March 1, 2018 / 9:22 PM / 8 months ago

UPDATE 1-GM, rivals chase luxury pickups' fat margins as U.S. market dips

(Adds comment from GM executive)

By Nick Carey

DETROIT, March 1 (Reuters) - General Motors Co on Thursday unveiled a revamped luxury pickup truck, intensifying the battle among Detroit's Big Three automakers for fat profits at the top end of a highly lucrative segment even as overall U.S. new vehicle sales decline.

That battle will be fought in truck-heavy states like Texas, where consumers aspire to luxury pickup trucks more than luxury car brands such as Daimler AG's Mercedes-Benz and BMW .

"The whole (luxury truck) segment is going to be exceptionally competitive for at least the next 24 months, because Ford and Fiat Chrysler will not take this lying down," IHS Markit auto analyst Tom Libby said of GM unit GMC's new Sierra Denali.

Detroit's automakers dominate the U.S. pickup truck market.

"There has been some softness in the (overall) market, but the market for these trucks is still very strong," GM's global product development chief Mark Reuss said at the event on Thursday.

Unlike some past GMC vehicles, the new 2019 Sierra Denali pickup, a premium version of the standard Sierra, has been designed from scratch. GMC has been criticized previously for simply selling glorified Chevrolet models at higher prices, a common industry practice.

The new Sierra Denali — GMC uses the Denali sub-brand on luxury trucks, SUVs and crossovers — has striking lines and features including a high-tech tailgate that opens six different ways.

The new Denali also features leather seats with heating and cooling functions, and a new infotainment system with a smartphone-like display screen. The pickup also has added leg-room in the back and luxury wood trimmings, though GM executives say the pickup has lost none of its functions as a heavy-duty work vehicle.

But even the old Sierra Denali's most striking detail was its price. Last year, the pickup truck's average transaction price was around $56,000, according to J.D. Power.

"As you can imagine, the Denali is a huge profit contributor to GM," GMC brand chief Duncan Aldred said. He declined to provide targets, but said GMC expects to grow its share of the luxury market. The 2019 Sierra Denali will go on sale late 2018.

A sticker price over $50,000 qualifies as "premium."

According to Kelley Blue Book (KBB), the average transaction price in 2017 for all GMC Sierra models was $49,615. For Ford Motor Co's F-Series trucks, it was $49,439, and a Fiat Chrysler Automobile NV (FCA) Ram pickup averaged $46,789.

Those averages include far-cheaper models, but are still higher than the average for luxury sedans like the BMW 3 Series, Audi's A4 and Toyota Motor Corp's Lexus ES. For a graphic, see tmsnrt.rs/2F11cR9

REVAMPED

Last month GM unveiled a revamped Chevrolet Silverado truck and forecast higher profits in 2019 thanks to its new high-margin pickup trucks.

The F-series has been the best-selling model line for 41 years, with 2017 sales of nearly 900,000 vehicles. GM sold a total of 947,972 of its four Chevrolet and GMC pickup models, two of which are mid-sized.

Around a third of Ford's F-Series pickup trucks count as premium, meaning around 12 percent of Ford's 2017 total U.S. sales were luxury trucks. Luxury models make up about 30 percent of FCA's pickup truck sales.

Pickup prices range from around $25,000 to as much as $100,000. Industry analysts estimate gross margins for some top-of-the-line trucks can exceed $50,000.

Margins matter more in a declining market.

U.S. new vehicle sales fell more than 2 percent in 2017 - and should drop further in 2018 as interest rates rise and more late-model used cars return to dealer lots to compete with new ones.

Passenger car sales declined 11 percent last year. But SUVs, crossovers and pickup trucks rose 4.3 percent.

Major automakers posted lower U.S. new vehicle sales for February on Thursday as consumer demand continued to cool following a lengthy boom, despite strong crossovers and SUV sales.

Luxury pickups are "the perfect storm for" Detroit's automakers, said Jeff Schuster, consultancy LMC Automotive's head of forecasting. "Consumers want them and they provide the biggest margin boost in a flat-to-falling market."

Texas consumers want them more.

According to KBB, in 2017 through November, Texans bought 260,000 pickup trucks, 20.7 percent of the state's total vehicle sales. Nationally, pickups account for 12 percent of sales.

GM sells a third of its trucks in its south-central division - Texas, Oklahoma, Kansas, Nebraska, Louisiana, Mississippi and Arkansas - and 80 percent of its high-end Sierra Denali versions are sold there.

"If you think about this segment, there are not that many competitors," GMC's Aldred said. "That obviously gives us a better share of market and enables us to stand out more."

IHS Markit's Libby said luxury versions of GM's and FCA's pickups grew as a share of sales from 2016 to 2017.

"The economy is doing well and that will help the industry in general, but it will help more with vehicles like these," Libby said.

Reporting By Nick Carey Editing by Nick Zieminski and Susan Thomas

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