Bloomberg News

Obama’s Bet on GM Hangs on Revamped Silverado Pickup

December 13, 2012

Obama’s Bet on GM Hangs on New Pickup Boosting Share Price

2013 Chevrolet Silverado LT Extended Cab Pickup. Source: General Motors Co.

General Motors Co. (GM:US)’s best bet for 2013 may also provide the Obama administration an exit ramp for its $50 billion investment in the largest U.S. automaker.

With today’s unveiling of its first redesigned Chevrolet Silverado full-sized pickup since 2006, GM aims to take Ford Motor Co. head-on with new trucks that could help boost its share price (GM:US), encouraging the U.S. government to sell its stake.

GM’s Silverado and GMC Sierra pickups are mechanically similar models that combined to make up 23 percent of the Detroit-based automaker’s U.S. sales last year. The trucks generated an estimated 16 percent of the company’s global earnings (GM:US) before interest and taxes this year and the redesigned versions could boost Ebit by more than $1 billion in 2013, according to a Citigroup Inc. estimate.

Even with the recent cloud of high existing truck inventories, the new models hold the promise of giving GM’s investors, the U.S. government included, a long awaited boost.

Introducing a new pickup “tends to correlate very well with positive stock returns” for GM, said Itay Michaeli, an analyst with Citigroup. Since GM’s initial public offering in November 2010, “there was high anticipation already then for the 2013-2014 truck launch.”

Of 13 new Chevrolet vehicles introduced next year, the Silverado will do more than any other model to help boost sales and profits, which analysts project will increase next year. Nineteen of 25 analysts surveyed by Bloomberg recommend buying GM stock.

“It’s really hard to find a product for GM that’s more important,” Rebecca Lindland, an industry analyst with IHS Automotive, said this week in a telephone interview. “From a volume and financial standpoint, this is GM’s Super Bowl.”

‘Oldest Portfolio’

GM has the “oldest portfolio” of vehicles, Mark Reuss, president of GM North America, told reporters in Pontiac, Michigan, after introducing the new Silverado and Sierra, which will begin arriving in showrooms in the second quarter. “We’ve got to turn it and we’re going to turn it as fast as we can, starting with this.”

“We think we are timing this very, very well in terms of construction and growth in the economy,” Reuss said.

The U.S. may sell its remaining 32 percent (GM:US) stake in GM, a holdover from the 2009 rescue of the automaker, if the shares rise. The Treasury wants to sell for at least the $33 a share price it got in the IPO, people familiar with the matter have said. It needs to sell for more than $50 for the U.S. to break even.

Ford F-Series

GM fell 2 percent to $25.12 at the close in New York. The shares have increased 24 percent this year. They need to gain 31 percent to reach the $33 IPO price.

GM has long battled Ford (F:US) for pickup buyers. Sales of Ford’s F-Series, which was redesigned in 2008 and has been the best- selling vehicle in the U.S. for 30 consecutive years, have outpaced Silverado and Sierra as customers have shifted to the Dearborn, Michigan-based automaker’s more efficient smaller engines.

Reuss told reporters today that GM’s goal is for Silverado and Sierra sales to exceed F-Series deliveries. He didn’t provide a timetable.

About 54 percent of F-150s sold through September came with six-cylinder engines whereas only 7.6 percent of Silverado 1500s had the smaller powerplant, according to Edmunds.com, a website that tracks auto sales. Before Ford’s 2010 introduction of the EcoBoost version of its V-6 engine, which uses direct fuel injection and turbocharging to increase fuel economy and power, about 14 percent of F-150 sales came with six-cylinder engines in 2008, Edmunds said.

Fuel Efficiency

“They need to move fuel efficiency that sticks beyond what Ford is doing without sacrificing power,” Matthew Stover, an industry analyst with Guggenheim Securities LLC based in Boston, said in an interview. GM will probably “shift it from a horsepower war to a fuel-efficiency war.”

GM’s current Silverado has fallen behind in technology as the automaker wasn’t able to keep investing enough during its 2009 bankruptcy reorganization, said Larry Dominique, executive vice president of researcher TrueCar.com.

