Solved by verified expert:Write a summary about the wall street, and the reason why choose this article, this is for finance class. Please write about 400 words.
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Feb. 26, 2018 7:00 a.m. ET
General Motors Co.’s executives considered axing the GMC truck division
ahead of the company’s bankruptcy, as they sought to scale back the sprawling
Detroit auto maker. GM’s decision to keep the brand is paying off a decade
later as pricey pickups and sport-utility vehicles displace luxury sedans as
America’s rolling status symbol.
As Chief Executive Mary Barra pushes forward with her strategy to exit some
major markets, including Europe, the relatively unsung GMC unit has become
a disproportionate contributor to the company’s income, money that will fund
the development of driverless and electric cars.
GMC pulled in about $24 billion in revenue last year, according to a Wall
Street Journal estimate, 16% of GM’s global revenue and roughly equal to that
of Porsche AG POAHY 2.55% . The unit doesn’t attract the same headlines that
corporate siblings Chevrolet and Cadillac get, and the brand lacks the luxury
cachet of Toyota Motor Corp.’s Lexus or Volkswagen AG’s Audi. But because
it mostly sells pickup trucks and premium sport utilities with extras such as
French-stitched leather and chrome grilles, GMC delivers more profit per sale
than most other brands in the global car business.
The success of GMC helps General Motors take advantage of a growing
premium automobile market at the same time Cadillac continues to trail luxury
rivals. While Cadillac’s Escalade sport-utility vehicle is an unrivaled success,
the brand’s sales lag behind BMW AG, Mercedes-Benz and other makers of
luxury crossover SUVs and performance sedans.
GM plans to unveil a new pickup truck Thursday in Detroit that could further
sweeten GMC’s contribution. The revamped Sierra large pickup truck, long
seen as a near-identical twin with the Chevy Silverado, is expected to carry a
number of exclusive features, including an optional carbon-fiber pickup bed.
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Premium PricingGMC’s average sale price is higher andgrowing faster than the broader
industry.Average price per vehicle*Sources: J.D. Power; GM*Average price of retail sale, including
Unlike Ford Motor Co. and Fiat Chrysler Automobiles NV, which sell one
version of a full-size truck (the F-150 and Ram, respectively), GM’s twopronged approach is designed to capture a broader swath of buyers. More than
2.4 million large pickup trucks were sold last year, 14% of overall U.S. sales—
up from 11.4% in 2012. Having more offerings could boost appeal among
buyers who include workaday contractors and well-heeled ranchers.
GMC customers “love getting their hands dirty, but they’re very wealthy,” said
Duncan Aldred, the GM executive in charge of the brand.
The profits from GMC’s hulking trucks are helping GM make products for its
longer-range bets on electric and autonomous vehicles. The company is
boosting spending on AV development by two-thirds this year to $1 billion. It
plans to deploy a fleet of driverless taxis in undisclosed cities next year,
targeting what research firm Strategy Analytics estimates will be a $7 trillion
global market by 2050.
The company, which made $12.8 billion in operating profit in 2017, won’t
disclose its electric-vehicle investment, though it is likely substantial. Analysts
expect the commitment to tally a few billion dollars a year over the next
decade, with plans for 20 new models powered solely by batteries or fuel cells
within five years.
The average GMC sells for $44,000, representing a 25% increase from 2012, a
$13,000 premium over the industry average and 36% higher than Chevrolet’s
average selling price across all models.
GMC’s success is a bragging point for a company once derided for having a
bunch of barely differentiated brands. Even today, six of GMC’s seven models
are mechanically identical to a Chevy, distinguished by different exterior
designs and slight variations in the cabin. The next-generation Sierra is
expected to take the distinctions further with a more-luxurious interior.
The company faces a challenge in not straying too far from GMC’s modestluxury image. Where Cadillac’s Escalade commands a $15,000 premium over
its GM counterparts by being stocked with bling, GMC commands prices that
are generally higher than mainstream brands because it is seen as “professional
grade,” a nod to its longtime advertising tag line.
Chris Hemmersmeier, a dealer who sells all four GM brands—GMC, Cadillac,
Chevy and Buick—in the Salt Lake City area, says some customers who
choose a GMC think Cadillac is too showy.
“They think GMC is more of an under-the-radar luxury vehicle,” he said. Mr.
Hemmersmeier recently had a customer trade in a Porsche for a GMC, which
he preferred because it was more low-key.
Much of GMC’s pricing power comes from its high-end Denali line, expensive
trim packages that can include more engine power and cosmetic frills such as a
chrome grille. Denali has grown into de facto luxury truck division, rising to
29% of GMC’s sales last year, from 21% in 2014.
“That thing is a money machine,” GM President Dan Ammann said of the
Denali line last month during an investor conference. Mr. Ammann presented a
slide, citing research from J.D. Power, that showed Denali’s average selling
price of $55,600 a vehicle in 2017 was higher than any higher-volume auto
brand, including BMW and Daimler AG’s Mercedes. The Denali line also
outsold Cadillac, at a higher average price.
Write to Mike Colias at Mike.Colias@wsj.com
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