New F-150, Ram in peril as big pickups collapse
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New F-150, Ram in peril as big pickups collapse
A wild ride as market flips to small cars
By Mark Rechtin; Automotive News June 10, 2008 - 12:01 am ET
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Nissan is cutting Titan production by one shift and adding a third shift of Altima production - maybe Ghosn's Nissan/Chrysler hook-up wasn't a bad idea for either.
By Mark Rechtin; Automotive News June 10, 2008 - 12:01 am ET
The collapse of the full-sized pickup segment comes at a disastrous time for Ford and Chrysler as they prepare to launch redesigned pickups this fall.
The segment is expected to shrink by about 500,000 units this year to as low as 1.65 million. That's a far cry from the 2.5 million in the peak years of 2004 and 2005.
Ford Motor Co. and Chrysler LLC have been counting heavily on the replacements. The Ford F series is Ford Motor's best-selling vehicle, and the Dodge Ram is Chrysler's. The companies are scrambling to sell down 2008 inventories in the teeth of a perfect storm — and reassessing what to expect when the new pickups arrive.
"This is the worst-case scenario for launching a large pickup truck," said Jeff Schuster, executive director of forecasting at J.D Power and Associates. "It is one of those cases where all the planets align."
Even devoted big pickup owners can't afford new ones because trade-in values are plummeting as demand weakens.
A respondent to an Automotive News dealer survey cited a buyer who last month traded in a diesel-powered, 2005 General Motors heavy-duty pickup with 51,000 miles — and got only $9,000. Kelley Blue Book puts the average trade-in value for a heavy-duty Silverado or GMC Sierra with a diesel at about $17,000.
Personal-use buyers are turning away in droves, and many work truck owners who rely on large pickups can't afford to buy new ones. The professional users have been hammered by a downturn in the construction industry and the rock-bottom residual values for the used trucks they'd like to trade in.
J.D. Power projects a mild recovery for the segment in 2009 to about 1.8 million to 1.95 million units. But Schuster warns that a major turnaround might not come for several years if at all.
"All of our previous assumptions on the full-sized pickup segment are off the table," said Bob Carter, general manager of Toyota Division, which entered the segment with the full-sized Tundra last year. Until recently, Toyota had insisted that the Tundra would see mild sales growth this year, but now it forecasts a decline.
The problem is exacerbated because huge numbers of pickup owners owe more on their trucks than the vehicles are worth, and the value is dropping. In May, 41.2 percent of buyers trading in full-sized pickups were upside down — compared with 35.2 percent in May 2007, according to Power data. No other segment comes close to that level.
The percentage of full-sized pickup owners who traded in full-sized trucks for new ones dropped from 64 percent to 53 percent in May compared with the same month last year, says Power. Many opted for sedans or crossovers. That adds to the glut of new trucks on dealer lots.
And the large pickups that do sell are bringing in less cash. Power says transaction prices for large pickups fell 9.3 percent from May 2007 — even as industrywide transaction prices for all vehicles last month were flat.
Sales in the segment have collapsed in the past three months. Last week, after a May in which F-series sales plunged 30.6 percent to 42,973, Ford offered employee pricing for the F-150, F-250 and F-350.
"The most important thing is to just bring down the production but also have a very successful launch," said Ford CEO Alan Mulally. "Later on, we'll figure out what is the right (production) footprint for the long term."
Ford, which sold 690,589 F-series units in 2007 — and 901,463 as recently as 2005 — figures to sell well below 600,000 this year. That's a huge hit to the bottom line. Industry analysts estimate that Ford earns a pretax profit of $8,000 to $10,000 on each F-series pickup it sells.
George Pipas, Ford's sales analyst, said there is no point in publicly trying to forecast pickup sales "until we begin to get our arms around where it is going to land."
On June 1, F-series inventory was 226,000 units, a horrendous 142-day supply. Dodge Ram inventories were 103,612 units, also a 142-day supply.
Chrysler remains hopeful for a turnaround.
"Whenever gasoline prices spike, there's a free fall in the truck segment," said Mike Accavitti, director of the Dodge brand. "But the market is still sizable."
The segment is expected to shrink by about 500,000 units this year to as low as 1.65 million. That's a far cry from the 2.5 million in the peak years of 2004 and 2005.
Ford Motor Co. and Chrysler LLC have been counting heavily on the replacements. The Ford F series is Ford Motor's best-selling vehicle, and the Dodge Ram is Chrysler's. The companies are scrambling to sell down 2008 inventories in the teeth of a perfect storm — and reassessing what to expect when the new pickups arrive.
