Autos

General Motors wants to replicate GMC's Denali 'money machine' with expanded AT4 off-road lineup

Key Points
  • GM plans to expand a new off-road sub-brand called AT4 across its vehicle lineup in 2020.
  • The automaker hopes to replicate the success of its highly-profitable Denali sub-brand, which on average commands higher pricing than many luxury vehicle brands.
  • Thus far, AT4 is commanding average transaction prices thousands of dollars higher than segment averages and roughly $2,000-$3,000 under Denali.
GM plans to expand an off-road sub-brand called AT4 across its vehicle lineup in 2020.
GM

DETROIT – General Motors wants to replicate the success of its "money machine" Denali lineup of pickups and SUVs to boost profits as auto sales slow and competition in the lucrative truck market increases.

The Detroit automaker is expanding its AT4 off-road performance package offered on some trucks and SUVs to its entire vehicle lineup in 2020 as a sub-brand, like Denali has become. Launched on its redesigned Sierra pickups beginning in late 2018, the AT4 performance package will be offered on new models of its highly profitable Yukon SUVs that are scheduled to be unveiled Tuesday night.

GM is hoping its expanded AT4 line, along with Denali, will become a double-pronged profit center for the automaker's GMC truck and SUV division. Denali pickups and SUVs, GMC's luxury line, commanded an average price of about $56,000 per vehicle last year – higher than luxury brands such as Mercedes-Benz, Jaguar and BMW.

The Sierra AT4 pickups are selling at average transaction prices that are thousands of dollars higher than its segment and roughly $2,000-$3,000 under Denali. Sales of AT4 models for the Sierra have exceeded internal expectations by 50% without taking away from Denali's sales, according to Duncan Aldred, global head of GMC.

"AT4 is premium off-road. It's designed to be up there right with Denali," Aldred told CNBC during a phone interview. "I think it's going to be a real success."

That success is expected to assist the automaker in funding its plans for autonomous and all-electric vehicles, including a new electric Hummer pickup as part of its plans to release at least 20 new EVs globally by 2023.

AT4 vs. Denali

AT4 models feature all-wheel-drive, darker exterior accents, and some additional off-road capabilities and features. That compares with Denali models, which represented 30% of sales in 2019, that include additional chrome and more luxurious features and amenities.

GMC on Monday introduced AT4 on the Canyon pickup as part of a refresh of the midsize pickup for the 2021 model year. The vehicle features a new larger grille design, 17-inch off-road tires as well as an off-road-tuned suspension and skid plate under the vehicle for additional protection.

2021 GMC Canyon AT4
GM

While AT4 models are currently selling for less than Denali versions, Aldred said that might not be the case in the future as the company expands the new sub-brand.

"We don't know where the ceiling is for AT4 either on volume or average transaction price," he said. "It's exceeding expectations so far and we'll see where it goes but we've certainly seen enough so far that we will continue to invest in it, and develop it and enhance it going forward."

Expanding AT4 as it did with Denali is a "smart move" for GMC as off-road styling has grown more popular in recent years, according to Karl Brauer, executive publisher of Cox Automotive.

"These trademark versions of otherwise high-volume models can be great profit drivers and great marketing and sales opportunities for brands," he said. "Denali, of course, has proven that over the last several years. Now they're doing it again with AT4. ... It widens the buyer base."

Former GM President Dan Ammann told investors in 2018 the Denali was a "money machine" for the company.

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'Jewel in the crown'

But GMC needs to be cautious about AT4 not taking away from Denali models, particularly for the upcoming 2021 Yukon and Yukon XL SUVs. It hasn't thus far with Sierra because they appeal to different buyers, according to Aldred.

Top-end Denali models represent about 60% of Yukon sales and command the highest average pricing of any GMC vehicle – a statistic GM hopes to maintain, if not grow, with the new models.

"Our Denali execution of this vehicle is the best we've ever done. It's the jewel in the crown," Aldred said. "It's more premium, it's richer and it's even more bold than the outgoing model."

The average price paid by customers for Yukon models was more than $61,200 and about $66,000 for Yukon XL in 2019. The current models can cost more than $80,000. GM has not announced pricing for the new models, which are expected to arrive in dealerships later this year.

GMC Sierra Denali tailgate
GM

"The big SUVs are the big moneymakers for any brand that offers them," Brauer said. "And Denali is an even more profitable version of the Yukon and it makes that even more valuable as a key vehicle in their lineup."

GM's truck franchise, which includes pickups and full-size SUVs like the Yukon and Yukon XL, accounts for a $65 billion high-margin business, the company has said.

'Huge year'

The Yukon models are the beginning of an important year for GMC following sales increasing 1.5% last year.

Aldred declined to discuss sales expectations for GMC this year but given the amount of redesigned models and the expansion of AT4, a sales decline would likely be disappointing.

"Effectively, the whole showroom is first full year or a new introduction," he said. "It's a huge year for GMC. It's really one of those years that rarely happens."

In addition to the redesigned Yukon SUVs, this year will mark the first full sales year for its redesigned heavy-duty pickups. It also recently refreshed the Acadia crossover and plans a "major" refresh of the compact Terrain crossover later this year, Aldred said.

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GM, according to people familiar with the plans, also will announce the revival of the Hummer name as an all-electric pickup under the GMC brand.

A GM spokesman declined to comment on the automaker's plans for its former gas-guzzling, military-style SUV.

The Detroit automaker has signed NBA star LeBron James to appear in a new commercial during the Super Bowl on Feb. 2, according to the people, who asked not to be identified because the plans aren't yet public. The vehicle is expected by late 2021 or early 2022.