’s redesigned models attract new buyers. GM said more than half the ATS buyers are coming from competitors such as BMW, Mercedes and Lexus. GM aims to increase sales of Cadillac in the U.S. by more than 30 percent this year, Bob Ferguson, global head of the brand, told reporters in New York last week.

“Cadillac is the fastest growing full-line luxury brand,” Kurt McNeil, GM’s vice president of U.S. sales operations, said on a conference call yesterday.

Holes to Fill
There are still holes in Cadillac’s lineup, Texas dealer Sewell said. For starters, Cadillac needs to take on the BMW X3 with its own small sport-utility vehicle priced below the $37,330 SRX model that is the brand’s best-seller, Sewell said.

Ultimately, for Cadillac to stake a claim to legitimate luxury, it must have an opulent, high-end sedan that would compete against the $92,350 Mercedes S-class, Sewell said.

“We’ve got a lot of people asking about an S-class competitor,” Sewell said. “But I don’t have a luxury sedan that fits a successful CEO of a Fortune 500 company. That’s what Cadillac needs if we really want to compete on a global level.”

For now, though, Sewell is seeing new life for Cadillac as all those young buyers come through his front door.

“Cadillac is making a very nice return,” he said.

The ATS has over 3k in incentives already, wow.