"This is the worst-case scenario for launching a large pickup truck," said Jeff Schuster, executive director of forecasting at J.D Power and Associates. "It is one of those cases where all the planets align."
Even devoted big pickup owners can't afford new ones because trade-in values are plummeting as demand weakens.
A respondent to an Automotive News dealer survey cited a buyer who last month traded in a diesel-powered, 2005 General Motors heavy-duty pickup with 51,000 miles — and got only $9,000. Kelley Blue Book puts the average trade-in value for a heavy-duty Silverado or GMC Sierra with a diesel at about $17,000.
Personal-use buyers are turning away in droves, and many work truck owners who rely on large pickups can't afford to buy new ones. The professional users have been hammered by a downturn in the construction industry and the rock-bottom residual values for the used trucks they'd like to trade in.
J.D. Power projects a mild recovery for the segment in 2009 to about 1.8 million to 1.95 million units. But Schuster warns that a major turnaround might not come for several years if at all.
"All of our previous assumptions on the full-sized pickup segment are off the table," said Bob Carter, general manager of Toyota Division, which entered the segment with the full-sized Tundra last year. Until recently, Toyota had insisted that the Tundra would see mild sales growth this year, but now it forecasts a decline.
The problem is exacerbated because huge numbers of pickup owners owe more on their trucks than the vehicles are worth, and the value is dropping. In May, 41.2 percent of buyers trading in full-sized pickups were upside down — compared with 35.2 percent in May 2007, according to Power data. No other segment comes close to that level.
The percentage of full-sized pickup owners who traded in full-sized trucks for new ones dropped from 64 percent to 53 percent in May compared with the same month last year, says Power. Many opted for sedans or crossovers. That adds to the glut of new trucks on dealer lots.
And the large pickups that do sell are bringing in less cash. Power says transaction prices for large pickups fell 9.3 percent from May 2007 — even as industrywide transaction prices for all vehicles last month were flat.
Sales in the segment have collapsed in the past three months. Last week, after a May in which F-series sales plunged 30.6 percent to 42,973, Ford offered employee pricing for the F-150, F-250 and F-350.
"The most important thing is to just bring down the production but also have a very successful launch," said Ford CEO Alan Mulally. "Later on, we'll figure out what is the right (production) footprint for the long term."
Ford, which sold 690,589 F-series units in 2007 — and 901,463 as recently as 2005 — figures to sell well below 600,000 this year. That's a huge hit to the bottom line. Industry analysts estimate that Ford earns a pretax profit of $8,000 to $10,000 on each F-series pickup it sells.
George Pipas, Ford's sales analyst, said there is no point in publicly trying to forecast pickup sales "until we begin to get our arms around where it is going to land."
On June 1, F-series inventory was 226,000 units, a horrendous 142-day supply. Dodge Ram inventories were 103,612 units, also a 142-day supply.
Chrysler remains hopeful for a turnaround.
"Whenever gasoline prices spike, there's a free fall in the truck segment," said Mike Accavitti, director of the Dodge brand. "But the market is still sizable."
Nissan is cutting Titan production by one shift and adding a third shift of Altima production - maybe Ghosn's Nissan/Chrysler hook-up wasn't a bad idea for either.
Last edited by Robert_Nashville; Jun 10, 2008 at 10:12 AM.
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The thing is, they were already selling trucks at discounts for the past x number of years, possibly since 9/11. Now if they claim $15K off the MSRP, how much less than last year is it? Could be only $5K.
While still significant, it's difficult to understand the real price of the trucks and how good of a deal one is really getting.
I also feel that the current price of gas makes many people realign their wants with their needs. It's not such a bad thing. The area that will matter, though, is that the cost of gas drives everything up, home ownership, food, etc...
While still significant, it's difficult to understand the real price of the trucks and how good of a deal one is really getting.
I also feel that the current price of gas makes many people realign their wants with their needs. It's not such a bad thing. The area that will matter, though, is that the cost of gas drives everything up, home ownership, food, etc...
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GM just started sticking piles of cash on their full-size trucks:
GM Boosts Cash Incentives on Large SUVs, Pickups
GM Boosts Cash Incentives on Large SUVs, Pickups
General Motors Corp. raised cash incentives to provide for as much as $6,000 back on seven large sport-utility vehicles and pickup models that have combined for a 27 percent sales drop this year.
