(FORTUNE Magazine) – It isn't your uncle's Caddy anymore. At least that's what the folks at Cadillac want you to think of their new $75,000 convertible roadster, unveiled last month at a high-end auto show in Pebble Beach. "I believe Cadillac is engaging in what history will look back on as one of the great defining moments in the brand's history," proclaimed Caddy's new chief, Michael O'Malley, as dozens of spotlights played over the two-seater's aggressively sharp and futuristic lines.

The as-yet-unnamed luxury roadster--and its family of equally edgy new vehicles, which will be rolled out over the next few years--represents a high-stakes move by General Motors' Cadillac division to reposition itself in the luxury-car market after a quarter-century of declining sales and diminishing prestige. The tim-ing couldn't be more appropriate: The first roadster, a 2003 model, is targeted to come off the assembly line in 2002, Cadillac's 100th birthday.

But all the theatrics at the Pebble Beach Concours d'Elegance, including the introduction of the significantly improved 2001 Escalade SUV on the green of the famed golf course's 18th hole, couldn't hide Cadillac's troubles. With annual sales sand-trapped in the 180,000 range, half of what they were at Caddy's peak in 1978, the brand has been losing ground to smaller and often better-made cars for decades. Today Mercedes, BMW, Audi, and Lexus each outsell Caddy worldwide, Mercedes at a rate of five to one. Volvo, Jaguar, Infiniti, Acura, and Saab have all stolen sales away. Even archrival Lincoln surpassed Cadillac in 1998.

Although the word "Cadillac" can still be found in Webster's dictionary ("something that is the most luxurious or highest quality of its kind"), the car itself has vanished from most upscale precincts, thanks in large part to GM's stodgy reluctance to change. The brand's long decline has been marked by a number of memorable disasters: the hideous 1980 Cimarron, the overpriced Allante in the late 1980s, and the underwhelming Catera in 1997 (remember the perplexing slogan "The Caddy that zigs"?). Even the good vehicles--the stylish '92 Seville STS and the well-engineered '99 Catera Sport--haven't been able to reverse Cadillac's larger image problem. Says Merrill Lynch auto analyst John Casesa: "Cadillac is now an outsider fighting its way back into a market it created."

Cadillac has tried, and failed, to reinvent itself many times before, so it's wise to be cynical about O'Malley's "defining moment" speech at Pebble Beach. After all, the average age of Caddy buyers is 60. But this time might be different. The expensively produced showcases at the Concours d'Elegance--an event Cadillac didn't dream of sponsoring until recently--were the culmination of more than two years of work on a bold and cohesive plan to overhaul the brand. The division has shown off a series of new concept vehicles, including the Imaj and the Evoq, on which the new roadster is based, that are daring in both design and engineering. It is reverting to a more performance-oriented, rear-wheel-drive strategy. It entered its first motorsports competition in 50 years. And it is building a state-of-the-art manufacturing plant in Lansing, Mich. Says Ron Zarrella, GM's North American president: "By 2002, Cadillac should be recognized in North America as the preeminent luxury brand."

But there have been potholes along the way. Caddy was roundly criticized for its first Escalade SUV, a thinly veiled rebadging of the GMC Denali rushed onto the market in 1998 to compete with the Navigator, Lincoln's surprise home run. The company got caught last December pumping up Cadillac's numbers--counting vehicles delivered to dealers rather than to customers--to bump Caddy sales ahead of Lincoln's. And it changed leaders in April, just as it was about to roll out its first new models, elevating O'Malley, GM's general sales manager of the north-central region, to general manager.

What matters in the long run, though, is execution. Building classy, high-performance cars is only part of the challenge. Given the uniformly high quality of luxury imports and the exacting standards of luxury buyers worldwide, Cadillac has to improve its service, marketing, and sales operations at the same time. Otherwise it runs the risk that younger buyers here, and customers overseas, won't even walk into its showrooms. And time is short: If the turnaround isn't well underway by the company's 100th birthday, insiders say, Cadillac may be headed for the scrap heap.

