DETROIT -- General Motors' first redesigned full-sized pickups in seven years have come dangerously close to being labeled flops since their launch last summer.
The trucks haven't provided the typical market-share pop in the bread-and-butter pickup segment. Dealers have griped that the pricing is all wrong -- too steep to fend off aggressive deals from Ford and Ram. Critics derided the conservative styling and lack of innovations such as an aluminum frame or diesel engine.
But the gobs of profits that GM piled up from higher transaction prices on the 2014 Chevrolet Silverado and GMC Sierra saved GM's recall-plagued first quarter -- and have forced a reassessment of GM's strategy for its new generation of pickups.
"GM may have made the right call to go for price over share," Barclays Capital analyst Brian Johnson said in an April 24 research note. Two months earlier, Johnson had declared GM's rollout "arguably the least successful large pickup launch over the last 15 years."
The $5,400 spike in transaction prices that GM commanded for the Silverado and Sierra in the first quarter from a year earlier indicates that GM's pickup launch, while far from flawless, is unfolding along the lines that GM had sketched out years ago.
As early as 2008, GM planners put top priority on closing the long-nagging price gap with Ford's F-150, insiders and former executives say. GM expanded capacity to build more pricey crew cabs and V-8 engines. It created the $45,000-plus Chevrolet High Country model to help lift the Silverado from its value status.
And although it used a significant amount of carryover parts, despite GM's claim of "all new from hood to hitch," GM directed engineering resources to where they would be noticed most: a more-refined cabin and smoother, more powerful engines.
GM knew years ago that Ford was likely to do an aluminum pickup for the next-generation F-150, scheduled for launch late this year, the sources said. But GM execs didn't believe the cost and risk of such a move was warranted, mainly for two reasons: First, GM's trucks already had a 200- to 300-pound weight advantage on the F-150. Second, tougher federal fuel economy regulations for trucks don't ramp up in earnest until 2019.
The decision allowed GM to hold down the cost of the new truck platform while still commanding higher prices, until it likely develops a more expensive aluminum underpinning for the next generation, which should arrive around 2019, sources say. Until then, GM expects to maintain pricing by adding innovation. An eight- or 10-speed transmission is expected within two years; a light-duty diesel engine is a strong possibility, too.
'Can't sell a cheap one'
So far, GM execs have stayed relatively stingy on incentives, even if it means allowing Ram to edge Silverado sales for a month, as it did in March.
The pricing strategy is working in the showroom, says Henry Brown, owner of Henry Brown Buick-GMC in Gilbert, Ariz.
Brown says he was "one of the loudest critics" of GM sticking to high prices at the expense of market share. But Brown says his sales staff consistently is able to walk Sierra shoppers up to features such as a touch-screen infotainment system.
"You can't sell a cheap one," Brown says. "Maybe [GM] knew the market better than we did."
GM's sales of pricey trucks have spiked. In the first quarter, the Silverado and Sierra accounted for 37.7 percent of all pickups sold for north of $40,000, up from 26.7 percent a year earlier, data from J.D. Power and Associates show.
Production constraints pose a threat to GM's momentum on high-priced trucks, though. GM struggled for several months to meet demand for V-8 engines.
Constraints continue to crimp dealers' ordering mix, including a pinch in the supply of larger wheels, four-wheel-drive models and the 6.2-liter V-8 engine.
Share still a concern
GM's strategy has cost some market share. Combined Silverado and Sierra sales from January through April totaled 33.7 percent of the full-sized pickup segment, down from 36.0 percent in the year-earlier period, when GM was selling down its outgoing '13 models.
That's a troubling trend for W. Carroll Smith, president of Monument Chevrolet in Pasadena, Texas, near Houston, the heart of pickup country.
"Every day, we're losing customers to Ford and Ram," Smith says. "That's a downward spiral that you can't get out of. When you lose a customer to one of them, you might never get them back."
But even with the market share loss, resisting bigger incentives padded GM's first-quarter profit, according to a report by RBC Capital Markets analyst Joseph Spak.
GM's first-quarter pretax profit from pickup sales was 20 percent higher than it would have been had the company maintained market share, which would have required boosting incentives by around $2,000 per unit, he estimates.
Still, Spak believes it will be tough for GM to cling to the price-big strategy in coming months. U.S. sales growth could start to plateau, prompting automakers to add incentives for growth. And it could prove difficult to maintain lofty pricing on the Silverado, which customers view as a value model, Spak says.
Already, GM has been gradually ladling on more incentives to lift sales of lower-priced pickups, such as regular and double cabs, V-6 engine models and lower-trim packages. In April, it added a $1,000 cash rebate on double-cab models to the supplier pricing promotion it rolled out in March, its largest incentives since the truck's launch.
"Chevrolet dealers aren't satisfied with what's happened with Silverado market share," says Steve Hurley, co-owner of Stingray Chevrolet in Plant City, Fla., and chairman of the Chevrolet National Dealer Council.
"We're all looking at what we can do," Hurley says, "to get that market share back."