Just how important is the Silverado?
Now that it’s mostly done dealing with the aftereffects of its $50 billion U.S. taxpayer-funded bailout, General Motors Company (NYSE:GM) is spending capital to redesign its vehicle portfolio. It’s been estimated that General Motors Company (NYSE:GM) invested between $3 billion and $4 billion to develop these new trucks and engines. That’s a lot of money invested that won’t be evident from the trucks’ outside appearance, as the design remains very similar.
Source: General Motors Media Photos.
The money spent will, however, be evident from both an investing and consumer standpoint. General Motors Company (NYSE:GM) is updating the interior with plenty of technology innovations, as well as upgrading the gas mileage with its line of EcoTec engines. For investors in particular, money put into revamping the plants where the trucks are built will help improve operating efficiencies and profits per vehicle. It’s all part of the CEO’s plan to clone its rival’s “One Ford” strategy and raise operating margins in the U.S. to 10%.
Doing it right the first time
It’s incredibly important for management not to rush this launch and to do it right the first time. Chevy’s 2014 Silverado will have a year’s head start before the next-generation F-150 is released and can use a surging pickup segment to win back lost market share. Here’s what General Motors Company (NYSE:GM) Global product development chief Mary Barra had to say about the launch:
“I’m very confident that everything’s on track and moving forward. … It’s been the most rigorous process we’ve gone through to make sure we put a high-quality truck into the marketplace, day one. … [The launch is] going to be shortly.”
The current models are estimated to generate up to $12,000 of profit per vehicle, but with the Silverado’s old age, GM has to increase incentives to succeed against its competitors. Investors can expect margins and profits to improve with the new model.
Inventory
GM’s management will have to carefully control the 2013 Silverado inventory, which spiked early this year. GM decided it won’t increase pricing on the 2014 model, which is an aggressive move and will make selling old 2013 models more dependent on a major boost in incentives. In other words, General Motors Company (NYSE:GM) could be stuck with less favorable options to move the old trucks off the dealer lots. Correctly timing the launch of the new model while winding down current inventories will be key to considering this launch a success.
Bottom line
GM’s past management ran the company into the ground before the recession came along and finished the job. With a new crew running the ship, things have steadily improved, albeit more slowly than at rival Ford Motor Company (NYSE:F). By 2016, General Motors Company (NYSE:GM) is going to replace, refresh, or redesign 90% of its vehicles, and proving to investors in the meantime that it can have successful vehicle launches could boost demand for its stock. GM wants to avoid ugly recalls shortly after the release of its vehicles — as Ford Motor Company (NYSE:F) encountered with the popular Fusion and Escape models — and it certainly wants to avoid taking too long to get finished products to the lots, which is what happened with the Lincoln MKZ.
In short, this is the single most important launch for GM in the past 10 years. The world is watching, and as an investor, I hope GM does it right the first time.
The article GM’s 2014 Silverado Is No. 1 originally appeared on Fool.com and is written by Daniel Miller.
Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors and owns shares of Ford.
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