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Exclusive: GM ratchets up truck discounts as U.S. sales skid

A line of Chevrolet trucks made by General Motors are seen for sale at a dealer in Wheat Ridge, Colorado February 6, 2014 file photo.
CREDIT: REUTERS/RICK WILKING
A line of Chevrolet trucks made by General Motors are seen for sale at a dealer in Wheat Ridge, Colorado February 6, 2014 file photo. CREDIT: REUTERS/RICK WILKING

By Paul Lienert and Ben Klayman

DETROIT (Reuters) - General Motors Co ratcheted up discounts in February on its full-size pickups, but it is telling Wall Street analysts that it intends to maintain premium pricing and margins on the trucks despite a drop in volume and market share.

On Tuesday, Chuck Stevens, GM's new chief financial officer and a key member of CEO Mary Barra's executive team, was dispatched to New York to update Wall Street analysts on the automaker's financial outlook, including the performance of its big trucks.

A key message, according to analysts: GM remains focused on maintaining pricing "discipline," especially on the hugely profitable full-size pickups in a highly combustible and fluid U.S. market.

GM is "working on marketing strategies to gain traction at the lower end of the (pickup) market without giving up pricing gains at the high end," said UBS Securities in a Wednesday client note.

Analysts reacted guardedly to the message and observed that GM revealed few details about recent incentives.

New data on February sales incentives, released to Reuters late on Wednesday by two industry research firms, shows rising discounts on GM trucks.

Average per-vehicle discounts on GM's 2014 Chevrolet Silverado pickup jumped more than $500 to $4,218 in February, from $3,715 in January, according to Autodata, even as Silverado sales fell 12 percent from February 2013 and Chevrolet's share of the full-size truck segment dropped more than three percentage points to 22.5 percent.

In comparison, Ford Motor Co sliced discounts in February on its industry-leading F-series pickups to $2,835. F-series sales rose nearly 3 percent from the previous year, commanding more than 34 percent of the segment.

GM redesigned the Silverado and GMC Sierra last summer. Ford plans to introduced a redesigned F-150 late this year.

GM confirmed the meeting between Wall Street and CFO Stevens. A GM spokesman, asked about the February incentives, said spending rose in February to help reduce inventories of older heavy-duty versions of the Silverado and Sierra as the redesigned heavy-duty versions began to arrive at U.S. dealers.

The average truck incentives at GM were skewed by much higher discounts averaging up to $5,972 on the heavy-duty Silverado 2500HD and 3500HD models, which commercial buyers prefer, and lower discounts of $3,593 on the light-duty Silverado 1500, aimed at consumers, according to research firm Edmunds.com.

GM has a bit more room to maneuver on sales incentives, including rebates, because its average per-vehicle transaction prices, which include any discounts, remain higher than Ford's.

In February, GM boasted one of the industry's highest average transaction prices on its U.S. vehicles: $34,090, down a fraction from $34,306 in January. In comparison, Ford's ATP rose slightly to $32,625, from $32,307 in January, according to research firm TrueCar.

GM's pricing edge has an upside and a downside: While the automaker says it still can't build enough of its more expensive high-end trucks, sales of low-end V6 models are still weak.

Analysts left the meeting with the GM CFO without major concerns.

Barclays auto analyst Brian Johnson, in a Wednesday client note after the GM briefing, said that GM's beefy transaction prices, especially on high-margin pickups, "provide some room for increased incentive use if needed" later in the year.

Both Chevrolet and Ford dealers have been offering fat discounts of $9,000 and more on their big trucks, with dealers contributing a portion of the savings.

GM's and Ford's full-size trucks are among the most profitable vehicles in the industry, accounting for more than two-thirds of U.S. automakers' global pre-tax earnings even though they make up just 16 percent of North American vehicle production.

Goldman Sachs analyst Patrick Archambault, in a client note, said "the stage (is) set for year-on-year margin acceleration" at GM in the second and third quarters, driven in part by the recent launch of the heavy-duty Silverado and Sierra pickups and companion Chevrolet Suburban and Tahoe and GMC Yukon full-size SUVs.

(Reporting by Paul Lienert and Ben Klayman in Detroit, editing by Peter Henderson)

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