This Is Why the 2014 Chevy Silverado Is On Sale, Big-Time

U.S. automakers like General Motors (NYSE: GM  ) and Ford Motor (NYSE: F  ) have made a big comeback since the Great Recession. They have improved the quality of their vehicles while becoming more disciplined about pricing. Rather than over-producing and then resorting to big discounts to clear inventory, in recent years the automakers have been quicker to trim production to match demand.

However, U.S. automakers -- and particularly GM -- now face their toughest challenge yet. U.S. auto demand is no longer growing as quickly as it has in the last four years, making market share battles all the more important. GM has faced some resistance from buyers in its attempts to boost average transaction prices for the new 2014 Chevy Silverado (and its sister truck, the 2014 GMC Sierra).

GM has worked to boost transaction prices for the 2014 Chevy Silverado. (Photo: General Motors)

These problems were compounded by weak auto industry sales last month, as bad weather kept potential car and truck buyers home. Now, GM is rolling out big discounts on some versions of the 2014 Chevy Silverado and 2014 GMC Sierra for its President's Day sale: particularly for versions with V-6 engines. Investors have to hope these discounts don't hit the bottom line too hard.

Market share falls and inventory rises
GM's pickup sales trends have been very choppy in recent months, but January represented the company's worst under-performance in terms of sales volume. Combined Chevy Silverado and GMC Sierra sales plunged 17%, while Ford's F-Series sales fell just 1% and Ram pickup sales grew 22% year over year.

GM did see more improvement in average transaction prices. However, while its attempts to hold down incentive spending for the 2014 Chevy Silverado allowed it to close the transaction price gap with Ford, the sales slowdown drove inventory to a dangerously high level.

Ford easily won the pickup market share crown last month. (Photo: Ford)

Meanwhile, GM's share of the full-size pickup market fell to 33% in January from a very strong 39% share in January 2013. Ford picked up a point of market share to reach 39% while Ram jumped more than four points to reach 21%. Historically, GM's share has usually been in the 35%-40% range.

Given that the overall pickup market is unlikely to post double-digit growth as it did last year, GM needs to either boost its sales numbers or cut back on production.

Enter the incentives
GM is opting for the former strategy. The company is ramping up incentives on the 2014 Chevy Silverado and 2014 GMC Sierra as part of its President's Day sale. GM has placed a particular emphasis on moving the slow selling V-6 engine option. In a few cases, GM's incentives are exceeding $7,000 per truck, and some dealers are pushing the discounts past $10,000!

Some auto analysts have weighed in to urge investors not to panic about the spike in incentive spending. January is always the slowest sales month of the year, and it's typical for automakers to cut incentives during January before boosting spending again in February.

In fact, Ryan Brinkman of JP Morgan claims that GM's sequential increase in incentives is actually lower than the five-year average for the January-February period. Meanwhile, Citigroup's Itay Michaeli points out that GM's January average pickup transaction price was $3,000 above the average for 2013. Thus, GM has room for some incremental discounts while still boosting ATPs.

Caution flags
Viewed in context, the big discounts that GM is offering on some 2014 Chevy Silverados and GMC Sierras aren't cause for panic. However, the company is skating on thin ice, considering just how high its pickup inventories are.

Weather may have been a big factor in depressing January auto sales, but so far, February's weather isn't looking much better! GM cannot afford another month of weak pickup sales, or it will have to ratchet up incentive spending even further.

Another warning sign for investors is that GM has projected surprisingly low earnings for Q1. Last week, GM CFO Chuck Stevens stated that GM expects Q1 earnings to account for only 10%-15% of the full-year total. Nevertheless, the company maintained its forecast for full-year-earnings growth. This has led to an odd situation where analysts expect a double-digit decline in EPS for Q1 but double-digit growth in EPS for the full year!

GM has already provided weak earnings guidance for Q1.

Personally, I am always wary of back-loaded-earnings projections. Sometimes, these forecasts are accurate, but other times, they are the result of executives crossing their fingers and praying that conditions will improve in a few months. Time will tell which is the case for GM.

Foolish conclusion
My Foolish colleague Daniel Ferry recently told readers that he's buying GM stock because the stock is cheap despite the company winning accolades for many of its new models. He attributes GM's low earnings multiple to investors' skepticism that GM can deliver on its earnings growth goals.

For now, count me among the investors who are skeptical of GM's earnings targets. So far, the company has not been nearly as adept as Ford at balancing pricing and sales volume. If GM needs to ramp up discounting further or slash production of the 2014 Chevy Silverado to bring inventories back in line, earnings could fall well short of projections. As a result, I wouldn't consider investing in GM until it gets two or three months of solid sales under its belt.

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Read/Post Comments (13) | Recommend This Article (6)

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 February 15, 2014, at 2:13 PM, guysisson wrote:

    The Ford is simply put, a much better truck. I own a large collision shop in a rural part of the country. We work on all kinds of pickups every day. When you have a chance to drive them and see how these trucks are really built, there is no comparison. The Ford is by far the better and tougher built truck. The proof is in the sales numbers. The American consumers are smart and educated buyers. Unfortunately for GM the new Silverado is built even cheaper than the last model, not to mention very unattractive. It is not hard to figure out why they can't sell them.

