SUV

GM leans into the "business class on wheels" life as profit soars

Thursday, May 6, 2021 by Robinhood Snacks |
_A look inside the new Cadillac Escalade  [E+ via GettyImages]_

A look inside the new Cadillac Escalade [E+ via GettyImages]

It goes down in the GM... and up in the earnings. GM drove home $3B in profit for the January to March quarter, up from ~$300M in the same quarter last year. It was nearly a record for the OG carmaker, despite a global chip shortage that's been shutting down car factories.

  • Chip shortage = fewer cars = higher prices. The inventory crunch has led to record car prices. And don't expect a generous promo from dealership Bob.
  • $37K: The average price paid for a new vehicle last quarter. Meanwhile, the average discount fell 20%. That seriously padded GM's profit.

Law & Order: SUV... GM's monster profit was also fueled by redesigned SUVs, including the Chevy Suburban and the Cadillac Escalade. GM took a few pages from Delta — it's going full "Business Class on Wheels" with these models.

  • Think: Premium second-row legroom and HD touch-screens for the seven kids in the back. New Escalade displays have "twice the pixel density of a 4K TV." Throw in hot towels, and go LA-London nonstop.
  • These big babies have routinely sold for $100K since they arrived last year, though some start at around only ~$52K. For GM, the add-on perks justify the extra greens ($$$).
  • Now GM is doubling down on e-SUVS, too: It just unveiled a second (decked-out) version of the Hummer EV SUV.
THE TAKEAWAY

GM smells "price insensitivity" signals... Price sensitivity = the degree to which a product's price affects purchasing decisions. Price insensitivity = the opposite. GM knows that when you roll into the dealership asking for a $70K Escalade, you could probably pay $90K to upgrade. Extra money for dealers means GM can mark up prices – and boost its profit. Price sensitivity is why GM has only three sedans left on the US market (that Chevy Malibu isn't a profit puppy).