Each year, the Detroit Three truck makers cut prices and profits while racing to win the coveted “best-selling truck in America” title. However, this may soon be changing. GM has seemingly decided to forgo mass sales volume goals and instead focus on profits. That said, GM trucks did outsell Ford trucks in August.
A recent story on Pickuptrucks.com suggests GM will continue to hold to its pricing strategy and not chase the crown. The pricing strategy is to be price competitive in the entry level truck segment while offering fewer incentives on higher trim levels. These higher trim levels have substantially more profit than the base trucks.
This pricing strategy has caught many analysts by surprise since if there was ever a year for GM to grow market share and chase the crown, it is this year. Long-time sales champ Ford has seen flat sales growth all year long while it prepares to release the new 2015 F-150.
With Ford’s truck sales relax, GM could substantially grow its market share through an aggressive pricing strategy for the Chevrolet Silverado and GMC Sierra lineup. Instead, GM is focusing on profits and bringing the new 2015 Chevy Colorado and 2015 GMC Canyon to market at the end of the month.
This is significant since the truck segment is known for having the most brand loyal customers anywhere. Typically, truck buyers are generational, in that, if one member buys XYZ brand, this brand is usually bought by other members as well. Also, customers will continually come back to the brand time and time again.
Ultimately, this strategy will be looked back on in future years as either a stroke of genius or an incredibly poor decision. Time will tell.
Comments
This seems to have been the story since the K2XX trucks came out, how average transaction prices are higher. But on the flip side the Chevy website is advertising $8,500 off the Silverado All Star Edition. So how are they putting these types of promos on and still raking in the big profits? I remember last October my local dealer had upwards of $12k off the 2013s on clear out, I wonder what the max we’ll see this year will be.
The future of the half ton truck market is not going to be volume but profits now that the smaller truck are coming. The price will have to remain high to one limit the sales of the larger truck naturally and to drop to hurt the smaller trucks sales.
There are rumblings that the Ranger will be here too as Ford F 150 will be costing more too. They will hide the higher price with a low base but higher option package prices.
The bottom line is the half ton truck can not go on as it is as it is too much mass eve in all aluminum. GM will look to split the segment to the smaller truck or to the 3/4 trucks and use price to do this.
While we may see spurts of incentives they will be come less as the market resets with the new path. Dodge will make hay with lower incentive prices but while they will sell a lot of trucks there will be much less money in it for them.
GM and Ford can afford to trade some market share for higher CAFE averages and more profits. We have yet to see this all play out as I expect an even smaller truck about Encore or Trax size and the new mid size will adjust for more MPG as we go in the next gen too.
The truck market by 2025 will look much different.
It seems to me this was their agenda from the get go, and that they weren’t so concerned about market share. They wanted higher ATP and profits is what I recall being said.
I would prefer that GM make a profit and sell fewer trucks than Ford.
The full size truck is there best selling vehicle – they need to make money on it.
I think I saw some numbers (Automotive News?) that Ford F150 transaction prices were still higher than GM’s thanks to the high end special edition models (Raptor, Harley Davidson, etc.) so Ford has been been able to gain market share as well as maintain profitability (higher volume thins the fix costs).
GMC is, of course, successful with Denali and Chevrolet High Country is a start, but there’s lots more that can be done.
Elroy, you are correct in that Ford’s average transaction price was higher because they sold a lot more of their Platinum and Raptor trucks. That doesn’t mean they are making more profit. Example: Truck “A” has MSRP of $45,000 and transaction price of $38,000. Truck “B” has MSRP of $60,000 and transaction price of $49,000. Even though the transaction price of truck “B” is $11,000 more than “A”, the manufacturer also gave a $12,000 rebate/discount to get it versus a $7000 rebate/discount on truck “A”.
So profits on transaction prices are only comparable among different brands on equivalently price vehicles. You can’t compare profits on two differently priced vehicles from two different manufacturers because the MSRP, invoice, rebates, incentives (Loyalties) etc are all different between the two manufacturers.
This doesn’t mean GM is making more profit. GM’s profits are down 80% due to the recalls and expenses.
As reported earlier this summer, GM on Thursday reported a $278 million profit, off 80% from a year earlier, as special items offset North American operating-margin expansion and continued growth in China.
The Detroit-based company recently launched a new family of pickup trucks and sport-utility vehicles in the U.S., but costs related to defects—resulting in nearly 30 million recalls this year—blunted the positive impact of new models designed to compete in the sweet spot of the American market.
Meanwhile, Ford’s second-quarter profit rose 6% to $1.3 billion, propelled by record earnings in North America and momentum in Asia.