GM, the biggest U.S. automaker, will give as much as $4,000 cash back for current GM owners on models such as the GMC Tahoe hybrid SUV, the Cadillac Escalade SUV, and the Chevrolet Silverado pickup, the Detroit-based company said. The program is in addition to existing offers of as much as $2,000 cash back.
GM, the biggest U.S. automaker, will give as much as $4,000 cash back for current GM owners on models such as the GMC Tahoe hybrid SUV, the Cadillac Escalade SUV, and the Chevrolet Silverado pickup, the Detroit-based company said. The program is in addition to existing offers of as much as $2,000 cash back.
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$6,000? Is that all? I seem to recall discounts of $8,000 and more in GM SUVs as recently as last summer. (Or was that 2006?)
They're going to have to go a lot deeper than that if they expect to unload inventory before the 2009s hit showroom floors.
They're going to have to go a lot deeper than that if they expect to unload inventory before the 2009s hit showroom floors.
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So why did this "collapse of the full-sized pickup market" utterly destroy Ford and Dodge per this article, but apparently not bother Toyota (with their recently mega-budgeted Tundra development and launch) or NIssan (with their redo of the Titan that may in fact now go away completely)?
While the point of the article may be noteworthy - the direction of the disaster being aimed at Ford and Dodge directly seems naive IMO. It is going to affect ALL makers of SUVs and pickups... big, medium, and small sized. Why was Ford and Dodge singled out for scrutiny? Because they just did revamps? Honestly, these projects were signed-off and well underway back when gas was still $2.xx/gallon so there was nothing short of a crystal ball that would have changed the minds of management - the projects are/were justified under conditions then-present.
In fact, I'd go so far as to speculate the OPPOSITE way and say that breathing this renewed life into their models will serve Ford and Dodge well in the next 3-5 years, as they should be poised to maintain or gain in the remaining market, because I think people who will still buy a full-sized truck based on need for it will also look to make a longer-lasting purchase. Instead of buying for 4 years, they will buy for 6 or 8. The new features and improvements to these new models will raise their desireability over those who are going on 2-3 years of the same offering.
So what has really changed is the expected number of sales/year over the life cycle of the product. Instead of 600k units/year, the volume will likely fall to 400k units/year or some such. That affects amortization and depreciation rates of the investment made by Ford/Dodge in their new lines, and ultimately their profitability from those investments. I.E. - longer payback time if even profitable at all. So the race is now on to capture the remaining market and do with it what you can. So bank on a minimal facelift the next time, and no major (re: expensive) rework for sure.
Long-term, expect to see more companys walk away from this once-profitable table and go play elsewhere. Compacts and econo-boxes are hot again - just like in 1975. I think Hyundai and Kia are the next Toyotas to come. Nissan is wise IMO to go for more profitable markets and I applaud their shift in paradigms early in the game. I think they will be looked back on as trendsetters in this situation. The one(s) left standing in the truck market will be more likely to covet their prizes and not take them for granted. The market will live on - there are too many like me that need a truck for farming, moving tractors, cars, horses, etc, and heavy work. A car is not an acceptable alternative to go get 200 bales of hay out of a field with. There are utility companys that rotate truck fleets (like power companys, phone companys, etc) and will buy based on mileage no matter what.
Lastly - this will REALLY motivate the key players in the truck industry to revolutionize the pickup. Mileage, economy, maintenance costs, etc...
Methinks we are about to see some really neat new things come out with a "bed" behind the cab.
While the point of the article may be noteworthy - the direction of the disaster being aimed at Ford and Dodge directly seems naive IMO. It is going to affect ALL makers of SUVs and pickups... big, medium, and small sized. Why was Ford and Dodge singled out for scrutiny? Because they just did revamps? Honestly, these projects were signed-off and well underway back when gas was still $2.xx/gallon so there was nothing short of a crystal ball that would have changed the minds of management - the projects are/were justified under conditions then-present.
In fact, I'd go so far as to speculate the OPPOSITE way and say that breathing this renewed life into their models will serve Ford and Dodge well in the next 3-5 years, as they should be poised to maintain or gain in the remaining market, because I think people who will still buy a full-sized truck based on need for it will also look to make a longer-lasting purchase. Instead of buying for 4 years, they will buy for 6 or 8. The new features and improvements to these new models will raise their desireability over those who are going on 2-3 years of the same offering.
So what has really changed is the expected number of sales/year over the life cycle of the product. Instead of 600k units/year, the volume will likely fall to 400k units/year or some such. That affects amortization and depreciation rates of the investment made by Ford/Dodge in their new lines, and ultimately their profitability from those investments. I.E. - longer payback time if even profitable at all. So the race is now on to capture the remaining market and do with it what you can. So bank on a minimal facelift the next time, and no major (re: expensive) rework for sure.
