Cadillac's Hail Mary, dressed in a tux

May 23, 2012: 12:30 PM ET

For years, GM's luxury division has fruitlessly chased BMW and Mercedes-Benz. Its 2013 XTS sedan is the brand's first real shot at taking sales away from them.

By Doron Levin, contributor

cadillac_xtsFORTUNE -- The tongue-twisting alphanumeric names for Cadillac's vehicle lineup had gotten so baffling that Don Butler, vice president of marketing, borrowed Starbuck's drink sizes to simplify them. Tall, grande, venti. Small, medium, large. ATS, CTS and XTS, Cadillac's newest large sedan.

General Motors Co. is banking on U.S. car-buyers considering the new XTS when shopping for luxury vehicles like the Audi A6, BMW 528i and Mercedes E350. The $44,995 price-tag for the entry-level version of the new Caddy makes the car a "good value," in Butler's words, against the $41,700 A6, $46,900 BMW and $50,490 Mercedes. With all available options, the XTS' price can rise to just above $60,000.

To be sure, Cadillac's goal is to steal customers from its foreign rivals. But a perhaps more important target are current Cadillac owners. GM wants to ensure customers trading in now-discontinued STS touring sedans or the discontinued DTS sedans aren't poached. "The most important mission for XTS is to make sure it doesn't lose the ones it's got," affirms Aaron Bragman, a senior analyst with IHS Inc. in Northville, Michigan.

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The comparable Audi and BMW sedans come equipped with much smaller engines than Cadillac's 3.6-liter, 304 horsepower V6. Cadillac is also counting on an array of safety features, including lane departure warning and CUE or Cadillac User Experience, a high-tech graphic dashboard interface with similarities to a smartphone. CUE will allow the driver to navigate, listen to music and activate safety devices using touch screen icons, steering wheel controls or voice commands.

Cadillac executives realize they're cramming a great deal of new technology into the XTS's instrument panel. Ford Motor Co. (F) was burned when its MyFord Touch controls initially experienced glitches. To head off confusion while adding a sweetener, GM is distributing an Apple (AAPL) iPad with each vehicle equipped with CUE. The iPad will be preloaded with apps that explain how various features work, including one which organizes and displays the user's digital music. (Another luxury car, Hyundai's Equus, distributed 2,000 $500 iPads before discontinuing the practice with the 2012 model.)

Cadillac's decade-long brand resurgence was derailed by GM's financial troubles in 2008 and the 2009 bankruptcy, which disrupted and delayed the XTS' development. The XTS replaces the Cadillac's DTS large sedan, as well as STS. With the new model's debut, GM's luxury division still has to roll out the smaller ATS the summer to gain representation in the three key sedan size categories.

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Though Cadillac doesn't contend in Europe, the XTS and ATS will help the brand put up a better fight in China against BMW and Mercedes. In the U.S. the two biggest German brands are outselling Cadillac by a factor of two. Toyota's (TM) Lexus luxury division, while behind BMW and Mercedes, is regaining lost momentum from the 2011 earthquake and tsunami.

Later this year, the ATS will roll into dealerships. The rear-wheel-drive ATS is a no-compromise bid to compete against BMW's formidable 3-series, one of the most praised and decorated sports sedans ever. According to the market research company Millward Brown, Cadillac wasn't among the top ten most valuable automotive brands worldwide, a list headed by BMW, Toyota and Mercedes. Of the top 100 most valuable brands of all categories, Apple headed the list with an estimated value of $183 billion. "The Cadillac brand is a work in progress," says Bragman.

But Cadillac strategists are dedicated to the mission of pushing GM's luxury brand to the front ranks where it once dominated. A broader, deeper product lineup could help. Crossover versions of the sedans are being contemplated. And company executives hint broadly that a rear-wheel-drive flagship even larger than the XTS could be in the works. Chances are that Cadillac hasn't received corporate approval for the project, otherwise their executives would be speaking about it more definitely.

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GM management's enthusiasm for expanding Cadillac's product line could be dictated by the marketplace performance of the XTS and subsequently the ATS, expressed in terms of pricing as well as units sold. GM's luxury brand has sights set on nothing less than regaining its one-time reputation as "Standard of the World." Only mortal combat against the world's best luxury cars will decide whether that title is justified.

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