In a new book on his tenure as the head of Cadillac, John Smith recounts the birth of its most iconic product.
• The Cadillac Escalade was first launched in 1999.
• Although the Escalade is today the brand’s most important model, it faced considerable internal headwinds on its journey to production.
• Former division general manager John Smith recounts that journey in his newly released book, Fin Tales: Saving Cadillac, America’s Luxury Icon
John Smith became the head of Cadillac in early 1997, having previously led General Motors’s Allison Transmission division. At the time, Cadillac was in a sad state. As Smith recounts: “Unit sales and market share were half of what they were compared to the peak year of 1978, despite luxury segment growth of 50 percent! Once the luxury vehicle of choice, Cadillac was looking tired and irrelevant compared to the likes of Mercedes, BMW, and even newbie Lexus. Buff books and media observers were writing Cadillac off for dead. Cadillac dealers had suffered, too, and rated their franchise dead last in NADA’s annual survey of all franchised auto dealers in the U.S.”
EXCERPTED FROM FIN TALES
“It’s Mr. Smith.”
It was a sunny, warm August workday afternoon in 1997 when I picked up the phone in my office. Mr. Smith was Jack Smith, GM’s chairman and CEO. His full name was John F. Smith, Jr., and several times our mail would get mixed up, or folks would think his note or my note was from the other guy.
After some general catching up, Jack asked, “Don’t you need a truck?” I remember taking a deep breath and saying something to the effect, “Yes, but too few folks between me and you think so.”
He paused, and then said simply, “Let me work on that.”
Since joining Cadillac in February [1997], every conversation I had with dealers included questions about—if not demands for—a luxury truck. When meeting with the Cadillac team and key dealers across the country, it was clear that Cadillac was already losing loyal customers to luxury brands with trucks—and might soon as well to Lincoln, which would launch its Navigator in a few months. I, too, believed Cadillac needed an SUV, but at this early point in my tenure, I didn’t see a path forward. BrandScape expressly limited Cadillac to passenger cars.
BrandScape was a vehicle market and brand positioning assessment that had been adopted by the GM North American Strategy Board in 1996. It was certainly needed to resolve undue overlap between the divisions, make better use of GM resources, and hopefully produce more distinctive and profitable products. However, [it] was mostly about better separating GM’s 60-plus models and not so much about reducing the total to a more manageable and impactful level, and certainly not about eliminating any brand. That would only be addressed in GM’s bankruptcy proceeding of 2009 when the Pontiac, Saturn, Saab, and Hummer brands were either closed or sold.
BrandScape concluded that Cadillac would sell only luxury cars, period. With GMC already selling upmarket from similar Chevrolet products and seen to have even more upside in this regard, any luxury trucks GM might develop would be sold under the GMC brand. While there were many reasons to conclude GM would be leaving money on the table by limiting Cadillac to just passenger cars, BrandScape concluded otherwise—a decision that had nothing to do with the customer and everything to do with institutional reluctance to address a failed, multi-brand strategy.
Every overture regarding a Cadillac SUV that I had made to Ron [Zarrella, group VP, vehicle sales, service, and marketing] had gotten the cold shoulder, and that was on a good day! No doubt, even if he had ever expressed some openness to the idea, the other brand leaders could be expected to be critical of any deviation from this strategy.
That said, I resolved to bide my time, feeling sure there would come an opening to formally revisit the question of a Cadillac SUV—by my hand, or someone else’s. That phone call from the chairman proved to be the opening.
A few weeks later, I was attending the Frankfurt auto show. Someone found me on the Cadillac stand and said Jack had just landed, was coming directly to the show, and that he wanted to see me on the Opel stand.
“OK, I’ve asked Rick [Wagoner, then president of GM North American operations] to take another look at the Cadillac truck question,” he said as we moved into one of the small press briefing rooms on the Opel stand. “The rest is up to you.”
Getting a Cadillac SUV past the BrandScape palace guards, however, would no doubt be a battle royale.