Long-term, expect to see more companys walk away from this once-profitable table and go play elsewhere. Compacts and econo-boxes are hot again - just like in 1975. I think Hyundai and Kia are the next Toyotas to come. Nissan is wise IMO to go for more profitable markets and I applaud their shift in paradigms early in the game. I think they will be looked back on as trendsetters in this situation. The one(s) left standing in the truck market will be more likely to covet their prizes and not take them for granted. The market will live on - there are too many like me that need a truck for farming, moving tractors, cars, horses, etc, and heavy work. A car is not an acceptable alternative to go get 200 bales of hay out of a field with. There are utility companys that rotate truck fleets (like power companys, phone companys, etc) and will buy based on mileage no matter what.
Lastly - this will REALLY motivate the key players in the truck industry to revolutionize the pickup. Mileage, economy, maintenance costs, etc...
Methinks we are about to see some really neat new things come out with a "bed" behind the cab.
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I think, if I might interject, that the reason Ford and Chrysler are "singled out" here (and, for example, not Toyota) is that they both have new generations of their full-sized pick-ups coming out and, perhaps most importantly, both Ford and Chrysler are financially on the edge already before the significant downturn in the market.
My hope is that both Ford and Chrysler will weather the storm and thrive but I also know that their financial outlook has gotten a lot more pessimistic than it was just a few months ago and the chance that one or both may not "make it" has become a real posibility.
My hope is that both Ford and Chrysler will weather the storm and thrive but I also know that their financial outlook has gotten a lot more pessimistic than it was just a few months ago and the chance that one or both may not "make it" has become a real posibility.
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Big innovation in trucks is needed. GM could start with adding the 1.9L Ecotec diesel and a 6 speed auto. After all the 1.9L puts out as much torque as a 4.8L gas V8, 295ft./lbs.
Why buy a new truck when you can get crazy deals on slightly used ones. I bet 27mpg hwy would bring in some new customers.
Why buy a new truck when you can get crazy deals on slightly used ones. I bet 27mpg hwy would bring in some new customers.
Last edited by Z28x; Jun 10, 2008 at 04:21 PM.
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New F150s and Dodge 1500s can be had for $13k-$15k in my area.
I think that's pretty reasonable, and is a suitable truck for most buyers.
The thing is, do you settle for basic options or MUST you have the best of everything?
Because, it is easier than ever to run up a $63k truck these dyas... A SuperDuty F350 dually with King Ranch options, 4x4, diesel, leather, nav, and all the options boxes checked will actually bust $63K... I saw one at Parkway Ford about 3 weeks ago and fell down while wetting myself.
Pretty wide range of prices there to consider, huh?
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) a lot of commercial buyers turned to small/mid-sized trucks to get better mileage/cut costs, etc.Unfortunately, this time around, the small/mid-sized trucks of today are as large or almost as large as "full-sized" pick-ups were 15-20 years ago (although they probably get better gas mileage than their counterparts of 20 years ago)!
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Great point.
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So why did this "collapse of the full-sized pickup market" utterly destroy Ford and Dodge per this article, but apparently not bother Toyota (with their recently mega-budgeted Tundra development and launch) or NIssan (with their redo of the Titan that may in fact now go away completely)?
Say that Toyota spent $5B in the process of developing the new Tundra. I think that's a couple billion more than they actually spent, but it was a pretty comprehensive effort, and probably rather costly. That sum is barely six months of profits for the company. They could walk away from the whole project, wipe their hands of the mistake, and only suffer through a bad quarterly earnings statement. Nissan's a bit more heavily invested in their project due to the smaller size of the company, but the Titan has already been a rather large failure and isn't likely to further drag down profitability (thus, in a way, the company gets a bit of a pass for having failed early
). This isn't some sort of media conspiracy, and in fact the article's failure to mention the lack of exposure by the Japanese Big 3 to this problem probably does more of a favor to the American car companies than anything else.
Also note that Toyota now has two of the top four selling vehicles (not just cars) in the US as of last month, and the Prius is selling better than the GMT900 SUVs. That doesn't strike me as a position of weakness. Toyota's greatest threat is the overall weakness of the market, and that's not an existential threat. The product mix issues that Ford, GM, and Chrysler are suffering through could very well be fatal.
I would, however, love to see a deep dive into Toyota's decision to invest so heavily into the heavy-truck market. I'm sure that there's some serious embarrassment in Japan over that mistake.
