General Motors Co.’s (NYSE: GM) Chevy, in the midst of a full-sized pickup war with Ford Motor Co. (NYSE: F) and Fiat Chrysler Automobiles N.V. (NYSE: FCAU), has cut the price of one version of its Silverado by $9,000 which is 18% of the manufacturers suggested retail price. The full-sized pickups are the top selling products for all three companies, so the stakes are very high.
The 2018 Silverado 1500 Crew Cab LT All Star with four-wheel drive is one of the dozens of configurations of the pickup. The Silverado line is nearly 20% of all GM’s U.S. sales. It is handily beaten in annual sales by the Ford F-150, which has been the top-selling vehicle in American for years. It also competes with Fiat Chrysler’s RAM, which usually holds third place in the competition.
Ford is just as aggressive in terms of pricing for one of its pick-ups. The F-150 XLT SuperCrew 302A carries a $9,000 discount. One RAM model has a “cash allowance” offer of $3,500 and, in some cases, 0% APR for 36 months.
In each case, the manufacturers are undermining their margins, which means management believes total sales are at risk without the offers. It is a balance between market share and margins. Outsiders are left to wonder what math the CFOs of the three companies have used to tell whether the decisions make sense.
These deals will become more critical, and perhaps costly, as U.S. cars sales begin to flatten on an annual basis and begin to fall, as most experts expect will happen within one of two years. And, there are lingering fears of a recession which can shave millions of units off annual cars sales, if the last recession is any lesson.
Ford, GM and Fiat Chrysler are playing a dangerous discount game. In each case, it is likely their management think they have no other options.