No Treat: GM Tricks Truck Buyers With Higher Prices, Incentives

Last month, sales of General Motors (NYSE: GM  ) vehicles tumbled 11%; its Chevy Silverado pickup fell hard by a like amount. With Ford's (NYSE: F  ) 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 (NASDAQOTH: NSANY  ) 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.

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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 October 23, 2013, at 12:38 PM, AmericanFirst wrote:

    GM, the new Kohl's?

  • Report this Comment On October 23, 2013, at 1:07 PM, andyco79 wrote:

    These are 2014 Chevrolet and GMC trucks with a new design update. GM has liquidated the majority (not all) of their 2013 truck stock. Ford, Ram, Toyota, and Nissan are still liquidating their 2013 stock in other words, a clearance sale, and most like only have a few 2014's on their lots that are priced without any incentives. In order to do liquidate their left over 2013 stock, they slash prices. Why would General Motors slash the price of a 2014 model before the first of the year? It is a common practice in new car automotive retail sales not to give incentives until after the first of the year. They all do this with brand new models sold at the end of the previous calendar year. If incentives are given too early, you will affect the profit margin on the vehicles as soon as the first round of vehicles are shipped from the factory. Obviously, this writer has never heard of this VERY common practice in the new car/truck sales or this article never would've existed. Just another reason why some writers at Motley Fool need to pointlessly bash GM. Another question, I see Motley Fool owns shared of Ford, why not own shares of GM too??? Like is or not, they are the #1 US automaker and the #2 global auto maker behind Toyota.

  • Report this Comment On October 23, 2013, at 1:36 PM, lem2004 wrote:

    Well said andyco79.I would bet if GM made a car just like tesla a lot of people would say it was junk.The reason Ford is selling so many trucks is that they are giving huge discounts on them.Rich Duprey is just another GM basher that doesn't know what he is talking about.

  • Report this Comment On October 23, 2013, at 2:20 PM, AmericanFirst wrote:

    Andy,

    Could it be Ford is doing it on their dime and paying their debts. GM built on a foundation of sand, where GM received approx. $100B in bailout funding/tax benefits, $30B in debt relief, relieving GM of not only the debt, but $B's in future interest expenses.

    With that said, GM's N/A Market Share -0.1% Sept. Ytd., Ford N/A market share up 0.5%.

  • Report this Comment On October 23, 2013, at 3:10 PM, andyco79 wrote:

    AmericaFirst,

    I think its high time that we get over the bailout. Its water under the bridge at this point. Furthermore, your beloved Ford Motor Company took the monies (hundreds of millions) allocated under TARP that the Bush administration handed out to all three American auto manufacturers in late 2008 and then in August 2013, Food took a $6 billion loan from the Federal Government for electric vehicle design. If they were doing so well, then why did they take/ask for any money??? Furthermore, Alan Mullaly (sp?), CEO of Ford Motor Company was the one of the first to speak up and say to the American public that GM can't be allowed to fail because it would put Ford and Chrylser under as well since the major auto part suppliers in this country are so reliant upon GM as the core of their business. If GM failed it would also greatly affect the foreign auto makers in this country too as some of their parts are purchased through those same suppliers. This article is about pricing points and incentives, not about the bailouts. Let's stay on point.

  • Report this Comment On October 23, 2013, at 6:52 PM, AmericanFirst wrote:

    Andy,

    I challenge you to prove Ford took one dime of TARP money, you simply are not telling the truth. PROVE ME WRONG! The $6B FORD received from the DOE was in the form of a LOAN offered to others such as Nissan, Tesla, Fisker and others for green technology development. The August 2013 loan your referring to simply not true - again PROVE IT. Yes, Mulally, was a team player for the industry, the gentlemen that he is. You simply do not have any proof of the outcome of GM, if GM would have been allowed to experience a "normal bankruptcy" rather than "Obamaruptcy" all you can offer are talking points not facts. Speaking of staying on point, you simply don't have the knowledge or facts to comment on the GM Bailout, which is somewhat like Obamacare, the more you learn the more you hate it. Maybe you should see the link below to below in order to become more kowledgeable.

    http://gaanderson.hubpages.com/hub/Obama-General-Motors-GM-T...

  • Report this Comment On October 23, 2013, at 8:44 PM, andyco79 wrote:

    AmericanFirst,

    Do you not remember when the CEO's of all three American auto makers appeared before the Congress asking for money in late 2008 early 2009? I believe they appeared twice. They were Mullaly (Ford), Wagner (GM), and the Chrysler CEO. I watched both of those hearings and was angrier than heck at all three. The loan Ford took from the DOE, which is a department in the Federal Government, was for an electric vehicle design, it was still a government loan that their profits should've covered since they seem to be doing well. The reason why Ford didn't need a huge loan was because they were failing in 2006 when Mullaly took control and was able to borrow from the banks before many of the banks went under or got into financial trouble in 2008/2009. GM and Chrysler still had their heads above water and could manage at the time and when the unexpected happened to them there was hardly no stable banking system left for them to borrow from. If you want more information on this Google "Ford owes the government" and there are plenty of articles from Forbes, USA Today, and so on that explains what they still owe the government. As of October 2013, the government owns about 7% of the common stock of GM, which either the remainder will be sold by year end, but no later than the end of March 2014, the end of the first quarter. You can Google that too, but pay attention to the dates of the articles that you are pulling. As for Mullaly, I don't doubt him being a gentleman. He is widely praised for what he did and I respect him for that. In the end Ford is dependent upon GM and he admitted that - it is a fact. I think some Ford admirers need to realize that too, whether they like it or not. As for the future of GM, the analysts are saying gains are in the future and I think after the government gets out of it altogether their stock will gradually return to near pre-bankruptcy levels, around $60, that's almost double where it is now. I also think Ford will return there as well. I often wonder why some people want to see GM fail after we invested so much into it as a country. That would throw our economy in the trash with all of the ramifications that will result from that - jobs, suppliers failing, global markets affected negatively. I think its anger toward the government, but routed to GM. That's when some people need to take a step back and think for a minute instead of acting on impulse so much. I'm sure GM would have been more than happy for a simple loan with simple interest, cut and dry. Our government though had to make things difficult though.

