General Motors stunned the automotive world last week, but it wasn’t for the usual negative reasons.
Industry followers more accustomed to hearing about large layoffs or sickening sales declines were startled when GM said its U.S. sales rose 3.7 percent in February, even as its two domestic rivals, Ford and Chrysler, posted sizable declines and the overall market was flat.
GM’s gain in the normally soft month was led by strong demand for its sport utility vehicles and pickup trucks including the redesigned Chevrolet Silverado. Even more impressive, the gain came without the huge sales incentives of previous years.
GM reined in its incentive program in January, and so the February sales gain “speaks to the strength of their new pickups,” said Global Insight Research Analyst Aaron Bragman.
“We thought GM would be in the same boat as the other Big Three U.S. automakers and continue to feel the slump that they are all experiencing, but it seems GM’s turnaround may be starting to gain traction with consumers,” Bragman said. “We’re seeing a lot of loyal GM customers trading in their old pickups for new versions."
Sales of GM’s full-size trucks jumped 29 percent in February thanks largely to the redesigned Silverado and the GMC Sierra. By contrast, sales of Ford’s F-series line of full-size pickup trucks dropped 12 percent in February, with the F-150 conceding its title as the best-selling vehicle in the United States to the Silverado for the month.
February’s surprising gain suggests the world's largest automaker — which is in the midst of a turnaround plan that includes massive job reductions, plant closures and a revamping of its product lineup — might have started to turn a corner.
Good products are key to success for America’s big automakers, which are struggling with fierce competition from Asian automakers like Toyota and Honda. For years, U.S. automakers have focused on profitable SUVs, but their popularity has waned as consumers have turned to more fuel-efficient sedans — a market segment dominated by the big Asian automakers.
GM has a promising array of new cars coming to market, including the Saturn Aura sedan and the redesigned Chevy Malibu, which goes on sale later this year. Sales of GM’s midsize sedans rose 25 percent in February, and its subcompact Chevrolet Aveo saw sales grow 17 percent.
But trucks are still the most important segment for GM profits, Bragman said. The margins on trucks are far greater than those seen on passenger cars, he said, adding that the success of the Silverado, the Sierra and the big GMT900 SUVs — including the Tahoe, Yukon and Suburban — is “absolutely vital” to GM’s turnaround.
GM and Ford have dominated the big-truck market for decades but are feeling the heat from a new entrant — Toyota. The Japanese automaker has invested billions of dollars to relaunch its full-size Tundra pickup truck with an eye to the heartland market that has long escaped it.
“One thing that has been very consistent about Americans — they love big vehicles,” Bragman said. “It’s not necessarily the high price of gas that deters them from buying big SUVs and trucks — it’s the volatility in the price of gas that we saw last year. So if gas prices are stabilizing where they are now, Americans can plan for that and buy the vehicle they are compatible with.”
GM has made a concerted effort to revamp its big pickups, Bragman said. The quality of the interior of GM’s new Chevy Silverado is a ‘quantum leap’ over the outgoing model, he said, including high-quality materials that give an air of luxury and a low instrument panel, which means good visibility for the driver.
“GM knew the quality of the Tundra would be above reproach, so when they made the new Silverado they knew they had to be not as good but better than the Tundra," he said. "So they set the benchmark high and I think they met it."
He noted that the Silverado was voted North American Truck of the Year for 2007 at this year's Detroit auto show and has been well-received.
Still, the Tundra also is winning praise. Introduced in mid-February, the Tundra sold almost 10,000 units last month. Toyota has said it expects sales of its Tundra to eventually top the 200,000 mark annually, and while Bragman is optimistic the Toyota truck can hit that sales target, he’s skeptical that Tundra sales will reach the same levels as GM and Ford’s trucks any time soon.
Ford’s market-leading F-150 sold nearly 800,000 units last year, and GM sold more than 600,000 Silverados.