Detroit Trucks are Second to None, Sorry Toyota
Jun 12th 2013 4:07PM
Updated Jun 12th 2013 4:45PM
"Quite simply, it's a great time to be in the truck business," said Kurt McNeil, head of General Motors sales operations in the United States. He's right, that simple sentence pretty much nails it. Full-size pickup trucks is the most profitable vehicle segment in the U.S. market and has historically been dominated by Detroit's Big Three automakers, General Motors , Ford , and Chrysler. I'll explain why these sales are here to stay and why there's such an advantage for Detroit over its Japanese competitors.
Good old days
As you can see in the chart below, which details America's three top-selling trucks, sales are still far below peak selling numbers prior to the recession.
The full-size truck segment looks to continue the trend of increased sales, and comparing year-to-date sales to last year's, the F-Series, Silverado, and Ram have surged 21.7%, 23.9% and 22.7%, respectively. That's good news for Detroit's Big Three because the segment brings in a majority of their profits - but it gets better.
Not only does the full-size truck segment bring in a majority of profits, the margins are looking even juicier this year as transaction prices continue to rise and cash incentives remain lower. In fact, looking at the graph below you can see how much more transaction prices for trucks rose compared to the rest of the industry.
Moreover, seemingly steadily increasing sales have allowed automakers to better optimize for production - further boosting profits.
"Full size truck sales continue to gain momentum in May and we expect the segment to post a 22 percent increase compared to the nearly nine percent industry increase," said Jesse Toprak, senior analyst for TrueCar.com. "Stability in the industry is now the norm, which is a positive for automakers as it results in the ability to optimize production levels, therefore improving profitability."
Japanese manufacturers have had a stranglehold of their own on other vehicle segments, like the midsize sedan vehicles. But when it comes to the enormous profits generated in North America, Ford, GM, and Chrysler completely dominate, combining for nearly 92% of the full-size truck segment.
If you break the numbers from 2012 down, Ford's F-Series was the market leader with 38.5% market share. GM trailed slightly with a 35.8% share, combined from its Silverado and Sierra trucks that individually had 26.4% and 9.4% shares. Chrysler's Ram came in third with 17.5%.
Down the road
What's most important for investors is that sales of full-size pickup trucks - and massive profits - don't seem to be ending anytime soon.
"They're all creating a perfect storm of a very radical recovery for the truck segment for the next couple of years," TrueCar.com's Toprak said. "The replacement demand of the full-size truck segment is actually going to be very, very high for the next several years."
I believe Toprak is exactly right because of the multiple factors that create the perfect storm of recovery he mentions. Firstly, replacement demand will stay strong because the average age of trucks on the road sits at about 13 years, much older than the rest of the industry. Secondly, the construction and housing rebound, in combination with North America's recent energy boom, could keep demand for full-size trucks strong over the long term. Thirdly, we're seeing a resurgence in overall popularity of the truck in the U.S. market. "The truck segment really shows no sign of slowing down," Alec Gutierrez, senior market analyst for Kelley Blue Book, told AutoNews. "A lot of those consumers who sat on the sidelines are now jumping back into the market, even though they don't have a job in construction and they're not hauling anything."
Consider this: The last time full-size pickup truck sales were going this well, all the profits generated went to cover up massive failures in other vehicle segments. Detroit automakers couldn't give away their vehicles without losing money through massive cash incentives - no one wanted to own a Detroit small car. Today Ford and GM are making serious progress in those segments with the Fusion stealing market share each month on Toyota's Camry. GM is also taking huge strides with its Cadillac lineup, having its best year-to-date surge since 1976 driven by its ATS and CTS models.
It's very different this time around; these full-size pickup profits will be going to the bottom line. I expect Ford, who is years ahead of GM in lean operations, to have very strong bottom-line profits and margins for its second-quarter earnings call, and the good news should continue throughout 2013.
These massive profits from full-size trucks could help fuel Ford and GM's investments in China - the world's largest and fastest-growing auto market. Will that make them the best two automotive investments? A recent Motley Fool report, "2 Automakers to Buy for a Surging Chinese Market", names two global giants poised to reap big gains that could drive big rewards for investors. You can read this report right now for free - just click here for instant access.
The article Detroit Trucks are Second to None, Sorry Toyota originally appeared on Fool.com.Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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