General Motors' $6 billion truckMay 10, 2013: 12:13 PM ET
The Silverado pickup has been in the works for seven long years. It could deliver up to $6 billion in profit -- a year.
By Doron Levin
FORTUNE -- For General Motors Co., every new vehicle model consumes gobs of capital and must return a profit. But GM's new Silverado pickup truck is in a league of its own. It is the single-most consequential vehicle in GM's financial turnaround.
Seven years in development, the Silverado sports bold styling, a raft of new features such as a MyLink infotainment package, and three engine options that offer more fuel-efficient technology than previous versions.
GM (GM) is blessed with great timing, as demand for pickups is rising, stimulated by a revived U.S. housing market, economic growth, and a raft of buffed new models. Indeed, the market is crowded with strong competitors: Ford's (F) F Series and Chrysler's Ram pickup are estimable and just as consequential to those automakers' futures.
GM chose Texas for the first public drives and tests of the 2014 model, a state where about one of every six of full-size pickups in the U.S. are sold, according to the automaker. GM staged the event at a private ranch near San Antonio, to underscore its rural connection and perhaps to remind Toyota (TM) that the 2006 construction of its $1.2 billion Tundra pickup plant in that Texas city hasn't quite lived up to expectations.
"Truck buyers are the most loyal of all," said Maria Rohrer, Silverado marketing director. For most buyers the connection to their pickups is one of blood. "They keep coming back because their fathers and grandfathers drove a Chevy pickup." The same applies to Ford and to Chrysler's Ram. A bit more than half the buyers of new Silverados will trade in a Chevy truck, she said.
Trucks are key to life on family ranches, farms, and small businesses in the midsection of the country. In fact, pickups may be fairly regarded as more or less Republican vehicles, their sales concentrated within the boundaries of the red-state electoral map. This fact was not lost on the bipartisan consensus to help GM after its financial collapse in 2008-2009.
Yet pickup trucks, despite their rural roots, have become less and less purely utilitarian and increasingly available with the same creature comforts as luxury sedans. The least-expensive Silverado, which begins arriving at dealers in the next month or so, will start at about $23,000, a relatively spartan affair with a two-seat cabin. Only 15% of buyers will choose this model.
GM said more than 60% of the buyers will pay over $40,000 for their pickups. Silverado has two cabin configurations that include second rows, enough room for a double date to the county fair or a Sunday morning jaunt to church with the kids.
Because Japanese automakers have managed to conquer only a small piece of the U.S. full-size pickup market, U.S. producers can contend among themselves for most of the shoppers now "in play," those who aren't currently driving a Silverado or F Series. And since large pickups are sold only in North America, automakers have the unusual luxury of charging prices that haven't been driven lower, as with most models, by global competition.
Joe Phillippi, a former Wall Street automotive analyst who writes about the industry, reckons that Silverado will earn "at least five figures" in gross profit per sale. Thus it and its sibling, the GMC Sierra, could account for $5.5 billion to $6 billion in gross profit annually for GM.