“They had a really good riding truck, good fuel economy,” he said in an interview in Bloomberg’s Southfield, Michigan, bureau. “They’ve got to take that leap again. They’ve got to leapfrog Dodge and Ford.”

‘Our Ambition’

Chrysler Group LLC, which makes vehicles under brands including Dodge, Ram and Jeep, has its own ideas. The company, which began shipping its revamped Ram 1500 to dealers in October, wants to climb past Chevrolet in pickup sales, CEO Sergio Marchionne told employees last week after accepting Motor Trend’s 2013 Truck of the Year award for the new 1500.

“I know of nothing that suggests that we have to settle for our current status,” Marchionne said. “History is not the same as destiny. Our ambition must be to reach for a higher position.”

GM said its new trucks will be offered with three engines: a 4.3-liter V-6 and V-8s of 5.3 liters and 6.2 liters. Horsepower and torque ratings as well as U.S. Environmental Protection Agency fuel economy ratings will be available in early 2013, the automaker said. Reuss declined to comment in detail about how GM’s new truck would compare with Ford.

“We’re going to do a bandwidth of things that I think will ensure a solid operating and duty cycle across our customer base and product lineup,” Reuss said.

GM’s new pickups will have improved fuel efficiency, horsepower and torque along with making them more comfortable and functional, Jeff Luke, executive chief engineer for full- size and midsize trucks, said. The new pickups “will once again raise the bar in the full-sized truck segment.”

Battling Ford

GM probably won’t beat Ford’s EcoBoost fuel economy, Jeff Schuster, an industry analyst with LMC Automotive, said.

“I think it will be close,” he said. GM may try to use midsize pickup offerings to compete on fuel economy, Schuster said.

GM showed the new model to dealers in September in Las Vegas for a private review of future products. Executives promised a new pickup that would have more torque and better fuel efficiency than Ford.

“Everything that I have heard, I think the truck is going to be a threat not just to Ford but a threat to everybody in the full-sized truck business,” Jason Brickl, chief executive officer of a dealership chain that has two Chevrolet outlets in the Madison, Wisconsin, area.

Eager Dealers

The introduction of the new pickup comes as GM struggles to manage inventory of the old version it must sell down while production of the new truck begins in the second quarter.

At the end of November, GM’s pickup inventory rose 4.4 percent to 245,853 compared with a month earlier. Kurt McNeil, GM vice president of sales operations, said the pickup inventory may finish the year higher than the company’s 200,000 to 220,000 target.

GM’s pickup incentives weren’t as high as competitors in November, Reuss said in an interview on Bloomberg Television’s “In the Loop with Betty Liu” before today’s press briefing.

“This month, we’re going to meet their incentive levels,” Reuss said. “The month is off to a great start for us.” GM also is “watching inventories very carefully,” he said.

After considering trimming its estimate for 210,000 GM pickups to be produced in the first quarter, IHS decided against doing so, Tracy Handler, an analyst based in Northville, Michigan, said yesterday in an e-mail.

Customer Anticipation

GM plans to build large sport-utility vehicles on the new pickup architecture beginning in 2014 followed by a midsize pickup, Reuss told reporters today.

Production of GM’s full-size pickups and the sport-utility vehicles built on that truck frame could rise 20 percent in 2014 compared with 1 million produced this year, Citigroup’s Michaeli said.

Full-size pickup sales make up about 30 percent of John McEleney’s Chevrolet sales at his dealership in Clinton, Iowa.

“A lot of people have been waiting for it,” he said in a telephone interview this week. “I think a lot of Chevy and GMC truck buyers who have had two or three of the current version are excited to maybe move into the new one.”

After previewing the truck in Las Vegas, he said the cabin is nicer and has improved technology.

“They did a great job with the interior,” he said. “The outside appearance is strong, but the interior is probably the biggest change, which I’m very encouraged about.”

To contact the reporter on this story: Tim Higgins in Southfield, Michigan at thiggins21@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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