Last month, sales of General Motors (GM -0.47%) vehicles tumbled 11%; its Chevy Silverado pickup fell hard by a like amount. With Ford's (F -0.41%) popular F-150 truck continuing to rev its engines, GM's rival was the only major automaker to generate higher retail deliveries in September, significantly increasing its market share.
Source: General Motors
So what's an automaker to do when the chips are down and customers aren't buying your vehicles? Raise prices, of course! GM is adding about $2,100 to the price of the 2014 Silverado, which will now have a sticker price of $26,670.
It seems a curious way to respond to falling sales, as you'd usually cut prices to spur demand for your product. That's what Nissan (NSANY -2.62%) did back in May and its sales are up 13% since then, but with Toyota reporting light truck sales falling 5% and Honda down 10%, GM is going its own way, raising prices to pay for the bigger incentives it announced.
It's a typical retail marketing ploy: convince shoppers they're getting a deal by discounting new, higher price points. The ad men say it's a trick that works, and one could certainly point to troubled department store chain J.C. Penney as proof. It lost huge swaths of its customer base when it switched from its previous "doorbuster sales" mentality to a more rational, everyday low price policy. Ex-CEO Ron Johnson got tossed out for thinking his customers were smart enough to see through the gimmick most retailers employ, but he was wrong.
So while it appears that GM is giving with one hand and taking with the other, it's common knowledge buyers these days tend to pay less attention to the sticker price than they used to and discounting is an industry-wide practice. In fact, GM had fewer incentives available on its trucks than competitors, 18% less, which would account for its plunging sales. The new policy is just realigning the automaker with the rest of the industry, albeit at higher pricing.
GM notes the new discounts also help those with lint in their pockets and dust in their wallets who have nothing for a down payment to still get into a truck. Of course it's left unsaid whether shoppers who are unable to pony up for a down payment ought to be helped into buying a vehicle in the first place, but General Motors was confronted with factors its rivals didn't share.
Most of its older model trucks had sold out. The Fool's senior auto analyst, John Rosevear, noted that they had a scant 30,000 trucks left nationwide. Since the new Silverado carries the newest technology and best gas mileage of any truck on dealers' lots, CEO Daniel Akerson believes the trucks deserve the premium they're carrying. With the price hikes in place, the Silverado is priced some $1,600 more than Ford's F-150 and $1,700 above the Chrysler's Dodge Ram. With a new lineup on the lots and what it sees as an appropriate pricing structure in place, it believes we'll see truck sales bounce back.
Perhaps it's not a game of trick-or-treat, but Nissan's results would suggest shoppers are smart enough to figure out the ruse. At the same time it cut prices, Nissan also cut the incentives offered -- the exact opposite of GM's tactic -- and was rewarded with higher sales.
We'll see how General Motors mark up-take down gimmick works over the coming months, and whether consumers are willing to play that game. But if the tricks don't work then it won't be a treat for GM shareholders, as the pickup segment is the profit engine that's driving the vehicle maker and its share price could run off the road.
