How diesel pickup trucks are saving the planet
The vehicles that will secure the next decade for General Motors (GM) aren't covered in self-driving sensors or loaded with batteries. No, the future depends on hulking pickup trucks that often run on diesel and can sell for luxury-car money.
That's the irony at the heart of a GM event this month at its sprawling factory in Flint, Michigan, where the next iterations of the Chevrolet Silverado and GMC Sierra are introduced.
These are much larger than the one-tonne utes favoured by Kiwi buyers, although they do have a niche presence in NZ. The just-superseded Silverado is re-engineered to right-hand drive for Australasia by HSV, and the rival Ram is similarly remanufactured for right-hand drive by American Special Vehicles.
The revamped Silverado heavy-duty pickups feature advanced, lightweight materials and fuel-efficient engines but none of the technology that will supposedly shape the next era of the car industry. Yet in Detroit that future can't exist without the profit margins generated by classic pickup trucks.
* Yes, HSV does still 'make' a V8-powered four-door
* Yes, Ford is going to make an electric pickup truck
* What we learned at the Detroit Auto Show
* Five one-tonne pick-ups that cost more than $80K
"These vehicles have among the highest margins in the business," says Jeff Schuster, senior vice president of forecasting at LMC Automotive. "You have no tomorrow if you don't sell these trucks today."
GM's pickup trucks combine for $65 billion in annual revenue. Heavy duty versions of the Silverado and Sierra make up about 20 per cent of GM's full-size truck sales, the company said. Competition in the segment is fierce: Ford rolled out freshened versions of its leading Super Duty models at the Chicago Auto Show.
GM will ride into the future on trucks that first went on sale decades ago. The operating profit on large pickups, according to Morningstar analyst David Whiston, is at least US$12,000 apiece.
GM reported sales of 210,000 heavy-duty pickups last year and hopes the new ones will sell even more.
GM is realigning its manufacturing footprint and workforce to make more pickups and other light trucks, even as it cuts back production of less profitable vehicles like sedans. The company plans to add 1000 workers to build the new heavy-duty trucks at its factory in Flint, mostly tapping employees laid off from other plants affected by a recently announced retrenchment.
That profit GM earns from trucks alone covers the US$1 billion a year that the automaker puts into its GM Cruise LLC self-driving unit, which has yet to bring in revenue and will only begin to pilot a ride-hailing service later this year.
The investment required to solve the complex problem of getting a computer to drive a car is so expensive that GM sold a piece of Cruise to SoftBank Vision Fund for US$2.25 billion and another stake to Honda for US$2.75 billion.
GM's truck programme also does the most to help fill the financial hole created by the company's electric vehicle development.
In 2016, its first year available, each Chevy Bolt electric car sold lost about US$9000 for the automaker. Those losses only scratch the surface of overall spending on development of next-generation cars.
By 2022 the global car industry will spend US$255 billion on EVs and another US$61 billion developing self-drive technology, according to a report last year from consulting firm AlixPartners.
Of course, GM makes money on other models besides big pickups - just not quite as much.
A Chevy Equinox crossover SUV (Holden Equinox in NZ) may only bring in about US$3000 in operating profit. A mid-sized sedan makes even less.
Passenger cars often lose money, especially if the factories building them run at less than 70 per cent of their production capacity. Several GM car plants are running on one shift, which means they are likely losing money, and the compact car factory in Ohio and a sedan plant in Detroit are slated to close.
No product embodies classic Detroit more than a heavy duty truck.
The diesel engines inside many of these pickups may originate from yesteryear's technology, but only luxury SUVs put up better margins. The current heavy duty average sale price of US$55,600 beats the average BMW by almost US$4000, said GM spokesman Jim Cain.
GM sold more than 800,000 full-size pickups last year. The automaker sold another 170,000 of its Chevy Colorado and GMC Canyon midsize pickups, which also make nice margins. The Bolt EV didn't crack 20,000 in the US and it loses money.
Selling electric cars these days is about scaling up battery technology, driving down the cost and preparing for tomorrow. Selling trucks is how GM generates much of the roughly US$9 billion a year in profit it has earned for three years running.
Even just maintaining market share will help GM fund the technologies of tomorrow. GM CEO Mary Barra told investors in January that these trucks will be the profit engine for a long time. Autonomous ride services will become a phenomenon in cities before they hit the heartland. The drivers who prefer Silverados have a need that isn't easily replaced by autonomous vehicles.
"Trucks in middle America," Barra said, "will be one of the areas last disrupted."
The Washington Post