Why the Cadillac ELR Is 3 Years Late

Years ago, GM chose not to make a luxury model its first plug-in.

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Mark Adams, Executive Director of Cadillac Global Design stands next to the Cadillac ELR after its unveiling during the North American International Auto Show in Detroit, Tuesday, Jan. 15, 2013.
Mark Adams, Executive Director of Cadillac Global Design stands next to the Cadillac ELR after its unveiling during the North American International Auto Show in Detroit, Tuesday, Jan. 15, 2013.

One of the buzziest models introduced at this year's Detroit auto show is the Cadillac ELR, a plug-in hybrid similar to the controversial Chevrolet Volt. By following up on the Volt with a more refined luxury plug-in, parent company General Motors is demonstrating its commitment to electric-vehicle technology, even though it hasn't really caught on yet with the general public.

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What GM isn't saying, however, is that it may have flubbed its whole EV program by making the Volt the vanguard product and the Cadillac the follow-on. During the early days of GM's electrification program, many insiders—including Bob Lutz, then the vice chairman—argued that the company's first plug-in hybrid should be a Cadillac, not a Chevy. But GM's board of directors reasoned that the technology would get more attention if it belonged to GM's mass-market brand, so it ended up with the Chevy bow-tie badge.

Had the original product been a Cadillac, it would have allowed GM to price it higher, since Caddies typically command $10,000 to $30,000 more than what a Chevy might cost. Since the Volt involves a whole range of breakthrough technology, it costs GM at least $75,000 to produce each vehicle, according to estimates compiled by Reuters.

Yet it retails at a starting price of about $40,000, not including a variety of tax credits. So GM loses a pile of money on each vehicle. Compounding the problem, $40,000 is obviously a hefty price for a Chevy, one reason sales have been disappointing since the Volt debuted in 2010.

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GM hasn't announced a price for the Cadillac ELR yet, but it could easily hit $60,000 or more, which is what other luxury coupes cost. For that, buyers will get much more than a tarted-up Volt. The two cars will share many under-the-skin components, but the ELR will have more rambunctious styling, a plusher cabin, racier handling and gee-whiz features like power retracting cupholders. GM is targeting the ELR, which will go on sale in early 2014, at buyers looking for a flashier car than the traditional-looking Volt.

Had that been the strategy from the beginning, low EV sales might not be quite the rap against GM that they've become. GM once projected Volt sales of 40,000 in 2012, yet it ended up selling only about 23,000, and that required a variety of discounts. Volt sales have totaled only about 32,000 since 2010, and GM has idled the Detroit-Hamtramck plant where it assembles the Volt twice on account of low sales.

By setting optimistic Volt targets it failed to meet, GM played right into the hands of critics who think the Volt is little more than a costly science project. The Volt got its start several years before GM declared bankruptcy and received a government bailout, yet the Volt has been conflated with President Barack Obama's green-energy subsidies, as if the White House ordered GM to produce the car—which it didn't.

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The Volt has been extremely popular with those who have bought it, coming in first in Consumer Reports' annual owner satisfaction survey in both 2011 and 2012. Many auto buffs love it, too, due to its breakthrough powertrain technology, smooth, quiet ride and low fueling costs. Disappointing sales of other EVs, such as the Nissan Leaf, suggest that the big barrier is slow acceptance of plug-ins market-wide rather than any particular problem with the Volt.

Had it been the Cadillac Volt, sales targets obviously would have been lower, given the higher price. Positioning the vehicle as a niche product rather than a mass-market wannabe would have given critics far less to complain about. And as GM expanded its plug-in offerings, the new technology would have flowed from a luxury brand downward—which is what usually happens—rather than from a middling model up, which could add to the challenge of marketing the ELR.

Still, just about every automaker is spending heavily to roll out plug-ins of one variety or another, including Honda, Toyota, Ford, and BMW. That ought to help lower costs over time, while making the technology more mainstream. So maybe we'll all end up driving some kind of plug-in eventually, and it won't matter whether the Volt or the ELR came first.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.