Back in Detroit, at the conclusion of the first Cadillac staff meeting following the Frankfurt show, I asked Pete Gerosa [Cadillac general sales manager] and Martin Walsh [Cadillac executive director of marketing] to remain in the room and shut the conference room door. I remember them looking at one another as if they were in trouble. “We have a shot at a truck,” I told them. We needed a knowing, resourceful, and scrappy Cadillac brand manager who could work with the full-size truck team in putting a proposal together. We agreed it should be Steve Hill, who joined us immediately.
As we began to discuss vehicle size (Tahoe or Suburban), and possible differentiation from the Chevrolet and GMC versions, it occurred to me that various internal interests would work overtime to create a lousy business case, which would kill the program. That said, we did have an ace up our sleeve. The business case folks would likely assume the same dealer discount [from MSRP] as used by Chevy and GMC full-size trucks, which was around 18 percent at the time. Cadillac’s more expensive vehicles carried a lower dealer discount of 11 percent. Steve was to let the 18 percent assumption ride until just before any senior management review of the program, then insert the usual Cadillac discount level. That would add considerable profit to the business case and confine the final debate to the strategic merits of a Cadillac truck.
That night, Michael Grimaldi called. He was GM’s full-size truck vehicle line executive and would be responsible for developing the Cadillac SUV proposal. “I’m not supposed to talk to you,” Michael said. He had been instructed to work on this project without involving the Cadillac team. We discussed what might be unique to a Cadillac truck since money and time did not permit much in the way of visual differentiation. OnStar offered one such possibility, in that they had a second-generation hardware set in development that eliminated the klutzy freestanding handset (which customers didn’t want, and dealers had difficulty installing) and used a tidy, three-button-equipped rearview mirror with microphones build into the vehicle’s headliner, all factory-installed for a high-quality result. With Chet Huber’s help at OnStar, the launch of Escalade had a neat, much-discussed first-to-market infotainment feature!
Terry Henline in design was developing the exterior and interior specifics, using the GMC Yukon as a starting point, and with precious few degrees of freedom. The front end was a simple, large chrome oval, with the Cadillac wreath and crest set against a matte black grille insert. Unique chrome wheels were found, and CADILLAC was applied in large block letters to the front doors. Interior differentiation was limited to specific leather seating materials, Cadillac ornamentation, and the new three-button OnStar application.
The fiercely independent GM market analysis crew developed the business case. The business case was positive, but conservative volume assumptions made it only marginally so—but when Cadillac’s lower dealer discount was put on the table, the program’s return on investment became real attractive.
Rick Wagoner called another meeting to review the Cadillac SUV proposal. Ron Zarrella was there, along with the heads of planning, manufacturing, engineering, design, and purchasing, as were Michael Grimaldi, Mike DiGiovanni (a.k.a. Mickey D, who led GM’s market analysis team), and me.
Michael presented the program scope, investment, timing, and attractive business case. Mickey D discussed the segment volume opportunity, and what we were beginning to understand about luxury vehicle owners’ interest in SUVs and their related brand rankings. It was all good news for Cadillac. Ron argued against the proposal, no surprise as BrandScape was his baby. I went through my points: the positive business case, the rapid growth in the segment, the loss of loyal Cadillac owners to other luxury makes offering SUVs, and a first opportunity to communicate that something different was happening at a brand otherwise seen as increasingly irrelevant and in decline. Rick Wagoner thought the next thing to do was share the status with Jack later that afternoon. He would do so and asked Ron to come along as well. When I left the conference room, I asked my assistant to urgently fax a copy of my arguments to Jack’s office.
That evening, I received a call from Ron at home. It was among the shortest conversations we would ever have, and something along the lines of: “You got your truck.”
We arranged a satellite broadcast to inform Cadillac dealers of the news. It would be 10 months before we launched, but they could use that information to their advantage anyway, persuading their customers wanting a truck to wait.
For the $10 million invested in the original Escalade, GM made approximately $200 million pre-tax during the model’s brief, two-year life. At some point in the second generation’s life cycle, the Escalade became the second-most profitable GM model (behind the Corvette). It also produced the majority of Cadillac’s profits and consistently attracted a new, wealthier, and more youthful audience to the brand.
I recall Rick once observing that it was better to have a good product in a great segment than a great product in a good segment. The first-generation Escalade is certainly proof of that.
Keyword: Cadillac Escalade: How It Came to Be