In March, General Motors (NYSE:GM) finally ended its dismal streak of three straight months of declining Chevy Silverado sales. The 2014 Chevy Silverado was supposed to help GM retake market share it had lost to Ford Motor's (NYSE:F) F-Series trucks in the last five to six years.
Instead, while GM's attempt to boost profitability has been successful -- average transaction prices are up and incentives are down -- the new Silverado has not narrowed the sales gap with Ford. Furthermore, GM's new focus on pricing integrity allowed Fiat Chrysler (NASDAQOTH:FIATY) to swoop in and gain share among cost-conscious buyers with the Ram pickup.
GM's ongoing market share loss to its two top competitors in the pickup market caused analysts at Barclays to call the 2014 Chevy Silverado launch "arguably the least successful large pickup launch over the last 15 years." GM can still turn things around if it can find the right balance of incentives to boost sales without torpedoing profit margins. However, it's running out of time.
Sales bounce back in March
In March, the 2014 Chevy Silverado gained ground on Ford's F-Series trucks for the first time since its introduction. While F-Series sales increased 5.1% last month, Silverado sales grew 6.8% overall and 14% at retail. Growth was even stronger for the Silverado's corporate twin, the GMC Sierra.
That said, the combined Silverado and Sierra sales tally of 59,110 for March still lagged Ford's F-Series sales by 17%. Moreover, through the first three months of 2014, combined Silverado and Sierra sales are down nearly 5%, while F-Series sales are up 2.7%. Ford is clearly still the king of the hill.
An even more disturbing trend for GM executives is the Silverado's loss of market share to Ram. Ram has posted consistently strong sales gains throughout 2014, with sales up 25% through March.
Last month, Fiat Chrysler boosted Ram 1500 incentives to $5,598 per truck, according to J.D. Power: nearly 50% higher than GM's incentives on the 2014 Chevy Silverado. This helped Ram outsell Chevy's Silverado for the first time since 1999!
GM isn't abandoning the low end
GM initially brushed off Ram's strong performance. One GM spokesman said, "It's really easy to deeply discount your truck, mine the subprime market and offer cheap deals to buy market share."
However, given that pickup trucks have very high margins, Fiat Chrysler may be perfectly happy to give up some margin on each vehicle in order to gain market share. Even with incentives averaging $5,600, the company will earn plenty of profit on each truck it sells.
GM therefore needs a strategy to compete with Ram even if the latter keeps offering big discounts. It looks like GM will boost incentives on the 2014 Chevy Silverado in April by rolling forward the March promotions and adding $1,000 of bonus cash for certain models. GM is also offering extremely low lease rates in some parts of the country.
However, discounting the Silverado to target price-conscious pickup buyers is not going to be a long-term strategy for GM. If the company wanted to do that, it wouldn't be bringing back the Chevy Colorado and GMC Canyon mid-size pickups. When the Colorado and Canyon return this fall, they will claim the entry-level position in GM's truck hierarchy.
Running out of time at the high end
The 2014 Chevy Silverado's true purpose is to compete with Ford's F-Series trucks for buyers who are willing to spend for a highly capable truck -- not to battle Ram for market share among price-sensitive customers. However, GM is running out of time to reclaim market share from Ford.
This fall, Ford is rolling out a brand-new F-150. The next-generation F-Series trucks are incorporating significantly more aluminum in the body, which will probably lead to much higher fuel efficiency while also increasing towing capacity.
GM is reportedly planning to introduce an aluminum-body Silverado in the fall of 2018 -- but that's a long time from now. Ford's multi-year technological lead will allow it to further solidify its leading position in the pickup market once the new F-Series trucks reach healthy stock levels next year. For the 2014 Chevy Silverado, there's no time like the present to battle Ford for high-end market share.
Foolish bottom line
Since the 2014 Chevy Silverado's introduction last year, GM has continued to lose pickup market share, although it has benefited from significantly higher average transaction prices. However, Ford's new F-Series trucks are coming this fall, and they will bring significant technological advancements that GM won't be able to match for several years.
As a result, the Silverado will be squeezed from both ends. Truck buyers with more money to spare will probably prefer Ford's more capable truck. Truck buyers on a tight budget will gravitate toward heavily discounted Ram trucks or GM's new mid-size pickups. If GM wants to restore the Silverado to its former glory, it needs to move fast.
Adam Levine-Weinberg is short December 2014 $15 puts on Ford. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.