GM To Wall Street – Maintain Full-Size Truck Pricing, Profit Over Volume
Tim Esterdahl | Mar 10, 2014 | Comments 6
GM’s CFO meet with Wall Street analysts last week in a private meeting. The message coming out is that GM won’t drop full-size truck prices to increase market share. Rather, it is holding the line. Like Toyota, it seems GM is happy putting profit over volume.
GM recently told analysts they are holding the line on their pricing discipline. CREDIT: REUTERS/RICK WILKING
The Reuters story says that GM’s CFO Chuck Stevens spoke to Wall Street analysts to update them on the automaker’s financial outlook. During the meeting, the performance of the full-size trucks was discussed. Analysts say that the key message from Steven’s was that GM is planning on maintaining price “discipline.” They aren’t going to react rashly to losing some market share. Rather, they are going to hold the line and maintain their profit margins.
UBS Securities released a client note shortly after. It says GM is, “working on marketing strategies to gain traction at the lower end of the (pickup) market without giving up pricing gains at the high end.”
The message of maintaining their pricing discipline has been stated several times by GM executives during the new truck roll out. While some analysts don’t care for this strategy, such as one Barclays Capital analyst Brian Johnson who stated that, ”the launch has been arguably the least successful large pickup launch over the last 15 years,” it has been a consistent message.
A message of pricing discipline sure sounds great, but what about the recent news that GM has been raising incentives. In case you missed it, the news is that in February, GM increased their incentives. The early analysis from journalists is that increasing the incentives was in response to poor sales. GM counters that by saying the raising of incentives is all part of their roll out plan.
That may be the case, it is hard to argue one way or another. One thing is for sure, GM’s incentives are still lower than the competition. The “incentives on the Silverado 1500 were down to $3,764 per truck — lower than both Ford’s ($3,925) and Chrysler’s ($4,233). Incentives on the GMC Sierra — a premium truck that tends to sell at higher average prices — were even lower, at $3,521,” according to a Daily Finance story. (tried and failed to find Toyota Tundra incentive numbers)
The flip side to not having high incentives is more profit. GM said in a statement early in February that half of its light-duty pickup sales in the fourth quarter sold for $40,000 or more. That is some serious profit and it helped GM post a $1.88 billion profit last quarter.
It is easy to look at the February numbers for the Chevy Silverado and see the truck as failure. For the month, sales were off 12.1% or 5,059 units. Yet, we have to remember that last year, GM was sitting on lots of 2013 inventory and they offered great incentives to move the surplus off the dealer lots. Sales numbers are hard to gauge how well a truck is doing and how the market is receiving it.
This pricing “discipline” stance sounds a lot like Toyota who recently announced that they were not adding production to their plant to meet demand. Toyota says they could build more trucks, but they would need to invest millions to expand production. While the boom of full-size trucks, before the recession, lead many companies to quickly expand production, Toyota says they learned their lesson and are holding steady.
What does all this mean for truck buyers? It looks like manufactures are happy with their profit margins and not so interested in market share or who’s number one. This doesn’t bode well for the average consumer who is looking for a cheap truck.
Yet, it could help out the new aluminum Ford F150. Why? That new truck will have to be sold at a higher price to maintain the same profit margin of the steel trucks since aluminum costs more to manufacture. With higher truck prices, Ford won’t have to be so aggressive on their pricing to look competitive.
It is interesting to note that the above numbers point to Chrysler offering the most incentives. This could be part of the reason why RAM sales have risen in the past few months. I say part because it is fair to say that RAM is building a much better product as of late.
Ultimately, it will be interesting to see how this plays out over the next few months. Right now, Toyota and GM say they are happy with their strategy, RAM is offering new products and incentives to move up in market share and Ford is working on rolling out their new aluminum truck. And throw Nissan in there somewhere. They are planning on bringing out a new Titan and have a Cummin’s diesel powered Nissan Frontier concept that looks pretty great.
One thing is for sure, the truck market could be the most competitive and interesting among all vehicle segments.
What do you think? Are we seeing the end of the cheap trucks?
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Filed Under: Auto News
Tim,
Instead of answering every question point you made, I will be specific and direct.
UBS Securities is one of several funneling vehicles used by the Federal Reserve to channel millions to GM. So naturally UBS would make those self-serving stupid statements. The selling price of a Silverado is irrelevant to GM, much like the upcoming $35 million dollar fine by the NHSTA (if they get it?).
GM is at a complete failure state, this will not become visible to the public until the next president is in office or the Federal Reserve is audited and “all cards” are on the table. You can easily place your bets on which one of those will happen first.
GM dealers are in a “world of hurt”. When independent dealers start closing again and GM starts buying more dealerships (Fed Funding) – the handwriting is on the wall.
Randy,
Thanks as always for commenting. We will have to wait and see the dealers financial futures play out. I can tell you that I read an article a few days ago that said dealers were making the most profit they had in several years. The reality is that with the closures during the recession, there is less competition and the dealers that stayed open are taking advantage of that.
BTW, there were some other quotes in the article I pulled from, I just thought the UBS statement summed things up nicely.
Again, thanks for commenting!
-Tim
Randy
Your are one dude who really gets it.
Without the Fed/(US congress) keeping GM alive with a constant cash infusion, they would have been dead long ago and we should have let them die.
What can GM do to fix their issues?
Go back in time and not screw me on the 5 pickups I bought back in the 70 which had steel bodies which melted in 18 months. I doubt that can happen.
Start building trucks today which people want to buy and build them in right to work states where people look forward to going to work. That’s not going to happen.
I my case I doubt there is a price even within in a 2000 dollar loss at cost of production which could make me a buyer.
Why, why, will we not face the music and let this dog die and let other companies live on. Other companies may take note and get it right. This is all because 35 years ago we kept another company on life support and told GM we will keep you alive when the day comes.
I need to start a company and make it too big to fail. Then collect my 1 million in salary + 1 million in bonus + stock position and then let the fed buy me out. I can put my feet up, do nothing and wait until the cash flow goes negative then let the US tax payer and the FED pay for my nice retirement.
Yes, the handwriting is on the wall for those who will read it. For those who don’t there might be some cheap homes in Detroit MI.
Incentives down here in Jax florida is over $7k.
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after thoroughly reviewing the chevy silverado to toyota tundra, GM msrp’s have risen drastically in 2014 vs. 2013 unlike toyota tundra. Even with the 3500 rebate and selling right now as a supplier pricing to ALL the public, they are still making a killing since msrp is WAY too high vs. even toyota who usually is the highest of them all. Dodge will always be cheaper to buy with higher rebates. Not sure about Ford but they slash pricing drastically as well to be #1 from year to year plus do tons more fleet sales.
Should be interesting next year with the aluminum ford f150. Since cost to produce will be higher, I wonder how much will be passed onto the consumer?
Toyota played it VERY safe in 2014 not doing much of anything besides cosmetic changes in interior and exterior.