GM's 2014 pickups could add a billion dollars to its bottom line, according to one forecast.
As it sells off its old full-sized pickups while ramping up production of two all-new models, things are going markedly better than forecast, according to several top General Motors executives, with sales exceeding expectations and the old truck commanding a higher price than planned.
The overall U.S. market has been rebounding faster than almost anyone has expected this year, with sales now forecast to reach or exceed 15.5 million for all of 2013, about 1 million more than last year. And full-size pickups have been leading the charge, the segment up more than 20% for the past seven months.
But GM pickup sales surged a whopping 44% in July compared to year-earlier numbers, with the outgoing 2013 model accounting for 85% of total volume for the month.
“It’s a nice transition,” said Chris Perry, general marketing manager for the Chevrolet Division which markets the most popular of GM’s two full-sized trucks, the Silverado. The other model is the GMC Sierra.
In such a hot market, GM struggled to find a strategy that wouldn’t leave it lagging competitors, and that meant continuing to produce the old Silverado and Sierra trucks even as it ramped up production of the all-new 2014 models. Rival Chrysler shut down its Toledo, Ohio assembly plant to transition from the old Jeep Liberty model to the new Jeep Cherokee and has lost tens of thousands of units of volume as a result.
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If anything, GM has sold as many as 30,000 more of the outgoing Silverado and Sierra models than it anticipated, straining its factories and leaving its dealers with relatively short supplies.
The old models are “performing really well,” GM Chief Financial Officer Chuck Stevens said during a New York financial conference sponsored by J.P. Morgan. “We’re a bit ahead of plan on that.”
Better yet, he said, is the fact that the maker has not had to take nearly as sharp a discount to keep the old models rolling out of showrooms due to the overall surge in the pickup market.
“The pricing environment,” boasted Stevens, “has not been as negative as we anticipated.”
(Pickup sales surge adds boost to overall U.S. auto market in July. Click Here for more.)
Speaking to reporters gathered in Monterey, California for the preview of the maker’s new Corvette sports car, Chevy boss Perry noted that GM is in the process of weaning itself off of the old 2013-model trucks and boosting production of the 2014s, so the mix will start to favor the new offerings in the months ahead. And that is, if anything, expected to generate even higher prices – and greater profit margins.
However, a large percentage of the 2014s sold so far have been premium-priced crew cab models with extensive options. Demand is expected to grow for less costly models in the coming months.
The current pickup boom is apparently being driven by a long-awaited revival of the U.S. housing market. It is, in door, propping up the bottom lines for each of the Detroit Big Three after a devastating recession that saw two of the makers go through bankruptcy.
Ford, the only maker to avoid Chapter 11, delivered unexpectedly strong margins of around 10% in recent quarters, its F-Series pickup models being strong contributors. GM is hoping that the new Silverado and Sierra trucks could help boost its margins closer to the 10% level, as well, over the next several years.
A June research report from auto industry analyst Joseph Spak, of RBC Capital Markets estimated the 2014 truck models could add another $1 billion or more to GM’s bottom line.