GM’s Turn to Aluminum Bodies For Its Pickups Might Come Too Late – Forbes

Posted: Monday, August 04, 2014

Earlier this year Ford Motors closed down some of its U.S. based factories to allow for the reconfiguration of the manufacturing process of its F-series trucks. The best selling series of trucks were previously made of steel bodies but the new process will allow them to be made with aluminum bodies. The advantages of aluminum bodies are obvious: aluminum is lighter than steel and a lighter vehicle has better acceleration, fuel-economy, handling and towing capacity compared to a heavier vehicle, keeping other things like engineering and design the same. The company is so confident about these new trucks that it sent prototypes to prospective clients, like mining company Barrick Gold Barrick Gold, in order to let them test them out in harsh conditions. The trial run with these prospective clients served two purposes: it generated intrigue among the customers thereby functioning as effective advertizing, while also allowing Ford to gather knowledge about potential faults which it could then go back and correct in the production process. All this activity at Ford has caught the eye of competitor General Motors, which has now responded by pushing forward the timeline on the launch of its next-generation Chevrolet Silverado and GMC Sierra by about nine months, to the fall of 2018.

We have a $40 price estimate for General Motors, which is about 18% more than the current market price.

See full analysis for General Motors

Worried by Ford

Last year, General Motors General Motors released new versions of its full-size pickup trucks Chevy Silverado and GMC Sierra. While none of these new versions was revolutionary, in either engineering or design, they were considerable improvements on the outgoing models. Both these trucks have sold well. For the month of April 2014, Chevrolet Silverado sales were up 9 percent and GMC Sierra sales were up 21 percent compared to the numbers in the previous year. Retail deliveries were up 13 percent and 22 percent, respectively. However, these trucks were supposed to put GM on an equal footing with rival Ford but nothing of the sort happened. In the absence of heavy discounts, buyers were reluctant to purchase the Silverado, instead opting for alternatives like Chrysler’s Dodge Ram, which was being sold at discount rates as high as 24%.

Ford’s F-Series pickups have been the best-selling trucks in the U.S. for nearly 40 years now, but GM led the overall market in terms of unit sales not too long ago. Before the recession, the company sold ~827,000 pickups, well ahead of Ford’s F-Series sales of around 691,000. Then GM lost a lot of market share relative to Ford because of the Great Recession and GM’s ensuing bankruptcy. By 2011, Ford F-Series sales had rebounded to ~585,000, while combined Silverado and Sierra sales totaled just ~564,000. Ford widened its lead in 2012 with a 10% sales growth, while GM’s pickup trucks posted low single-digit growth.

With the launch of new versions of Silverado and Sierra, GM wanted to achieve two things: 1)increase average transaction prices in order to match Ford’s profit per truck sold, and 2) increase its market share. It was successful on the first front. By cutting down on incentives, the company managed to raise its average transaction prices. GM was making more profit on each truck it sells than a year ago. On the sales front, however, as GM cleared out old 2013 models to introduce new 2014 models, sales growth tapered off. Through the first 8 months of 2013, the combined sales of Silverado and Sierra grew by an impressive 25%. But in the final four months of the year, GM’s sales started dropping, even as Ford continued to post gains. The trend has continued into 2014.

GM to Make Aluminum Trucks

Worried about Ford’s redo of its F-series pickups, GM has now pushed forward the launch of the planned new versions of the Silverado and Sierra. The auto maker will also be releasing redesigned versions of its big SUVs a year later. The new GM pickups will follow Ford’s lead, and use aluminum bodies in order to reduce the weight of the vehicles. Earlier this year, GM signed contracts with Alcoa Alcoa and Novalis for the supply of aluminum sheet metal for its next generation of pick up trucks.

However, these trucks might come too late for GM. GM’s new trucks will be lighter than its previous ones but unlike Ford they won’t be able to gain any marketing leverage out of this redesign. Meanwhile, Chrysler, the other competitor in the battle for market share, has decided that rather than focusing on weight reduction, it is better to turn to new technology to improve the Ram’s fuel economy Its new trucks come with a high-tech, eight-speed transmission, a new engine line-up, and an option of a diesel-efficient engine. The company is even considering a redesign that incorporates aluminum bodies. These innovations have helped improve the Ram’s sales numbers.

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