GM’s 2014 Silverado Hits a Speed Bump

2014 Chevrolet Silverado courtesy of General Motors.

General Motors' (NYSE: GM  ) 2014 Silverado is the company's most important redesign since it filed for bankruptcy. It relies on the Silverado for juicy margins in the massively profitable full-size pickup segment, and it usually delivers. GM has been a little vague about when exactly these trucks will hit the showroom, initially saying it planned a spring launch. Now without more news from GM other than "soon," it's looking like mid-summer is a better bet. I think GM's hit a speed bump in the launch of the Silverado and it could be a big deal. Here's why the inventory report we'll see released after this month ends will be very important to watch.

High stakes game
Analysts estimate each full-size truck sold by Detroit's Big Three automakers can bring in as much as $10,000 in profit. Analysts also estimate that the full-size pickups can rake in as much as 60% of Detroit auto's profits. Right now, that's great news because the average age of trucks on the road is 13 years, and sales in the full-size truck segment is surging. Trucks are important for Detroit autos, but more important is the balancing act between new and old model inventories, especially during a redesign.

Inventory level
On May 1inventory levels for the Chevrolet Silverado sat at 99 days, a high number yet still an improvement for GM. That's 12 days less inventory than it had a mere month earlier, but is still above January's 78 days of inventory. The average days of inventory for all Chevrolet "trucks" -- Avalanche, Suburban, Tahoe, and others -- sits at 74 days, a whopping 25 days fewer than the Silverado. If you want to compare apples to apples, rival Ford's (NYSE: F  ) F-Series has 93 days of inventory as of May 1, up from 85 a month earlier, which is at least in the ball park of GM.

Problem or not?
This could easily turn into a massive problem because of an aggressive price strategy by GM. It opted not to raise the price on its new 2014 model to try to take market share back from the F-Series and Ram pickups. It has a one year head start on Ford's next generation F-150 and with potential pricing pressure from Japanese rivals on a weakening yen, it felt its 2014 Silverado would be most effective without a price increase.

That turns into a big problem if and when you can't dwindle down your 2013 model inventory in time. That would leave GM between a rock and a hard place with tough decisions to make. It could opt to delay the release of its most important redesign, missing prime selling time as the full-size pickup segment surges from increased construction and housing demand. Or GM can release the 2014 Silverado on time and create a pricing war between its 2013 model -- a situation that has to be avoided. A nasty price war would result in massive incentives to move the older product as the 2014 has no price increase. As a result of that, the 2013 at a discount would cannibalize the 2014 market sales. Not a situation GM and its investors want to find themselves in this summer.

Bottom line
Currently Ford is producing more profits than GM off lower revenue from its leaner operations and if GM doesn't handle this speed bump quickly, it will cause margins and profits to drop, which GM can't afford. There's still time for GM to smooth things out, and last month was a solid step in the right direction. In addition to that step, much of Detroit is slashing downtime to improve its inventories of popular vehicles while GM is opting to keep its typical downtime for most plants to reduce its higher inventories. When we see inventory reports released next week, we'll know If Memorial Day sales helped slash Silverado inventories lower than 99 days. If it hasn't, GM will have a major speed bump to deal with this summer -- something management and investors hope to avoid.

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Read/Post Comments (8) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 29, 2013, at 9:29 PM, AlexKalman wrote:

    GM Silverado selling like Hot cakes and your news almost insinuates ominous news.

    How many shares are you short?

  • Report this Comment On May 29, 2013, at 10:06 PM, AmericanFirst wrote:

    Alexkalman,

    If the Silverado is so hot, why has the F150 outsold the GM Twins April Ytd., while offering smaller incentives than GM?

  • Report this Comment On May 29, 2013, at 11:11 PM, TMFTwoCoins wrote:

    The GM Silverado is selling well, but not well enough to negate the "ominous" truth I mention. I hope they get inventories down in time, we'll see next week.

  • Report this Comment On May 30, 2013, at 8:30 AM, Jason87467 wrote:

    I don't think this write-up makes sense. Is this story just someting to slow down the positive stories GM is getting from it's new 2014 trucks? I think that's what it is.

  • Report this Comment On May 30, 2013, at 9:36 AM, TMFTwoCoins wrote:

    What doesn't make sense? Let me simplify for you.

    Trucks = lots of profits.

    If you have too much inventory = bad.

    There is too much Silverado inventory for now.

    If that isn't fixed = bad

    Even worse with no price increase on 2014 model

    Better?

    For the record I have many good things to say about GM. But as a GM investor, this is important to watch.

  • Report this Comment On May 30, 2013, at 10:54 AM, sabebrush6 wrote:

    Well, I bought my 01 Silverado brand new in 01 and I still have it. It's got 215k miles on it and has always been parked indoors except when in use. Looks and runs great. I've had no problems with it. I wax all of my vehicles twice a year.

    At the cost of replacing the exact truck, I think I will just keep it forever.

  • Report this Comment On June 01, 2013, at 8:26 PM, Kwood20 wrote:

    I'm not sure where the information that these trucks weren't going to be out till mid summer came from.

    I just test drove one today at my local dealership who has 6 of them and has 40 with vins on the way - just waiting for final touches and the rail cars to get them there.

    Loved how it handled and so quiet. A cool truck. Better than the pictures.

  • Report this Comment On June 17, 2013, at 1:50 PM, Flatfish76 wrote:

    Checked out the 2014 silverado leather and cloth seats and they are not comfortable at all, feels like your sinking down to the springs , and the offset steering wheel is totally off base, for the price you pay you should have those 2 things as a given. Looks like they spent to much time looking at the color information screen and forgot what what really matters.

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