GM Avoids Inventory Problem With New Silverado

General Motors Headquarters. Photo courtesy of GM.

There's been a lot of hype for General Motors (NYSE: GM  ) and its 2014 Chevy Silverado. No, it won't dazzle you with a flashy new appearance, but don't judge a book by its cover because this truck is vastly improved from its old design – which was seven years old and way overdue for a redesign. This is, hands down, GM's most important launch since its bankruptcy and ensuing bailout, and this truck alone is estimated to bring in the majority of GM's bottom-line profits.

During vehicle launches there are a couple factors that will make or break its success – inventory and recalls. With recent inventory numbers released, it looks like GM has corrected its high inventory between the new and old Silverado models. Here are the details and why it matters.

High stakes game
It is so important for GM to launch as flawlessly as possible because rival Ford's (NYSE: F  ) highly anticipated 2015 F-150 is due out next year. This gives GM a small window of opportunity for its marketing campaign to lure in consumers that remain on the fence about purchasing. GM also looks to be in the perfectly timed position to take advantage of a surging full-size truck segment.

The surging full-size truck segment is no fluke either, nor does it look to be slowing down. Sales have increased at a much more rapid rate than the rest of the industry due to a couple of factors. While the overall age of vehicles on the road is 11 years – a record high – trucks on the road are even older at 13 years. Pent-up demand is being unleashed in the full-size segment, especially as we witness a gradual rebound in housing construction, as well as the continuing energy boom in America. Some analysts are even saying that the popularity of the pickup is back: Improved fuel efficiency is drawing some consumers that don't need to haul anything or use the truck for work back into the showroom.

Everything is primed for GM to steal some market share during its small window of opportunity before the launch of Ford's next-generation F-150, but it could shoot itself in the foot with mismanaged inventory levels.

Information from Automotive News DataCenter.

You can see why investors were worried in April as inventory spiked much higher than competitors' inventory levels. GM has since lowered its inventories and should see another decline next month that will narrow the inventory gap between its competitors. I noted months ago that if GM failed to lower its Silverado inventory, it would begin hurting quickly. Having excess inventory would cause GM to raise its incentives significantly to move its older 2013 models to make room for the new ones, giving bargain shoppers a reason to avoid purchasing a 2014 model. This potential problem was amplified when GM announced that it wouldn't be raising the price of its new and improved 2014 model by even a single dollar.

Reuters reports that CEO Dan Akerson said:

We're in the midst of a huge truck launch right now. We've produced tens of thousands of these new trucks. Initial cut is it's probably our best launch ever. ... I won't tell you that we're going to be flawless, but that's what we're going to strive for.

Bottom line
Of course I'll take a biased statement from Akerson with a grain of salt, but thus far the Silverado launch does appear to be happening smoothly on the inventory side. It is yet to be seen how the new Silverado fares on the quality and recall side of the equation, but if it can pull it off smoothly it will be a huge win for GM and its investors. The pressure will then be on Ford to make sure that its 2015 F-150, which looks to be impressive, has a nearly flawless launch to make up lost ground. Things are heating up between crosstown rivals in the all-important full-size segment; investors would be wise to keep an eye on future developments.

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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 June 26, 2013, at 3:21 PM, cityperson wrote:

    From my obseravtion GM and Ford have enough trucks on the vehicle lots for the next two or three years, but they keep building. Thier inventory is loaded in storage lots.

  • Report this Comment On June 26, 2013, at 7:45 PM, chronarch wrote:

    The new 2014 Silverado trucks have horrible air conditioner systems that will not cool the back seats. No rear AC vents and the cooled front seat vents blow hot air directly on the rear seat passengers. This 2014 is not the truck for people in hot climates! You will sweat your but off in the new Silverado back seats. GM missed with this truck.

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