Chevrolet’s (NYSE:GM) Silverado line of pickup trucks was freshly redesigned for 2014 and it is now more powerful, more fuel efficient, and as rugged-looking as ever. There are more trims, more options, and the vehicles are arguably the most comfortable to ride in, as well; in addition, payloads and towing capacity have never been better. Following the dearth of demand throughout the recession and the pent-up need for new pickups, Chevy’s rollout of the new Silverado should have been a success in every measure, at least on paper. In reality, though, it was more of a struggle for the company than a milestone to be celebrated.
Automotive News explored what happened behind Chevy’s lukewarm rollout, the result of which is an explanation for why the company is employing incentives to help move units. “The trucks haven’t provided the typical market-share pop in the bread-and-butter pickup segment,” the publication reports. “Dealers have griped that the pricing is all wrong — too steep to fend off aggressive deals from Ford and Ram.” Here are four reasons why the trucks are struggling to succeed. (Hat-tip to Automotive News.)
1. There’s a new face but little innovation beyond that
Although the Silverados — and sister trucks in the GMC Sierras — got a decent cosmetic going-over, critics of the truck say that it’s still too conservative and isn’t bold enough to go up against its renewed rivals like the new Ford (NYSE:F) F-150 due out later this year. Further, despite looking new, there’s nothing really revolutionary about the new Silverados or Sierras. Ford will be hitting hard with its new aluminum alloy-clad F-150, and Ram has already made waves by offering the only diesel option in the light-duty truck segment; its vehicle can manage nearly 30 miles per gallon on the highway.
“GM may have made the right call to go for price over share,” Automotive News quoted Barclays Capital analyst Brian Johnson as saying, citing a research note dated April 24. Two months earlier, Johnson had said that General Motors’ rollout was “arguably the least successful large pickup launch over the last 15 years.”
2. Average MSRPs is up, but for uncertain costs and benefits
Despite the incentives and discounts on new Silverado and Sierra models, the trucks have actually commanded an average of $5,400 more per transaction price during the first quarter of this year than the year-ago period. On vehicles that boast such spectacular margins as pickups, that translates into a tidy profit for General Motors.
Pricing has been a thorn in GM’s side, particularly next to the F-Series. However, GM has long planned to add more panache to its truck lines, and it expanded the capacity to build more price-commanding crew cabs and V8 engines. General Motors also developed the range-topping, $45,000-plus Chevrolet High Country trim to help lift the Silverado from its value status, Automotive News said.
By focusing more on price per unit rather than maintaining market share, Chevrolet has been able to hold off its innovation for a later date — perhaps when the CAFE standards for trucks start to ramp in 2019, Automotive News reports. The timing for committing to a big shift — such as an aluminum frame or a new drivetrain — didn’t seem right, and given that the Silverado already boasts a 200-300 pound weight advantage over the F-150, the need wasn’t really there.
The strategy has cost the company some market share, hovering at 33.7 percent this past quarter from 36 percent in the same period a year ago — notably, that period is when Chevy was unloading its 2013 inventory in preparation for the 2014 models.
Instead, General Motors put more effort into developing smoother, better engines, as well as nicer, more refined interiors. This allows the company to command better prices while using a similar platform from generations past that don’t involve huge investments in new technologies. Over the next several years, Automotive News notes that GM will likely roll out new innovations over time, such as eight- and 10-speed transmissions, a potential diesel option, and possibly employ a greater use of aluminum.
3. General Motors is putting some wiggle room into its lineup
Henry Brown, the owner of Henry Brown Buick-GMC, told Automotive News that he was admittedly a critic of GM’s price-over-share approach. His sales staff consistently is able to urge Sierra buyers up to features such as a touch-screen infotainment system, he said. “You can’t sell a cheap one,” he told the site. “Maybe [GM] knew the market better than we did.”
In the first quarter, the Silverado and Sierra accounted for 37.7 percent of all pickups sold for over $40,000, up from 26.7 percent a year earlier, data from J.D. Power and Associates cited by Automotive News indicated. It’s also possible that by encouraging higher transaction prices for the larger trucks, General Motors is creating a sizable opportunity for its new Colorado and Canyon pickups to slot in below and to avoid inter-brand competition once they’re released.
The Canyon and Colorado have a lot of ground to make up in fighting off the empire that Toyota’s (NYSE:TM) Tacoma has established in the wake of the exit of the two trucks years ago. By edging Silverado and Sierra prices higher, GM can ensure that it was a wide swath of the truck market covered, from an estimated $20,000 up through $50,000 or more.
4. The fight for share is still a concern
“Every day, we’re losing customers to Ford and Ram,” W. Carroll Smith, president of Monument Chevrolet in Pasadena, Texas, told Automotive News. “That’s a downward spiral that you can’t get out of. When you lose a customer to one of them, you might never get them back.”
“Chevrolet dealers aren’t satisfied with what’s happened with Silverado market share,” Steve Hurley, co-owner of Stingray Chevrolet in Plant City, Florida, and chairman of the Chevrolet National Dealer Council, told the publication. “We’re all looking at what we can do to get that market share back.”
In the event that consumer demand for pickups levels out, the fight would be taken to the use of incentives, implying that GM may not be able to maintain its strategy for a prolonged period of time, given the high prices already adorning its trucks. General Motors has already been applying incentives to its V6-equipped and lower-trim models, as they’ve been moving more slowly. In these conditions, Chevy’s loss of share could present more of a problem.
America’s most competitive segment is only opening up a new chapter, and one that won’t close for some years to come — it will therefore likely make for a riveting competition to watch.