    I am not getting in a shouting match with you over this, but this article, again, was about price points and incentives of new vehicles. Go ahead and like your Fords. That's fine. You like what you like and I like what I like. This is nothing but sensationalized media and isn't worth getting worked up over. In the end, I would've supported the government lending to ANY American business that saves jobs and produces jobs. I think you can agree with me there. Also, I am glad the government did what they did to help all three automakers, its better that our money stays here helping us and our businesses succeed rather than sending it overseas to pay off countries to be our friends who really hate us. I think you can agree with me on that. We have to be proud of this country in the end, even though we don't totally agree with what the government does all the time.

  • Report this Comment On October 23, 2013, at 11:53 PM, AmericanFirst wrote:

    Andy,

    I'm sorry, but for what ever reason, you can't get your facts right regarding Mulally requesting bailout funding during the congressional hearings. Mullaly didn't request any bailout funding as GM/Chrysler per CBS News, see the below link:

    http://www.cbsnews.com/8301-505123_162-42940365/ford-ceo-mul...

    Again, DOE loans were also given to Nissan, Tesla, Fisker for development of "green tech."

    Ford's DOE of $5.9B pales in comparison to GM's $100B in bailout funding/tax benefits. By the way, of the mentioned $100B GM has only paid back "out of pocket" approx $7.6B (repurchase of from Treasury, Preferred Stock $2.1B 12/10, Common Stock $5.5B 12/12). $100B in benefits for $7.6B 'out of pocket" cost. Do you not think that would be a great advantage over another competitor? The rest of the money the gov. has received was from the sale of GM stock in the market place. It's estimated by the financial community / gov.that the taxpayers will not recover between $10B-$12B after the final sale of the gov. held GM stock, which is much more than the $5.9B DOE Loan Ford received, which will be paid back. If you understand how a Balance Sheet works GM's debt/equity ratio is approx. 5X better than Ford's due to bailout funding / debt relief per the GM Bailout. Speaking of debt, Ford is paying back their $24.6B loan to their creditors. Conversley, the bondholders/creditors had to eat approx. $30B of GM's debt. In closing, GM has been financially advantaged for years per the terms of the GM Bailout. I think you need to go back and review the first link I sent you that identifies the government's arrogance in regard to bankruptcy law.

  • Report this Comment On October 24, 2013, at 12:53 AM, SuntanIronMan wrote:

    Mulally didn't request the bailout for his company specifically, but he was lobbying for the government to bailout the industry in general. And he did that because if GM and Chrysler went down, they would have also brought down the network of suppliers that all of the U.S. auto makers use (which would have, in turn, likely taken down Ford as well, something that Mulally has talked about in interviews in the past).

  • Report this Comment On October 24, 2013, at 6:40 AM, andyco79 wrote:

    People,

    This article is about PRICING POINTS AND INCENTIVES NOT ABOUT BAILOUTS. STAY ON POINT AND STOP SEGWAYING. The facts are out there about all three borrowing money from the government go look them up. I've admitted and accepted what GM did, now you Ford admirers need to admit what Ford did and not what they only decide to tell you.

  • Report this Comment On October 24, 2013, at 9:43 AM, AmericanFirst wrote:

    OK Andy/Lem,

    If you want to talk incentives / rebates, I'm for that! I would suggest you visit your back yard before you make comments on rebates / incentives that are being offered by Ford. GM has spent more money on incentives / rebates per vehicle sold Sept. Ytd. than any other mfg. in the industry...............that's a fact, check it out!

  • Report this Comment On October 24, 2013, at 10:06 AM, andyco79 wrote:

    We and the article are talking about 2014 Silverados and Sierras only not other models in the GM line up. Did you even bother to read the article? I'm thinking not. You are spewing out typical Ford fan hatred toward GM that has gone on for 70+ years just because of GM's position. Its written all through each of your posts. Get over it. Your hatred will only consume you in the end. If Ford is still playing that card, it will happen to them as well. Its a known fact and I've seen it happen too many times to count. You like what we like and we like what we like. Let's leave it at that. End of conversation.

  • Report this Comment On October 24, 2013, at 10:08 AM, TMFMarlowe wrote:

    @AmericanFirst: And you know full well that that's because GM was clearing out its old trucks. Average incentives on the new trucks were less than half of Ford's last month. That's the relevant point here.

    But in terms of whether GM's margins are suffering or not, we'll learn a lot more when GM releases Q3 earnings next week.

    John Rosevear

  • Report this Comment On October 24, 2013, at 11:49 AM, AmericanFirst wrote:

    John,

    I know, GM's has been clearing out the Silverado's / Sierra's for 10 months. Of course GM didn't help their case by dealer lot stuffing the majority of months for sales # reasons. However, it hasn't worked so far this year. GM's market share is down 0.1% Sept. Ytd. while Ford's is up 0.5%. Yep, I agree, let's see what GM's earnings are for the 3rd. Qtr., Ford is spotting GM the interest expense asscociated with the bondholders that were fleeced, plus the lowered corp. income taxes all afforded by the gov. per the corrupt GM Bailout.

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