It wasn't until late 1997, just before Cadillac's sales volume dipped below Lincoln's for the first time, that GM put a design team onto the "Cadillac problem." Caddy had recently gained a dynamic new leader, John Smith, who had enough vision and energy to ignite a change. "For quite a long time," Smith says, "GM played it safe in a lot of different areas, including styling, and Cadillac got caught in that. It no longer had any visual identity, no risk whatsoever. We didn't have this clear, concise, and compelling sense of self that we now have."

Smith couldn't help but notice that some of the most innovative sheet metal in decades was on parade at the 1998 Detroit auto show--from VW's New Beetle to the BMW Z07 concept. And he was more than aware that, unlike Ford, which owned Jaguar, Aston Martin, and Lincoln (and now owns Volvo and Land Rover as well), GM had only Saab (and now a fledgling partnership with Alfa Romeo) in its luxury stable.

So the burden on Cadillac to perform was great. Under Smith's direction, an in-house team worked furiously on an overhaul. When GM design director Wayne Cherry presented the new plan to the company's top executives early that year, they were ecstatic. And from that styling exercise grew a new design philosophy for Cadillac called Art & Science. The idea links Cadillac's history of out-of-the-box styling from the '50s with its reputation as a leader in cutting-edge systems. (Caddy was the first to offer an electric starter, in 1912; power steering, in 1954; and an infrared display system called Night Vision, in 1999.) Art & Science's strong futuristic lines have been applied to everything from concept vehicles to a new ad campaign and streamlined logo (no more ducks). It has even led to a tony new interior design strategy for Caddy showrooms. To test the strength of the concept globally, Cadillac assembled a team of marketing executives from Europe, Asia, the Middle East, and Latin America to meet quarterly; every region has deemed it a success.

Art & Science is not what buyers of Cadillac's best-selling car, the DeVille, are accustomed to. And the vision, although it promises to lure a younger crowd into those glitzy new Caddy showrooms, presents a ticklish problem: It goes against most of what a typical Cadillac buyer wants--oversized comfort and understated styling. Cadillac is stepping carefully, pushing only the science side of its new philosophy with DeVille buyers, who account for half of the division's sales. But, as Cadillac vehicle line engineer Jim Taylor puts it, "It's no time to be safe. A premier brand needs to stand out. It's risky, but we've chosen to go ahead with this, even if it alienates some customers."

Caddy shared its makeover with the rest of the world at the 1999 Detroit auto show. When the sheet came off the Evoq concept roadster, its exaggerated, razor-sharp lines (think metal origami) and its assertive stance drew gasps from the crowd. Encouraged by the response (when was the last time Cadillac got such positive attention?), the team in Detroit has been on a fast-paced push ever since. It has unveiled two more Art & Science vehicles--an overhauled Catera with the new trademark vertical headlights and angular egg-crate grille, which will be on the market in early 2002; and the seriously creased Imaj, a four-door luxury sedan that is a prototype for the new Seville, on track to debut in 2003. An all-wheel-drive station wagon-SUV hybrid and a luxury SUV-pickup hybrid designed to go head-to-head with the Lincoln Blackwood are also part of the stepped-up vehicle rollout. "There is just no question this has to work out," says Cadillac spokesman Christopher Preuss. "There probably will not be a second chance."

The Art & Science campaign promises some real vehicle improvements, not just edgy design. After decades of watching rear-wheel-drive imports steal sales, Cadillac has finally decided to return to rear-wheel drive (what most racecars rely on). In performance terms, that gives the new Cadillac models an instant edge over their predecessors and puts them in the same camp as models from the likes of Mercedes, BMW, and Jaguar. Another good sign: GM has assigned one of its top engineers, Dave Hill, to Cadillac. Hill, who once worked at Cadillac, has since earned kudos for overseeing the new Corvette, the company's halo car. Now he's applying those same skills to making Caddy's luxury roadster a car that will impress performance and handling experts as much as luxury buyers.

