Trucks hold back GM
GM was counting on its new full-size GMC Sierra and Chevrolet Silverado pickups to be smash hits, but the new trucks launched late last year are taking longer to sell than the outdated models they replaced, and they're leaving showrooms with just $420 less in incentives.
GM sold 200,505 of the trucks through the first three months of 2007, according to Edmunds.com, a figure one GM insider said fell well below internal projections.
The impact of the sagging truck market will come into sharper focus this week as GM and other major automakers report April sales today and GM releases its first-quarter financial results Thursday.
The prolonged slowdown in the U.S. housing and construction markets, combined with rising fuel prices, is weighing on pickup sales nationwide
-- a high-profit segment on which Detroit's automakers are heavily dependent.
"Things aren't falling apart, but those external factors are having an impact," Jesse Toprak, chief economist for Edmunds.com, said of GM's pickup sales.
GM officials declined to discuss truck sales, saying the automaker doesn't comment on sales and earnings ahead of announcements. Analysts expect GM to post a profit overall in the first quarter, but will be closely watching North American earnings for signs of progress.
GM hoped the high-profit Chevy Silverado and GMC Sierra would far exceed sales of the 2006 models that were running out of steam after a four-year run.
While the new Silverado and Sierra are generally outperforming the competition, they have been hurt by the down market.
GM increased Silverado and Sierra production 11 percent in the first quarter in anticipation of strong demand. But sales are up just 4.8 percent through March compared to a year ago, according to Edmunds.com.
Moreover, the trucks are being discounted $2,453 on average and are sitting on dealer lots 81 days, according to Edmunds' data for the first quarter of 2007. The old models carried $2,874 in incentives and moved in 55 days during the same period a year ago.
Considering the trucks were completely made over -- bigger, more powerful and available with more features -- GM and Wall Street were expecting more.
"Usually, you'd want to see a double-digit gain" on new products, Toprak said.
Automakers feel pinch
Troubles in the truck market have been looming for GM and other automakers.
The segment is heavily dependent on contractors who use the vehicles for work. As a result, demand has slumped with the housing market, as fewer workers build fewer homes.
Industrywide, full-size pickups, which account for 22 percent of vehicle sales for Detroit's automakers, were down 10 percent in 2006, according to Autodata Corp. Sales for the segment were down another 4.6 percent for the first three months of 2007 compared to the same time last year.
Toyota Motor Corp. surprised many in the industry by discounting its new full-size Tundra pickup months after it debuted.
Ford Motor Co. saw sales of its F-Series fall 14.1 percent in the first quarter of 2007, according to Autodata, following a year in which the Dearborn automaker's sales benefited from a post-Hurricane Katrina construction boom on the Gulf Coast.
"The housing market doesn't seem to be getting any better -- that is a concern," Ford sales analyst George Pipas said. "The prospects for a rebound are more remote today than they were four months ago."
Hopes were high
GM had hoped the new Sierra and Silverado, widely regarded as well-executed improvements on their popular predecessors, would offset some of those market forces. The automaker, like many in the industry, also was surprised by the depth of the woes in the housing market.
In the past couple of weeks, GM Vice Chairman Bob Lutz has made public statements reflecting concern about the impact the housing downturn will have on the auto industry.
But while the trucks have performed well -- their share of the large pickup segment increased nearly 4 percent -- they haven't delivered all GM hoped.
Research firm Global Insight is predicting that Silverado sales will be up 4.6 percent through April and Sierra sales will jump 5.9 percent.
And one analyst estimates GM's April truck sales fell 3 percent.
GM's U.S. sales in April may have dropped an adjusted 4 percent, falling as much as 7 percent for cars and 3 percent for trucks, Christopher Ceraso of Credit Suisse Holdings in New York said in an April 25 note. GM's large pickups "may struggle broadly given the weak housing market," the note said.
Truck competition heats up
The tough market forces come at a time of intense competition in the truck market. Toyota is out with the new Tundra. Nissan Motor Co. unveiled longer and heftier versions of its Titan truck. Ford's new F-Series Super Duty truck lineup hit showrooms in January. And both Ford and DaimlerChrysler AG's Chrysler Group are discounting their older pickups by up to 20 percent, Edmunds' Toprak said.
"They have sold more trucks in this weak market that they did last year," he said of GM. "At least that trend is positive."
Dealer Steve Cook, owner of the Cook GM Superstore in Vassar, is seeing the pickup problems firsthand.
"It's a competitive market and manufacturers are having a hard time getting people to feel it's a good time to buy a truck," Cook said.