  • Report this Comment On February 15, 2014, at 3:29 PM, lem2004 wrote:

    guysisson,That is a bunch of BS,I don't think you work in a collision shop or you wouldn't be saying that,or you are just trying to pump up Ford.I personally know a few people that switched from GM to Ford last year and now say they wished they hadn't.

  • Report this Comment On February 15, 2014, at 3:47 PM, Jason87467 wrote:

    Ford is all hype and people don't really check out which is really best. If they did, they'd buy a GM truck instead. With Ford it's all hype.

    Wait till these Ecoboost get more miles on them and folks will find out what a huge mistake they made. Buy a GM truck if you want durability.

  • Report this Comment On February 15, 2014, at 3:54 PM, lem2004 wrote:

    Right Jason87467,they are having trouble with the Ecoboost know,stalling out loosing power among other things I even heard that some people were suing Ford over it.

  • Report this Comment On February 15, 2014, at 4:56 PM, Jim85035 wrote:

    I bought a 2013 Nissan Titan Crew in November. The Sticker was $38560.00 and i bought it for $24500.00 Thats a $14000.00 discount. I drove from Louisiana to Phoenix on I-10 at 75 MPH and averaged almost 21 MPG. It rode like a Cadillac and has Power seats , back up assist , Blue Tooth, XM radio , Tow package , so many options i lost track. It will Pull 9000 lbs with it's 5.6 V8. I think it was a hell of a deal compared to the $40,000.00 Fords and CHevys i looked at.

  • Report this Comment On February 15, 2014, at 7:27 PM, fouraces55337 wrote:

    The Silverado is a very ugly and overpriced truck to start with! THAT is their main problem!!!

  • Report this Comment On February 15, 2014, at 8:50 PM, LegalGunOwner wrote:

    In typical GM fashion, it's new trucks are ridiculously styled...and the innards are cheap. When all else failed, it had no other choice than to cut prices.

    It's this sort of short term thinking that will keep GM constantly scratching for footing. Were it not for a loyal (why!!!) fan base--and a government bailout, it couldn't continue to operate this way. Far from lean and mean, it continues to offer products only acceptable to the least discriminating buyers.

  • Report this Comment On February 16, 2014, at 7:31 AM, rons23 wrote:

    you couldn't have said it better 4 aces, both chevy and ford trucks are... as they say pigs with lipstick on them. I will take my Tundra over them any day.

  • Report this Comment On February 16, 2014, at 10:09 AM, babyleg wrote:

    I have owned 2 Chevy S10 Blazers, 1 Chevy S10 ZR2, 1 Chevy Silverado Z71 and currently a Chevy Suburban Z71. This years model is, well...ugly. For the first time I look at the Ford F-150 crew cab and Raptor, these are very well designed and very good trucks. I am now considering and probably will buy a crew cab Raptor. Chevy needs to design something more appealing to consumers. This model year and the 2004 model were poor designs. The Sierra, last years model, 2013 was an awesome model design and I regret not buying a GMC then. Raptor for me.

  • Report this Comment On February 16, 2014, at 3:25 PM, nomoregms wrote:

    brought my first new GM in 1982, good truck, brought my last in 2013,a 2014 Silverado with a 5.3 L. after 3 mo. with 4814 miles I was on the road and the oil pump came apart literally, a piece came out of the center section. I drove about 100 feet to get off the roadway. after 3 weeks and several phone calls requesting a new motor GM installed a new oil pump and said drive it, we stand behind our vehicles. I am a ASE MASTER TEC with 46 yrs. experience. I do not know it all, but do know I have metal pieces internally. in time it will come apart I just hope its close to home again.

  • Report this Comment On February 16, 2014, at 5:30 PM, mb3products wrote:

    Pro and con for GM, as I am still driving a 1994 Sierra, V-6, 5 speed, extended cab, 2 wheel drive with 344+K on it, with (knock on wood) no engine or tranny issues what-so-ever. I run Castrol Syntec in it and pray every day it keeps going!

    GM-When I get ready for the next truck, which literally could be any day now, I'd like a manual transmission, extended cab, and a 6-7 foot box,

    Decent mileage is a concern also!

  • Report this Comment On February 16, 2014, at 5:49 PM, notachevyguy wrote:

    They don't/can't outsell Ford or Dodge because they are really 4WD camaros in disguise. End of story.

  • Report this Comment On February 17, 2014, at 2:09 PM, CrazyDocAl wrote:

    Both Ford and GM count on fanboys to buy the badge of their choice. Just look at the comments here. The problem is that with sticker prices going into the $60k range these prices are just too high. There was a short boom when people started feeling a little more secure with their job and the economy.

    Ford is getting some help with people thinking that there could be a shortage while waiting for the 15s to hit the dealerships. Plus there's plenty of fear that the next gen F150 could have a huge price increase. I've read that it could be about $6k more retail. There's no reason to expect that Ford will not get hit with poor sales next summer.

    Both Ford and GM sell a lot of fleet trucks yet they are not the high dollar, high profit trucks that they love to sell.

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Adam Levine-Weinberg

Adam Levine-Weinberg is a senior Industrials/Consumer Goods specialist with The Motley Fool. He is an avid stock-market watcher and a value investor at heart. He primarily covers airline, auto, retail, and tech stocks. Follow him on Twitter for the latest news and commentary on the airline industry!

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