The first two months of 2014 were not kind to U.S. automakers -- and especially not General Motors (NYSE:GM). GM's sales are down 6% this year, as unusually severe winter weather has kept many people away from auto dealerships. Lower incentives on GM's new trucks have also contributed to weaker sales totals.
However, GM can't have any complaints about the new 2014 Corvette Stingray. Demand for the latest version of GM's iconic sports car has run ahead of supply ever since the new model went on sale last fall.
As a result, in order to bring demand back in line with supply -- and boost its own profit margin -- GM raised the base price of the 2014 Corvette Stingray by $2,000 as of March 1. At the same time, the popular Z51 performance package got a $1,200 price boost.
Selling like hotcakes
Corvette sales had really cooled off by the end of the previous generation's production run in 2013. This wasn't very surprising, considering that very few changes had been made to the design since 2005. GM sold 13,164 Corvettes in 2011 and 14,132 Corvettes in 2012.
Through the first nine months of 2013, GM had sold just 7,830 Corvettes. Then the 2014 Corvette Stingray started to arrive on dealer lots, and everything changed. In the last three months of the year, GM dealers managed to sell 9,461 Corvettes: bringing the full-year total to a much more respectable 17,291 units.
This momentum has continued into 2014. Year-to-date, dealers have delivered 4,699 Corvettes, up nearly 150% from the 1,888 delivered in the first two months of 2013.
This strong sales trajectory is particularly impressive considering the headwinds GM is facing. First, retail auto sales have been under pressure in recent months because of bad weather in much of the country. Second, Corvette inventory is very low.
Whereas GM is currently carrying 87 days worth of inventory across its vehicle lineup, it can barely keep the 2014 Corvette Stingray in stock at dealers. On average, Corvettes are sitting on dealer lots for just seven days before they are sold. (Typically, automakers try to keep inventory at around 60 days of sales.)
Time for a price increase
Given the stellar reviews that the 2014 Corvette Stingray has received, it's no wonder that GM has seen an explosion in demand. Not only does the new Corvette offer great performance; its starting price tag was surprisingly affordable at $51,000.
In fact, numerous reviewers have found that the new Corvette stacks up well against a variety of sports cars with price tags in the $100,000 range, like the Porsche 911 Carrera S. With demand still outstripping supply and comparable cars selling for almost twice its price, adding $2,000 to the Corvette's sticker price seems like a pretty reasonable move.
Of course, one could make the argument that the new base price of $53,000 is still too low. If other manufacturers are selling similar sports cars for nearly $100,000, why not price the 2014 Corvette Stingray starting at $80,000? Undoubtedly, there would still be some buyers at that price tag.
GM might only sell 10,000-15,000 a year -- U.S. sales of the Porsche 911 barely eclipsed 10,000 last year -- whereas GM is currently on pace to sell 30,000 or more Corvettes in 2014. However, with the higher price, GM would probably earn 3-4 times more profit per vehicle, so it would still come out ahead.
Nevertheless, I think GM is making the right decision by keeping the price tag down. While the Corvette is obviously very pricey for the average American, it's still within "dreaming distance" for many people. In other words, even if they can't afford a Corvette today, members of the upper-middle class can aspire to buy one someday -- whereas the Porsche 911 is the sports car of the super-rich.
As such, the 2014 Corvette Stingray can serve as an effective halo car for Chevrolet. People may come to dealers just to look at their dream car, but that gives salespeople a chance to turn them into potential customers by pointing them toward more affordable vehicles like the new Chevy Impala full-size sedan or the Chevy Equinox crossover.
Based on the early reviews, it looked like the 2014 Corvette Stingray could be a big hit for GM. Sure enough, six months after launch, GM is still having trouble keeping the new Corvette in stock at dealers.
Even with a $2,000 price increase for the base model and a $1,200 increase for the Z51 performance package, it could take a while for supply to catch up with demand. However, GM is wisely keeping the price at a level where the Corvette will not become the exclusive toy of the rich and famous. This will help it serve as a halo car to drive higher retail sales of Chevy's more affordable vehicles.