Another month, another dismal sales performance for the 2014 Chevy Silverado.
This highly acclaimed truck was supposed to put General Motors (NYSE:GM) on an even footing with top rival Ford Motor (NYSE:F) in the pickup market. Instead, while GM has been able to entice some customers to buy the new Silverado without piling on big discounts, sales volumes have been discouraging in most months.
Many truck buyers seem to be holding out for bigger discounts -- or defecting to brands like Ram that are offering higher incentives. (Ram pickup sales are up 24% year to date.)
GM needs a new strategy that will help it move the 2014 Chevy Silverado without cutting into profitability too much. Unfortunately, nothing that it has tried so far has worked.
Market share sliding
While Ford's F-Series pickups have been the best-selling trucks in the U.S. for nearly four decades, GM was the overall market share leader not too long ago. Back in 2007, when GM's previous truck architecture was brand new, the company sold 618,257 Silverados and 208,243 GMC Sierras. The combined total of 826,500 pickups was well ahead of Ford's F-Series sales, which totaled 690,589 that year.
However, GM's market share relative to Ford slipped badly because of the Great Recession and GM's ensuing bankruptcy. By 2011, Ford F-Series sales had rebounded to 584,917, while combined Silverado and Sierra sales totaled just 564,300. Ford's F-Series widened its lead in 2012 with 10% sales growth, while GM's pickup trucks posted low single-digit growth.
A cure all?
The launch of the new 2014 Chevy Silverado last year was supposed to turn things around on two fronts. First, GM wanted to boost its average transaction prices in order to match Ford in terms of profit per truck sold. Second, GM wanted to make up ground in the market share battle.
In the first area, GM has seen some success. The company has cut down on discounting in the last year, and its average transaction prices are rising. This means that GM is making more profit on each truck it sells than was the case a year ago.
By contrast, on the sales front, the 2014 Chevy Silverado's performance leaves something to be desired. Last year, as GM moved from clearing out old 2013 models to selling new 2014 models, GM's pickup sales momentum tapered off.
Through August, combined Silverado and Sierra sales were up a sizzling 25%. In the last four months of the year -- when most of the 2013 models were already gone -- GM's pickup sales were down slightly, even as top rival Ford posted big gains. This trend has continued into 2014.
Year to date, Ford F-Series sales are up 1.1% to 102,418. Meanwhile, Silverado sales have fallen 15% to 65,510. GMC Sierra sales have fared somewhat better, falling 6% year to date, to 25,350. Combined, GM's two pickups have racked up 90,860 unit sales so far in 2014: more than 10% behind the Ford F-Series.
January and February aren't particularly big months for truck sales, so GM can still rebound and have a good year if it turns things around soon. However, if GM doesn't manage to boost its truck sales to at least last year's level, the company will probably be forced to cut production. While not disastrous, this does add to costs as valuable capital and labor resources sit idle.
The more disturbing news is that while GM began offering bigger incentives on certain versions of the 2014 Chevy Silverado and the 2014 GMC Sierra last month, the weak sales trend remained intact.
Bad weather certainly affected sales yet again, but Ford's F-Series still posted a small sales gain, and Ram pickup sales surged. Meanwhile, Silverado sales posted a third straight double-digit decline. In other words, bad weather isn't the only cause of this malaise.
It's noteworthy that while GMC Sierra sales have been nothing to write home about, the Sierra has sold better than the 2014 Chevy Silverado. (Last month, the Sierra actually posted a small sales gain.) The Sierra is positioned as a higher-end alternative to the Silverado, so it makes sense that Sierra buyers might be more willing to pay more for a new truck with better features.
However, the Silverado is the "volume model," representing 70%-75% of GM's total pickup sales. GM can't just abandon the low end of the market. Having failed to bolster sales with a step up in incentives in February, GM seems prepared to boost incentives on the 2014 Chevy Silverado once again in March.
GM CFO Chuck Stevens met with Wall Street analysts last week to try to convince them that the company has a plan to boost sales without cutting into profit margins too much. However, details were thin, according to reports from the meeting. As an investor, I'd like to see some tangible results before buying into GM's hype.
Foolish bottom line
Not too long ago, GM was the pickup market share leader. However, in the last few years Ford has opened up a significant lead. The 2014 Chevy Silverado was supposed to help reverse that trend. However, while the new trucks have helped GM boost its profit margin, those pricing gains have come at the expense of market share.
In fact, GM's pickup sales have declined noticeably in the last six months, allowing Ford to increase its market share lead (and Ram to catch up). Pricing gains are great for profitability, but GM needs to show that it can at least hold its market share. So far, that hasn't happened.