General Motors' game plan for the most important vehicle launch since its 2009 bankruptcy amounted to producing a knockout next-generation pickup that would command top dollar.
Critical acclaim for the redesigned 2014 Chevrolet Silverado and GMC Sierra suggests that GM nailed the first part of that strategy. But as the new trucks hit the heart of their launch cycle, the pricing part appears to be running up against cold market realities.
Many Chevy and GMC dealers say sales of the 2014 pickups have been disappointing since the June launch, stymied by stiff price competition from heavily discounted Fords and Rams.
Silverados are "selling very poorly" at Dimmitt Chevrolet in Clearwater, Fla., General Manager Sam Pilato says. The dealership, which typically sells 10 to 25 of the full-sized pickups a month, didn't notch its first Silverado sale this month until Oct. 16.
W. Carroll Smith, president of Monument Chevrolet in Pasadena, Texas, says his supply of Silverado crew cabs hit 170 days, up from the normal 110, amid a dearth of buyers.
"We all know that it's a great truck," Smith says. "But [GM's] position is that the vehicle stands on its own and it doesn't need a bigger rebate. That's not what the market is telling us."
They echo the sentiments of other GM dealers who rave about the '14 truck -- GM's first redesigned full-sized pickup in seven years -- but who complain that meager incentives are keeping buyers at bay. They insist that GM needs better offers to counteract Ford and Ram, which are still selling down their stocks of 2013 models with incentives of as much as $9,000.
The situation underscores the challenge GM faces in achieving CEO Dan Akerson's twin goals of boosting U.S. market share while also lifting North American profit margins to 10 percent, from 7.6 percent last year, which would put it closer to Ford's.
Strong pickup pricing is critical to closing that gap. GM executives want to erase what they have pegged as a $1,000 transaction price differential between their pickups and Ford's. "The expectation is with the newest truck ... we should be able to at least close the gap," Chuck Stevens, CFO of GM North America, said a year ago.
Dealers and analysts say the price disadvantage on the redesigned GM trucks is probably temporary -- Ford's and Ram's incentives could ease once their stocks of '13s are depleted. But some GM dealers worry that the gap is preventing them from capitalizing on the launch buzz.
The price of a popular Silverado model -- a four-wheel-drive crew cab with a 5.3-liter engine in the All Star package -- is $43,005 after factoring in incentives, GM says, while the comparable 2013 F-150 model, a 4wd XLT Super Crew with an EcoBoost engine, is $40,385 after incentives.
Dueling discounts
| Ford increased incentives to counter the launch of GM's redesigned pickups. Here are average incentives per unit (figures reflect multiple model years). | |||
| Sept. '13 | Sept. '12 | change | |
| Ford F-150 | $4,712 | $3,701 | 27% |
| Chevy Silverado 1500 | $3,777 | $5,533 | -32% |
| GMC Sierra 1500 | $3,466 | $5,403 | -36% |
| Ram 1500 | $3,945 | $4,537 | -13% |
| Toyota Tundra | $3,627 | $4,058 | -11% |
| Nissan Titan | $4,141 | $4,495 | -8% |
| Source: Edmunds | |||
GM executives acknowledge the difficulty of rolling out a new generation of pickups just as rivals are in sell-down mode. U.S. sales of GM's full-sized pickups in September fell 8 percent, while Ford's F-series sales rose 10 percent and Ram's climbed 8 percent.
GM execs have signaled that they're more inclined to hold the line on price than chase market share. They played down the September sales decline in pickups while trumpeting a $3,000 increase in average transaction prices compared with a year earlier.
RBC Capital Markets analyst Joseph Spak said in an Oct. 2 research note that he "wouldn't pay too much attention to one-month share trends." Even if those early transaction prices shrink some and the new truck reaps $2,000 more than the outgoing model, he said, it would add $1.3 billion to GM's bottom line over the course of a year.
GM factory reps are imploring dealers to sell the truck on its merits -- to tout its segment-leading V-8 fuel economy and its top rating from Consumer Reports -- in the absence of significant discounts.
"You don't ever want to let the oldest trucks in the market dictate strategy for the newest and best truck in the market," GM spokesman Jim Cain says.
Dealers say that approach worked well early on in the launch this summer, when they still had their own heavily discounted '13 models to offer more price-conscious buyers. But now those '13s are almost gone.
GM did sweeten the deal on Oct. 1 by adding $1,000 in customer cash on the '14 Silverado and an additional $500 on some higher-priced packages. But a week later, some dealers were dismayed when the company confirmed that it had raised the sticker price by $1,500 on average across the model lineup.
"It looked like we're finally going to get into the game," says Rox Covert, dealer principal at two Chevrolet dealerships and two Buick-GMC stores in the Austin, Texas, area. The stores, which have a 120-day supply, compared with the typical 90 days, sell more than 3,000 Silverados and Sierras annually.
"Then they raise the prices," Covert says. "It's like it kicks you in the head."
