General Motors (NYSE: GM ) unveiled its all-new 2015 Chevrolet Colorado at the Los Angeles Auto Show on Wednesday.
The debut of the Colorado, a mid-sized pickup, marks GM's return to a market segment that has shrunk significantly in recent years. GM's last mid-sized pickup, also called Chevy Colorado, went out of production in 2012, after similar entries from Ford and Chrysler were discontinued.
That left Toyota (NYSE: TM ) and its Tacoma as the standard-bearer among smaller pickups. At first glance, the Colorado appears to be a very strong contender. But why would GM make a big push in a segment that has declined so much? Let's take a closer look.
A strong-looking entry that should heat up this segment
On paper, at least, the 2015 Chevrolet Colorado and its somewhat more upscale sibling, the 2015 GMC Canyon, look like good bets to continue GM's recent string of new product successes. The new Colorado is a good-looking truck, at least to this Fool's eye, and it seems to check the right boxes for folks who want a sporty truck and those looking for a workhorse in a smaller package.
GM emphasized that the Colorado was developed for North America, unlike vehicles like the Tacoma (and Ford's Ranger, which is still offered outside the U.S.) that are big sellers in overseas markets. The implication is that it's sturdy and sized for American-sized passengers, while incorporating some high-tech touches.
The new Colorado is a body-on-frame design, with rear-wheel-drive (or four-wheel-drive, available on all trim lines) and -- initially -- a choice of two engines, a 2.5-liter four-cylinder and a 3.6-liter V6. A six-speed automatic transmission is standard with both.
There's also a diesel option coming, though it won't be available right away. GM said that a Duramax 2.8-liter four-cylinder turbodiesel -- an engine it has offered overseas for some time -- will become available in the 2016 model year.
Three cab-and-bed configurations will be offered: extended cab with six-foot bed, crew cab with five-foot bed, and crew cab with six-foot bed. GM says the six-foot bed can haul eight-foot-long items with the tailgate down.
For a smaller truck, the Colorado can haul quite a bit. GM says the 2015 Colorado will have "class leading" payload and towing capacity, over 6,700 pounds. It'll also have a ton of comfort and convenience features offered in a series of options packages, including projector headlamps and electronic collision and lane-departure warning systems.
The upshot is that the 2015 Chevy Colorado follows the approach that we saw GM take with its all-new 2014 Chevy Silverado: lots of attention to detail that should impress buyers and reviewers, and lots of appealing, high-tech options in packages that are likely to sell well, something that should boost the trucks' average transaction prices and GM's profits. That options strategy is one key part of GM CEO Dan Akerson's push to increase GM's profit margins in North America (and elsewhere).
Toyota's Tacoma is the biggest player in a small market
So how many will sell? It's hard to say, not least because GM hasn't yet released pricing on the new Colorado. But this isn't a huge market. Toyota sells between 10,000 and 15,000 Tacomas in any given month. Sales of Nissan's Frontier, the other prominent entry in this segment, have been roughly half that.
That's a decent business, but it's a far cry from the 60,000 or so full-sized pickups that Ford and GM have each been selling in recent months. So why did GM spend big on an all-new product to jump in here?
Why GM is jumping back into this market
It's unclear how much GM spent on the Colorado, because the truck's development was part of the massive GM program that also yielded the 2014 Silverado and Sierra as well as new versions of GM's big SUVs like the Chevy Suburban and Tahoe. This was a massive program because the full-sized and SUVs are all massively profitable for GM. Given all that, in the context of the whole program, the mid-sized pickups were likely a relatively incremental added expense.
But here's what GM gets for that money spent: With the Colorado, GM can capture more of the overall U.S. pickup market. Month after month, year after year, GM's full-sized pickups go head-to-head with Ford's F-Series and Chrysler's Rams, and each player's market shares stay relatively constant. The Colorado will probably help GM steal some sales from Toyota, but it will also capture other buyers who maybe like the idea of an American-brand pickup but don't want a big Silverado or F-150, for whatever reason. Those buyers may be coming from SUVs, or even compact cars.
Edmunds.coms' chief economist, Dr. Lacey Plache, has a somewhat different take. As she sees it, the U.S. economic recovery has advanced to the point where automakers can go after niche segments. She sees the Colorado -- a new product making a big splash in what has recently been a small market segment -- as a prime example.
That may also be true. But introducing a new pickup of any kind seems like a good plan right now, because sales of pickup trucks of all kinds have surged this year. Booms in new-home construction and energy exploration have driven a lot of pickup purchases, and likely will for some time. Sales of the Sliverado and its heavy-duty siblings are up nearly 20% this year, as are sales of Ford's F-Series. The Tacoma's sales volumes can't match the Silverado's, but its sales have followed the same trend: Tacoma sales are up 16.6% this year through October.
The upshot: This looks like a good move for GM
GM says that the Colorado will go on sale next fall as a 2015 model. We'll know more after reviewers get their hands on it for a test drive. But for buyers who want a sturdy pickup -- but who, for whatever reason, don't want a full-sized model -- the Colorado looks like a strong choice from here.
Of course, it remains to be seen how many of those buyers will come out of the woodwork. But if GM can get Tacoma-like sales volumes with the new Colorado, that could work out to a nice added boost in profitability for its overall truck program. If so, GM's margins in North America, and in time its stock price, could each get boosts of their own.
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