2-27-18 2:47 AM EST | Email Article

Pickups and SUVs will help auto maker fund development of driverless, electric cars

By Mike Colias 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 27, 2018).

General Motors Co.'s executives considered axing the GMC truck division ahead of the company's bankruptcy, as they sought to scale back the sprawling Detroit auto maker. GM's decision to keep the brand is paying off a decade later as pricey pickups and sport-utility vehicles displace luxury sedans as America's rolling status symbol.

As Chief Executive Mary Barra pushes forward with her strategy to exit some major markets, including Europe, the relatively unsung GMC unit has become a disproportionate contributor to the company's income, money that will fund the development of driverless and electric cars.

GMC pulled in about $24 billion in revenue last year, according to a Wall Street Journal estimate, 16% of GM's global revenue and roughly equal to that of Porsche AG. The unit doesn't attract the same headlines that corporate siblings Chevrolet and Cadillac get, and the brand lacks the luxury cachet of Toyota Motor Corp.'s Lexus or Volkswagen AG's Audi. But because it mostly sells pickup trucks and premium sport utilities with extras such as French-stitched leather and chrome grilles, GMC delivers more profit per sale than most other brands in the global car business.

The success of GMC helps General Motors take advantage of a growing premium automobile market at the same time Cadillac continues to trail luxury rivals. While Cadillac's Escalade sport-utility vehicle is an unrivaled success, the brand's sales lag behind BMW AG, Mercedes-Benz and other makers of luxury crossover SUVs and performance sedans.

GM plans to unveil a new pickup truck Thursday in Detroit that could further sweeten GMC's contribution. The revamped Sierra large pickup truck, long seen as a near-identical twin with the Chevy Silverado, is expected to carry a number of exclusive features, including an optional carbon-fiber pickup bed.

Unlike Ford Motor Co. and Fiat Chrysler Automobiles NV, which sell one version of a full-size truck (the F-150 and Ram, respectively), GM's two-pronged approach is designed to capture a broader swath of buyers. More than 2.4 million large pickup trucks were sold last year, 14% of overall U.S. sales -- up from 11.4% in 2012. Having more offerings could boost appeal among buyers who include workaday contractors and well-heeled ranchers.

GMC customers "love getting their hands dirty, but they're very wealthy, " said Duncan Aldred, the GM executive in charge of the brand.

The profits from GMC's hulking trucks are helping GM make products for its longer-range bets on electric and autonomous vehicles. The company is boosting spending on AV development by two-thirds this year to $1 billion. It plans to deploy a fleet of driverless taxis in undisclosed cities next year, targeting what research firm Strategy Analytics estimates will be a $7 trillion global market by 2050.

The company, which made $12.8 billion in operating profit in 2017, won't disclose its electric-vehicle investment, though it is likely substantial. Analysts expect the commitment to tally a few billion dollars a year over the next decade, with plans for 20 new models powered solely by batteries or fuel cells within five years.

The average GMC sells for $44,000, representing a 25% increase from 2012, a $13,000 premium over the industry average and 36% higher than Chevrolet's average selling price across all models.

GMC's success is a bragging point for a company once derided for having a bunch of barely differentiated brands. Even today, six of GMC's seven models are mechanically identical to a Chevy, distinguished by different exterior designs and slight variations in the cabin. The next-generation Sierra is expected to take the distinctions further with a more-luxurious interior.

The company faces a challenge in not straying too far from GMC's modest-luxury image. Where Cadillac's Escalade commands a $15,000 premium over its GM counterparts by being stocked with bling, GMC commands prices that are generally higher than mainstream brands because it is seen as "professional grade," a nod to its longtime advertising tag line.

Chris Hemmersmeier, a dealer who sells all four GM brands -- GMC, Cadillac, Chevy and Buick -- in the Salt Lake City area, says some customers who choose a GMC think Cadillac is too showy.

"They think GMC is more of an under-the-radar luxury vehicle," he said. Mr. Hemmersmeier recently had a customer trade in a Porsche for a GMC, which he preferred because it was more low-key.

Much of GMC's pricing power comes from its high-end Denali line, expensive trim packages that can include more engine power and cosmetic frills such as a chrome grille. Denali has grown into de facto luxury truck division, rising to 29% of GMC's sales last year, from 21% in 2014.

"That thing is a money machine," GM President Dan Ammann said of the Denali line last month during an investor conference. Mr. Ammann presented a slide, citing research from J.D. Power, that showed Denali's average selling price of $55,600 a vehicle in 2017 was higher than any higher-volume auto brand, including BMW and Daimler AG's Mercedes. The Denali line also outsold Cadillac, at a higher average price.

Write to Mike Colias at Mike.Colias@wsj.com


(END) Dow Jones Newswires

February 27, 2018 02:47 ET (07:47 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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