Tags: gm | incentives | trucks | gift

GM Boosting Incentives to Move Trucks Seen as Holiday Gift: Cars

Tuesday, 11 December 2012 07:53 AM

December is turning out to be a good month to buy a pickup.

General Motors Co., straining with an oversupply of full-sized trucks, is offering a stepped-up package of incentives on Chevrolet Silverados and GMC Sierras. The incentives may have risen to as much as $5,000 per pickup in December from less than $4,000 last month on Silverados, according to researcher TrueCar.com’s estimates.

The incentive program represents a slippery slope for the world’s largest automaker. The company earlier vowed to hold the line on such promotions to protect profits through the end of the year, even as competitors flood showrooms with traditional year-end deals. Walking a line offering incentives that lure buyers without threatening profits or spooking investors is the difficult game that GM is now forced to play.

“Everybody is trying to figure out: Is GM going to do something dramatic to deal with the supply situation in December?” said Jesse Toprak, an industry analyst with TrueCar, a website that tracks new-car deals.

For now, GM is keeping lots of people guessing. The company insists its discounts are every bit as attractive as Chrysler Group LLC’s and Ford Motor Co.’s. At the same time, company executives are working hard to reassure investors that they are not about to return to the overly generous incentives reminiscent of failed strategies of the recent past.

December Special

Incentive spending by GM will be worth about $4,000 to $5,000 per big pickup in December, TrueCar estimated, based on the deals advertised in the first week of the month.

Jessica Caldwell, an industry analyst with Edmunds.com, another website that tracks car deals, agreed that GM’s pickup incentive spending in December appears to be on track with last year. Edmunds estimated GM’s Silverado incentive spending at $4,500 last December.

It’s still nowhere near the $8,200 incentive package being advertised on Dodge Rams, according to Chrysler’s website, and well below the $6,500 incentives that Toprak estimates Ford is offering. Nissan Motor Co. is advertising offers on its Titan pickup that total as much as $7,450, according to its website.

Even so, aggressive Chevy dealers are able to put together large discounts, as much as $7,000 on certain high-end trucks, said Peter Nesvold, an industry analyst with Jefferies & Co.

Still, GM’s incentives, like those of Ford and Chrysler, are well below their historic highs, and they aim to keep it that way, the company has said. Detroit-based GM said it would cut production before going too far on incentives, an option it says it has time to pursue in 2013 if necessary.

Tougher Situation

Still, GM is in a tougher situation than its rivals. Chrysler has a little too much inventory, while Ford and Toyota Motor Corp. are about normal. Everyone’s aiming for a big December, for trucks, luxury and sedans, too. The annualized sales pace, adjusted for seasonal trends, may exceed 16 million for the best month since 2007, according to TrueCar.

“We don’t control what our competitors are going to do from an incentive standpoint,” Kurt McNeil, GM vice president of sales operations, told analysts and reporters on Dec. 3 “We’re trying to stay disciplined.”

Combined U.S. sales of the Silverado and Sierra decreased 8.3 percent last month to 42,400 while deliveries of Ford’s F- Series line increased 18 percent to 56,299 and Ram pickups rose 23 percent to 24,337 in November.

As GM’s sales fell, pickup inventories swelled 4.4 percent to 245,853, and the company said it may finish 2012 “a little above” its inventory goal. GM had targeted year-end, full-sized pickup inventories of 200,000 to 220,000.

Inventory Buildup

The inventory buildup comes as GM’s North American operations continue to outperform the automaker’s operations in other regions of the world. While GM reported North America operating income of $5.48 billion during the first three quarters, the automaker’s European business continues to lose money.

GM’s pickup inventory “has less to do with the vehicle itself and more to do with GM managing its earnings,” Matthew Stover, an industry analyst with Guggenheim Securities LLC based in Boston, said in a telephone interview last week.

“Had Europe held up, I think they probably would’ve been inclined to raise incentives to move the inventory,” he said. “Given the fact that Europe has been so problematic, I think there has been bias inside the company to continue to build those vehicles and not really offer significant incentives.”

After GM’s inventory news last week, some analysts, including Efraim Levy of Standard & Poor’s Capital IQ, cut earnings estimates. Levy cut his 2012 earnings per share estimate by 27 cents to $3.30, he said in a statement last week.

Lower Estimates

James Albertine, a Baltimore-based industry analyst with Stifel Nicolaus, on Dec. 4 cut his fourth-quarter earnings per share estimate to 52 cents from 57 in part because of inventory assumptions, he said in a note to investors.

“We continue to monitor GM inventory levels, still considerably higher than peers, but we see upside potential to 4Q12 GMNA gross profit given GM’s industry-low incentive spending,” he wrote.

GM’s pickup sales were hurt in November because it was caught off guard by heavy incentive spending by competitors clearing out model-year 2012 pickups, Alan Batey, GM vice president of U.S. sales, said on Dec. 3.

“What we saw in the marketplace in November, we felt they were extreme and the data bears that out,” Batey said. “We came off of a very, very stronger October, and we expect we’ll pick it up again in December. So, this is a one-month adjustment and nothing is going to change on a longer-term basis.”

November Reduction

GM decreased incentive spending on pickups in November compared with a year ago, researcher Autodata Corp. said. Average incentive spending on the Silverado decreased 11 percent to $3,988 per unit last month compared to $4,459 a year earlier while Sierra incentive spending was sliced 12 percent to $4,226 from $4,801 a year ago, Autodata said.

That put GM’s incentive spending behind Chrysler’s $4,748 for the Ram pickup. GM’s spending was more than Ford’s $3,294 per unit.

For the first 11 months of the year, GM trimmed Silverado discounts to $4,534 from $4,702 during the same period a year earlier and reduced Sierra incentives to $4,851 from $5,176.

GM’s total incentive spending this year through November declined 3.7 percent to $3,107 on average per vehicle, according to Autodata. Ford’s incentive spending was estimated to be $2,624 during that same period, a 1.3 percent decline, while Chrysler’s spending rose 1.9 percent to $3,248.

‘Clear Inventory’

“It appears that GM is now raising incentives to clear inventory, a move that isn’t concerning to us given the degree to which GM has reduced spend over the past few months,” Itay Michaeli, an industry analyst with Citigroup Inc., said in a note to investors.

Batey specifically mentioned Chrysler’s incentive spending, saying GM was “shocked” by it. “We haven’t seen those levels and frankly, we don’t think that’s sustainable,” he said.

Last week, Chevrolet’s website began advertising customer and bonus cash totaling as much as $4,500 on out-going 2012 pickup models. A year earlier, Chevrolet offered outgoing 2011 Silverados and Sierras with similar cash incentives of $4,500 for regular-cab trucks and $5,000 for extended and crew cabs, according to Edmunds.

GM is offering more for its new model year pickups compared with a year earlier. The Chevrolet website offers incentives of $3,500 on 2013 models while a year earlier the automaker offered $2,500 for 2012 models, according to Edmunds.

There are numerous discounts and rebates available that can be stacked that in some cases can reduce the price on higher trim level trucks by as much as $7,000, Nesvold said in note to investors, citing a high-volume dealer in Texas.

“Our contact expects December to be a very busy month, with approximately 25% of total inventory,” including cars and trucks, turning over, he wrote.

© Copyright 2018 Bloomberg News. All rights reserved.

1Like our page
December is turning out to be a good month to buy a pickup. General Motors Co., straining with an oversupply of full-sized trucks, is offering a stepped-up package of incentives on Chevrolet Silverados and GMC Sierras. The incentives may have risen to as much as $5,000 per...
Tuesday, 11 December 2012 07:53 AM
Newsmax Inc.

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved