Has GM’s Silverado Ad Campaign Backfired?
Last month, we wrote about the reasons why General Motors (NYSE: GM) launched an aggressive marketing campaign for its pick-up truck Chevrolet Silverado, following a 13% dip in sales in May. The company directly tried to position its trucks as superior to Ford’s F-150 series of trucks, whose sales had grown by 9% in the month. GM had a record profitable year in 2015, a large part of which was the market share gained by Chevrolet Silverado and GMC Sierra at the expense of F-150, whose supply at dealerships was low as a result of shutdown of Ford’s American factories for re-tooling.
However, the campaign seems to have backfired F-150 sales grew by a massive 28.6% in June, while Silverado sales dropped by close to 5%. The June sales bump boosted Ford’s year-on-year sales growth rate from 7.4% in May to 10.7% for the first half of the year. Meanwhile, GM’s pick-up truck sales decline went from 1% in May to 1.7% for the first half of the year.
This is bad news for investors in General Motors, as the U.S. trucks division is GM’s most valuable division according to Trefis estimates. In recent years, sales of SUVs, Crossovers and Trucks have experienced a boom in the U.S. GM has ridden this wave to a year of record profitability in 2015. It gets close to 60% of its sales in the U.S. from trucks. As a result of its dominant position in this market, the company is expected to continue to capture significant value from the SUV/Trucks boom. We currently forecast the number of trucks sold in the U.S. to grow at a rate of 2% for the rest of our forecast period. However, if the market grows at 4% instead of 2%, our target price for GM could increase by 16%. If the market stays flat for the rest of our forecast period, i.e. is sales do not either grow or decline, our target price for GM could decline by 13%. But market growth may not be as valuable if GM ends up losing its market share to competitor Ford.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for General Motors
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