Trucks Hitching Up Bigger Share of Market in Recovery
August 10, 2010
By Dale Buss
Pickup-truck sales gained more traction last month, and industry executives are starting to believe that their biggest and most profitable vehicles can be counted on to haul an even larger share of the fledgling recovery for the rest of the year and beyond.
Large trucks garnered a 12.4 percent share of overall U.S. auto sales in July, the biggest monthly chunk in nine months and larger than the segment’s annualized market share for each of the last three years, according to Edmunds.com analysis.
For the year as a whole, Edmunds.com expects pickup trucks to assume an 11.4-percent share of the overall market, which would represent the largest annual share since 12.2 percent in 2008 – before the Great Recession cratered segment sales.
And over the next three years, Edmunds.com expects the large-truck share of the U.S. market to rebound further — to 12 percent in 2011, to 12.4 percent in 2012, and then to 12.6 percent in 2013 and 2014. The peak share for pickup-truck sales was 15 percent in 2005.
“Pickup sales seem to be emerging as one of the most dependable engines of an industry recovery that, overall, remains tepid and even somewhat tentative,” said Ivan Drury, a U.S. sales analyst for Edmunds.com. “We’ll feel more comfortable with that call when economic fundamentals line up even more favorably for pickup trucks.”
George Magliano, head of the North American automotive practice for IHS Global Insight, Lexington, Mass., said that trucks are pulling ahead as a locomotive in bringing better days to the market. “The truck sector is improving and the car sector is still bearing more of the brunt of the recession,” he said.
Five Positives
Especially after ratification of trends by the July sales results announced last week, auto company executives and outside analysts are feeling more sanguine about pickup-truck sales for at least five reasons:
“Lifestyle buyers” reappear. As the segment swooned from peak sales of 2.5 million units in 2005 to just 1.1 million units last year, the most marked dynamic was the mass exodus of so-called “lifestyle” buyers. First to leave were Americans who had been buying pickups as a mere preference or even a fashion statement, often as a second or third vehicle in the household.
But the Great Recession also thwarted many consumers who weren’t “professional” buyers such as contractors – but who nevertheless legitimately need a pickup because of where they live or how they live, whether that is hauling around a snowmobile or all-terrain vehicle, or operating a hobby farm.
Now, auto company executives are reporting the reappearance at least of the second type of lifestyle buyer. “These folks won’t leave the market,” said Fred Diaz, president and CEO of the Ram truck brand for Chrysler. “Their ‘lifestyle’ demands a capable, durable truck. They might defer their purchase a year or two, but not forever.”
Edmunds.com’s Drury noted that the trade-in rate for a new-truck purchase by people who already own trucks has spiked back up to more than 72 percent this year, where it last registered during the bull market of 2005 — and after four straight years where it hovered only in the mid- to high-60s as a percentage.
“That tells me more lifestyle buyers are returning, because it shows that more truck owners who have flexibility about what kind of vehicle to purchase next are going ahead and buying another truck,” Drury said. “That’s in contrast to professional truck buyers, who theoretically should have to replace their existing truck fleets one-for-one, or at 100 percent.”
In inching back into the new-truck market this year, many of these people are simply bowing to the compelling demands of “multiple-use applications” that “include traditional work and professional applications but now include increased frequency of family trips and personal-use towing,” said Greg Thome, a Toyota USA spokesman.
Yet, the industry doesn’t expect to see the return of “people who carry little more than a garden hose in the back of their pickup truck,” said George Pipas, head of U.S. industry analysts for Ford. At the market’s peak, he said, such buyers represented 15 percent to 20 percent of the whole, but “going forward they’re only going to represent about 10 percent of the market,” Pipas said.
Crew cabs reign. One of the most encouraging signs for OEMs is the fast-rising portion of sales represented by crew cabs, which offer regular-sized back seats not found on the common pickup. Such versions represent about half of the sales of the industry’s regular, half-ton pickups these days.
That “personal-use” buyer seems to be fueling much of the resurgence. “Crew cabs took a hit when the market and the [pickup] segment went down, and the extrapolation people made is that the personal-use buyer bailed,” said Kenn Bakowski, marketing manager for GMC’s Sierra pickup brand. “But ‘family’ buyers are driving many of the crew-cab purchases now. That may be a reflection of overall consumer confidence.”
So, for instance, Toyota is “focusing our merchandising efforts” behind the Tundra pickup around its CrewMax model, the spokesman said. Chrysler is seeing benefits from Ram’s “segment-exclusive” coil-spring rear suspension, which lends “passenger-car ride quality” to its crew cabs, Diaz said.
And for Ford, Super Crew now represents a whopping two-thirds of F-150 sales as the company continues to milk the benefits of a couple of Super Crew improvements it made two years ago: stretching the back-seat area by six inches and making the floor flat.
“Those aren’t just commercial benefits,” said Doug Scott, Ford’s truck group marketing manager. At an owner clinic in Texas recently, he said, “I was amazed at how many personal-use folks talked about the utility benefits of our improved second row – like flipping the rear seat up, going to Bets Buy and loading a big-screen TV in the back seat. That way it’s also protected and secure.”
