GM Rakes in Cash as High-End Denali Line Rides Truck Wave
(Bloomberg) -- For General Motors Co., the new GMC Sierra pickup truck that hits dealerships this fall can’t come soon enough.
Although GMC isn’t officially GM’s luxury brand -- that designation belongs to Cadillac -- the brawny pickups and sport utility vehicles command hefty prices rivaling those of traditional high-end automakers. Add on the tony Denali models that comprise nearly a third of GMC sales, and it’s no surprise it’s become the highest-margin vehicle line for the biggest automaker in the U.S.
“GMC is a massively profitable brand,” Duncan Aldred, vice president of Buick and GMC sales, said in an interview in Detroit this week, “and one of the big reasons we have double-digit profit margins in the U.S.”
In a declining U.S. vehicle market, automakers are increasingly focusing on high-margin models, which pad profits better than traditional sedans. The average GMC sells for about $44,000 -- up $10,000 from 2010 levels -- and is priced almost 40 percent higher than standard vehicles purchased in the U.S. High-end GMC Denali models go for even more -- beating even Mercedes and BMW -- earning GM a pretty penny for every one it sells.
“It’s definitely more significant than Cadillac in terms of margins,” Kevin Tynan, analyst with Bloomberg Intelligence, said of the GMC brand. “It’s not even close. The car margins aren’t going to be as good.”
Named for the famously rugged Alaska park, Denali-branded GMC models add luxury amenities like stitched leather seats, aluminum trim, heated steering wheels and wireless charging. They were 29 percent of GMC sales last year, up from about one-fifth in 2014, GM data show. The GMC Yukon full-size SUV sells for as much as $80,000 when it includes the Denali package -- and 65 percent of them have it, Aldred said.
The redesigned Sierra will also offer a Denali model when it hits showrooms later this year. The company hasn’t yet released pricing information, but heavy-duty Sierra pickups with the Denali name sold for about $65,000 last year.
The new trucks should help boost sales. Sierra sales fell 1.7 percent last year and 18 percent in January. The truck hasn’t been fully redesigned since 2007 save for a modest freshening in 2014, and buyers may be holding out for the new model. Analysts expect GM’s overall sales to drop 4.5 percent in February as the overall vehicle market softens.
The industry’s annualized pace of total sales last month probably slowed to about 16.9 million cars and light trucks, according to the average estimate of 12 analysts. Among the largest automakers, only Toyota Motor Corp. is expected to see deliveries rise when automakers report February sales on Thursday.
GM’s Aldred said he was more focused last year on maintaining pricing than chasing sales for GMC, which has a different job than mass-market Chevrolet. GMC’s new Sierra will be completely redesigned and wear a look that is starkly different from GM’s lower-priced Chevrolet Silverado pickup, which is also being overhauled this year.
In some ways, GMC does for GM what Jeep does for Fiat Chrysler Automobiles NV. Just like Jeep stands for off-road capabilities, GMC tries to be the truck that the owner or foreman of a construction company drives. Its “Professional Grade” tagline has successfully won over buyers even though the trucks and SUVs are mechanically similar to Chevrolets, said David Whiston, analyst with Morningstar Inc.
“It’s a story that is unique to U.S. automakers,” Whiston said in a phone interview. “It would be very hard for the Japanese to come up with a dedicated truck brand like this.”
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