General Motors (NYSE: GM) gave a preview of its all-new 2019 Chevrolet Silverado pickup at a special event at Texas Motor Speedway on Saturday.
We don't have a whole lot of detail on the all-new truck yet. Officially, the new Silverado will make its debut at the North American International Auto Show in January. But we learned a bit about GM's thinking behind the all-new truck on Saturday, enough that we can start to think about how it will compete with its archrivals in the huge and lucrative market for full-sized pickups.
Here it is: the 2019 Chevrolet Silverado, in "LT Trailboss" trim. Image source: General Motors.
What it is: An all-new version of GM's full-size pickup truck
GM said the Chevrolet Silverado has been completely redesigned for the 2019 model year. The new design incorporates feedback from over 7,000 customers surveyed by GM, as well as the company's latest thinking around engineering and construction.
Like other recent GM products, the all-new Silverado takes advantage of GM's "mixed materials" construction approach, in which aluminum alloys and carbon fiber are used in combination with high-strength steels to reduce vehicle weight without compromising safety or functionality. GM said that mixed-materials approach helped it achieve a "significant reduction in total vehicle weight and improved performance in many measures" in the new Silverado versus the outgoing model.
Why does that matter? All other things being equal, a lighter vehicle can offer improved performance, towing capacity, and fuel economy -- all of which are hugely important in the fiercely competitive full-size pickup market. (GM didn't give specifics on the weight reductions.)
GM also said it will offer the new Silverado in an expanded range of models and configurations. The red truck shown on Saturday, the one pictured here, is a Silverado LT Trailboss, a four-wheel-drive model that adds a 2-inch suspension lift to GM's "Z71" off-road package. It's one of eight Silverado models that GM will offer for 2019.
GM will share more specifics at the 2019 Silverado's official launch event in January. It's expected to arrive at dealers late next year. A new version of the Silverado's upscale twin, the GMC Sierra, is expected to arrive at dealers at about the same time.
That's what we know.
Get used to these views, as you'll be seeing a lot of these on U.S. roads in another year or so. 2019 Chevrolet Silverado. Image source: General Motors.
Why it's important: Massive profits are at stake
Here are a few numbers that show why the Silverado -- and its GMC sibling, the Sierra -- are so important to GM's bottom line:
- It's GM's best-selling vehicle in the U.S. by far. Just by themselves, the Silverado and Sierra account for 26.3% of GM's sales this year through November.
- With a combined average transaction price of around $46,000 per truck, the Silverado and Sierra are huge revenue generators. Through the first three quarters of 2017, U.S. sales of the two accounted for roughly 32% of GM's revenue in North America, and 24% of GM's total global revenue.
- The trucks' contribution to GM's pre-tax profit was probably significantly higher. The profitability of specific models is a closely guarded secret, but analysts have estimated that GM's pre-tax margin on the Silverado and Sierra combined is around 20%. If that's accurate, and it's almost certainly close, the Silverado and Sierra earned something like $5.3 billion in pre-tax profit in the first three quarters of 2017. That's about 54% of GM's total pre-tax profit over that period.
Even with some wiggle room in that margin estimate, it's clear that the trucks' contribution to GM's bottom line is massive. Simply put, the Silverado and Sierra are probably responsible for half of GM's total global profit, all by themselves. That's why keeping them fresh and competitive -- which in turns keeps sales high and discounts low -- is a huge priority for GM.
So how will this new truck stack up?
The competition hasn't been sleeping
The numbers may differ, but just as the Silverado and Sierra are hugely important to GM, so is the rival F-Series to Ford Motor Company (NYSE: F) and the Ram to Fiat Chrysler Automobiles (NYSE: FCAU). Like GM, Ford and FCA invest huge sums to keep their trucks competitive and those profits flowing.
All of these trucks have large bands of loyal customers. But there are some customers who switch brands from time to time, and those are the ones that all three automakers want to win over. Generally speaking, those buyers are drawn to the most up-to-date models, and -- again, generally speaking -- those are the trucks that get the sales gains and the highest average transaction prices.
Right now, the momentum belongs to the F-Series, which includes the F-150 and its Super Duty siblings. The F-150 was all-new for 2015, and refreshed for the 2018 model year, while the Super Duty models were all-new for 2017. That's a big part of why F-Series sales are up 10.1% this year through November, and its average transaction prices are over $47,000.
Ford's F-150 got a significant update for the 2018 model year. Image source: Ford Motor Company.
In contrast, sales of the GM twins are down 1.3% this year. GM's current trucks are only one model year older than the F-150, having been introduced for 2014 and updated for 2016, but there's a sense that Ford leapt ahead with the aluminum-bodied 2015 F-150.
GM is clearly hoping that its new trucks will steal Ford's momentum. The expanded range of models will allow GM to more closely match the F-Series, and given GM's practice with other recent models, it's likely that GM engineered the new trucks to be somewhat cheaper to build than the current models. The upshot should be somewhat fatter margin and somewhat improved market share -- two "somewhats" that, given the sheer number of trucks sold, should add up to a noticeable increase in profit.
They'll face stiff competition, though. For starters, GM's won't be the only all-new pickups next year. FCA is expected to show an all-new Ram in January and to have it in production and at dealers several months before the new GM twins arrive. And, of course, it's a safe bet that market leader Ford will have a surprise or two up its sleeve as well.
The upshot: Another piece of GM's profit-growth story
How will that all play out? We'll know a little more after we get all the details on the new trucks in January. But it's a safe bet that the Silverado and Sierra will give GM at least an incremental profit boost once production is up to full speed.
That's one of several reasons I think GM is likely to see substantial profit growth over the next several years. That, in turn, is one of the reasons I think GM's stock is a good buy right now.
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