Another risky move for Cadillac was the decision to race at Le Mans in June. With barely a year to build and test a 580-horsepower twin-turbo V-8 car to race with the fast pack in the prototype class (lightweight, open-topped cars), the odds were long. The last and only time Cadillac had attempted the grueling 24-hour French endurance contest was 1950, so no one had any experience on which to draw. Manufacturers like BMW, Mercedes, and Audi often spend $50 million to $100 million a year, over several years, to prepare for such an event. Instead, Cadillac jumped in headfirst, and although the team didn't come close to winning (three of its four cars finished, in 20th, 22nd, and 23rd place), the company says it's committed for at least two more years. The bottom line: Caddy gets some much needed exposure in luxury-centric Europe. "We came back from Le Mans with a positive return on investment," says Herb Fishel, GM's head of motorsports. "It was good for Cadillac, but there's also a brand called General Motors, which in Europe, and Germany in particular, is not always embraced."

If any one person can take credit for pulling Cadillac back from the brink, it is John Smith. But Smith left in April, after only three years at Caddy's helm, to take over GM's multibillion-dollar parts and services business. Now O'Malley, 48, who has done marketing and fieldwork at Ford, Chrysler, and GM, has the wheel.

"We needed somebody to lay out a vision for Cadillac," says O'Malley, who still isn't comfortable in the spotlight. "The key is to take that very broad vision and really nail it down in terms of strategies."

Industry observers say they are surprised that GM would change jockeys in the middle of such an important race, before a single vehicle from the Art & Science mold has hit showrooms. Although there are unanswered questions about his leadership abilities, O'Malley brings important skills to the table, such as vehicle-launch experience and marketing expertise. A good place for him to start might be with the tag line for Cadillac's otherwise attractive new ad campaign, which carries the baffling message "The power of &." Rather than becoming some sort of hip shorthand for Cadillac's luxury and technology capabilities, the slogan has confused people, many of whom misread the line as "The power of ampersand." Says Merrill Lynch's Casesa: "Art & Science is a very original, very distinctive, and easy to communicate message. But I don't understand 'The power of &' at all."

But the most pressing business for O'Malley--indeed, for the entire division--is to figure out how to drum up Caddy business in tough markets like Europe and Asia. "My attention in the next year is going to be very, very focused on our strategies in each region of the world," O'Malley says. "And you can't operate remotely. Until you're driving around the streets of Paris or Tokyo or even Shanghai, you can't have a good instinct about those markets."

Considering foreign sales numbers for the luxury brands, he's not wrong about where to focus his attention. Cadillac sold only 5,000 cars outside the U.S. last year, compared with BMW's 627,000. Mercedes is even further out of reach. That's a heck of a gap to close, and it'll take more than a few years to close it. At the moment, O'Malley and others at Cadillac are struggling to position the brand internationally. Opel, GM's nameplate overseas, certainly isn't the wisest distribution choice; the lower-priced line has enough trouble selling its own models, let alone untested new Cadillacs. Saab dealerships are a possibility in certain regions. And GM's relationship with Alfa Romeo could offer some higher-end showrooms for Cadillac. But until the company comes up with a global brand strategy, Cadillac is stuck waiting.

So can Cadillac come back? If General Motors takes the safe route for fear of alienating Caddy's core buyers or opts for more conservative production versions of hot concept cars, it won't take long for the public to sense that nothing has changed and to look elsewhere for a new car. Says Casesa: "The absolute minimum it will need is great product--along with consistent execution in advertising, promotion, distribution, pricing, and service."

It will take years for GM's luxury nameplate to put so many large pieces into place. But if GM holds to the course it's on, spends generously on stepping up Cadillac's quality, service, and distribution, and doesn't take any small victory for granted...well, there's a chance that America might have a distinctive luxury line to call its own again. Hey, maybe Caddy will even have the guts to put one out in pink, just for old times' sake.

REPORTER ASSOCIATE Soo-Min Oh

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