Incentives keep ‘em coming. Because big trucks are the most profitable segment for the Big Three, each of them – and Toyota – has been loathe to give up sales or market share without a fight. And with high margins to start with, they’ve had room to work some incentive magic even in the face of the Great Recession.
Lure packages totaling $3,000 to $5,000 and even $7,000 have been common throughout. According to Edmunds.com’s proprietary True Cost of Incentives (TCI) gauge, incentive spending on trucks was more than $1,000 higher on average, per vehicle, even in the segment’s heyday – and that differential has grown much bigger since then.
TCI for 2005 for large trucks was $3,646, Edmunds data shows — $1,171 higher than the TCI of $2,475 for the entire industry that year. The truck-over-industry differential in TCI continued to grow over the next few years as sales in the pickup segment slipped, peaking at a differential of $2,389 in 2008, when TCI for trucks was $4,977. Last year, the TCI differential slid to $1,617.
So far this year, the TCI differential for trucks over the industry had been rising, back toward around $2,000. But one of the more hopeful signals in the July sales results was that the TCI differential of $1,785 was less than the June differential of $1,924.
“It was interesting that July was a big sales month for trucks even as TCI for the month declined to $4,368 from $2,657 in June,” Edmunds.com’s Drury said. “If that’s the start of a trend, it’s a good one for pickup sales.”
Ford leads the pack. Rivals don’t want to mention it, but to a great degree, whatever recovery has taken place so far in pick-up sales is mostly attributable to Ford’s F Series.
Factors favoring Ford include its unique status among the Big Three as a non-ward of the U.S. government, a popular “rant-style” advertising campaign featuring actor Dennis Leary now in its third year, and Ford’s command at this point of the growing super-duty market.
In any event, Ford is the only one of the four major pickup manufacturers that actually has gained share in the segment since 2008 – and it has happened in a big way.
According to Edmunds.com data, F Series’ share of the market was 29.7 percent in 2008, leapt to 34.8 percent last year, and has continued its advance so far this year, to 37.6 percent.
Meanwhile, GM’s combined pickup-truck share over the same period has dropped to 36.4 percent from 39.6 percent; Ram’s has eased to 13.8 percent from 15 percent; and Tundra’s has waned to 7.4 percent from 8.6 percent.
“We’ve been surprised by the truck numbers because we’re getting of lot of the business that’s coming back into the market,” Ford’s Pipas said. “We’re getting the share.”
At the showroom level, that means that typical rebates on Ford’s F-150 model have remained stable at an average of about $4,000 per vehicle since March, Pipas said, while average incentives on the GMC Silverado 1500 have increased from about $4,200 to about $5,300 per unit.
Even rivals’ marketing must acknowledge the current primacy of Ford. A Silverado ad, for instance, mentions that the vehicle offers “40,000 miles more of warranty than Ford.”
Heavy duty powers up. Each of the Big Three is crowing about its three-quarter and one-ton “super-duty” or “heavy-duty” models these days while Toyota, lacking a version of Tundra in that segment, has the possibility of producing its own heavy-duty pickup “still under study,” the company spokesman said.
“Everyone is out there hooting and hollering about their heavy-duty trucks, so that’s generating a lot of [showroom] traffic,” said GMC’s Bakowski.
Ford introduced its new Super Duty F Series last year featuring improved fuel economy and reliability gains in a new diesel engine that it has promoted with online videos of buyers’ “real-world experiences” with its trucks; heavy-duty sales are higher as a share than at any time in a decade. Ram heavy-duty sales “have done very well so far this year” after the 2009 introduction of new versions, Chrysler’s Diaz said, split about evenly between commercial and recreational buyers.
And GM has begun shipping new heavy-duty versions of Sierra and the Chevrolet Silverado to dealers and has initiated advertising of the new Silverado heavy-duty version.
In the burgeoning of heavy-duty business also may lie the seeds of an eventual recovery in what continues to be the most important part of the economy for the pickup-truck business: construction spending.
“Heavy-duty trucks play to the heavy end of construction spending,” said GMC’s Bakowski. “If you’ve got a one-off tradesperson, odds are they’re driving a light truck. But heavy-duty vehicles are for certain types of jobs and work sites, and the crew boss often is the leader of the pack with a heavy-duty version.”
So far, spending by contractors and construction companies on housing has remained moribund, although outlays on roads and bridges related to the federal-government stimulus has fueled some demand for pickups.
But it’s not enough – not yet. “Full-size pickup sales are an economic indicator and provide an early sign of overall industry recovery,” Diaz said. “But because we’re still suffering the lingering effects of the housing bubble and the credit crisis, we haven’t seen a full recovery in light-duty commercial sales, just a modest one.”
Dale Buss is a contributing writer to AutoObserver.com.
Edmunds.com analysts Ivan Drury and Jeremy Acevedo provided the data and analysis for this post. Acevedo created the graphics.
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