GM Bets New Trucks Will Stem Sales Slide
You can't blame General Motors (GM) executives for exhibiting a little optimism. After showing the first operating profit from its car business in a year and a half, the company is now set to push its all-new, more fuel-efficient pickup trucks to market, which GM thinks will reboot sales.
The new Chevrolet Silverado and GMC Sierra pickup trucks are an obvious key entry for Chairman and Chief Executive Officer G. Richard Wagoner's turnaround. Even with fuel prices topping $3 a gallon, pickup trucks can make $5,000 or more per truck in profit. General Motors sells close to one million of them every year.
The much-anticipated launch of the new pickups this October could help answer a key concern among analysts about the sustainability of GM's second-quarter financial improvement.
A big part of GM's shift to better financial health has come from an unexpected rise in revenue, which jumped $6 billion in the second quarter. Analysts have speculated that the rise came chiefly from the launch of GM's large SUVs. Whenever car companies bring a new vehicle to market, they build as many of the new models as possible to stock dealer inventories.
PICKING UP SUV SLACK.
But GM Vice Chairman Robert A. "Bob" Lutz says the company's stronger revenue is no flash in the pan. The new pickups could help keep the dollars rolling in even if high fuel prices continue to wear away at SUV sales, he says. Pickup sales have softened, but commercial buyers cannot replace a pickup with a smaller SUV the way large SUV buyers have defected to more efficient vehicles. Plus, Lutz points out that GM is gearing up to send the new Saturn Aura sedan to showrooms this fall and the Saturn Outlook crossover SUV after that. "I'm very confident about revenue growth in the second half," Lutz says.
There is some reason to be optimistic. GM is sending its new pickups to market at a time when rival trucks like the Ford F-series and Dodge Ram have not had a meaningful redesign in several years. So GM can boast the newest truck with the best fuel economy in class, getting 19 miles per gallon with its 5.3-liter V-8. That's two mpg better than the nearest competitor. "We will absolutely gain market share with these trucks," says Ed Peper, Chevy's general manager.
Many analysts agree that GM can steal market share from both competitors and even fend off Toyota's (TM) new Tundra pickup, which goes on sale next year. Global Insight analyst Rebecca Lindland forecasts that GM will gain share of the pickup market. But GM will just get a slightly larger piece of a shrinking business. Large pickups are down 15% through July. Add it up, and GM should be able to keep selling close to one million pickups a year. Ford (F) will sell close to that many, but will still trail GM in pickup sales.
LOADED WITH EXTRAS.
GM packed the new trucks with plenty of gadgets to fend off a new entry from Ford, which launches its commercial-oriented Super Duty pickup next year and the half-ton F-150 in 2008. The GM trucks are wider and have a more stable suspension, says Gary A. White, a GM vice-president and the top executive for truck development. There are also a slew of front passenger airbags—including an optional inflatable side curtain to protect the driver and passenger in case of a rollover accident. The interiors are much more posh, with luxury options like rear-seat televisions and DVD players, and heated windshield washer jets.
Not to be outdone, Ford announced that it will cut the base price on its competing F-150 pickup by $1,400 to battle GM's new trucks.
POSSIBLE PRICE WAR?
. That's one thing GM execs worry about as they struggle to sustain profitability. Even as Wagoner is slashing structural costs by $9 billion and revenue is rising, there are concerns that Chrysler and Ford, both of which have fat inventories for many of their cars and trucks, will spark a price war that could hurt everyone's profitability, says Troy Clarke, president of GM North America.
GM is also worried that ongoing turmoil in the Middle East will push fuel prices up and give Americans jitters about the economy. "Those are things beyond our control," Lutz says.
That makes GM's recovery precarious. But there is clear progress on some of the issues that are within GM's control.