Housing Rebound May Drive Year of the Truck for Detroit

In the waning days of 2012, car dealer Gordon Stewart’s Chevrolet showrooms were jammed with tire-kickers he hadn’t seen in a while: truck buyers. At his dealership in Garden City, Michigan, he sold 44 Silverado pickups in two days, five times his typical sales volume.

“It’s been fantastic,” said Stewart, who also did brisk truck business in his two Chevy dealerships in Florida and his Augusta, Georgia, store. “Trucks have been a sleeping part of our business that’s been almost dead the last couple years. Now all of a sudden, it’s catching fire.”

After pickup sales sputtered along with the U.S. economy the past four years, 2013 is shaping up as the year of the truck. Home building -- the key economic barometer among the hardhats who buy pickups -- finally is showing signs of life, with housing starts up 22 percent in November. And new pickups from Chrysler Group LLC and General Motors Co. (GM) are stimulating interest in a segment that has struggled to gain traction.

This year, pickup sales will top 1.7 million, up more than 50 percent from 2009’s low of 1.1 million, according to forecasts from researchers IHS Automotive and LMC Automotive.

“There’s going to be waiting lists for trucks over the next couple years,” said Adam Jonas, an analyst for Morgan Stanley. “Trucks will outperform the overall industry.”

That’s especially important for U.S. automakers. Despite all the advances they’ve made in small cars, Detroit still depends on trucks to haul in profits.

‘Cash Cow’

Ford Motor Co. (F)’s F-Series pickup accounts for 90 percent of its global auto profits, while GM’s pickups and sport-utility vehicle derivatives generate two-thirds of worldwide earnings, Jonas said. The Detroit automakers control 93 percent of the U.S. pickup market, their last bastion of dominance.

“Trucks are a cash cow for the Detroit Three,” Jonas said. “And let’s face it, the D3 make the best products.”

Detroit’s truck prowess will be on display next week at the Detroit auto show. Ford will unveil a concept Jan. 15 of its next generation F-Series pickup in a flashy press conference in Joe Louis Arena, home of the Detroit Red Wings, according to two people familiar with the plan.

Ford’s new truck doesn’t reach showrooms until October 2014, said Michael Robinet, managing director of IHS Automotive. The sneak peek is aimed at stealing spotlight from Chrysler’s restyled Ram 1500, which debuted in October, and GM’s new Chevy Silverado and GMC Sierra, arriving in the second quarter.

Photographer: Daniel Acker/Bloomberg

General Motors Co. Chevrolet Silverado trucks sit at an auto dealership in Moline, Illinois. Close

General Motors Co. Chevrolet Silverado trucks sit at an auto dealership in Moline, Illinois.

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Photographer: Daniel Acker/Bloomberg

General Motors Co. Chevrolet Silverado trucks sit at an auto dealership in Moline, Illinois.

Buzz Battle

“This is about generating as much buzz as possible for the next F-150,” said Jeff Schuster, senior vice president of forecasting at LMC Automotive in Troy, Michigan. “Their goal will be to get buyers to hold off until the Ford trucks come out.”

Ford’s F-Series has been the top-selling pickup line in the U.S. for 36 years, while GM’s two truck models had led in market share until falling behind Ford last year, according to Brian Johnson, an analyst at Barclays Plc. F-Series, also the top-selling vehicle of any kind in the U.S., had sales of 645,316 last year, up 10 percent.

“My job is to make sure we keep that leadership string going,” said Doug Scott, Ford’s truck marketing manager, who declined to comment on Ford’s auto show plans. “It’s a big deal. It’s very important. It’s the flagship.”

Scott said he believes his job will be made easier by all the marketing dollars GM and Chrysler will pour into promoting their new models.

“More advertising and promotion typically results in more activity in the marketplace and more people shopping,” Scott said in an interview this week. He said he hopes to steer shoppers to Ford showrooms by claiming that “the others are just catching up to us.”

Efficiency Lead

GM and Chrysler see it differently. The Ram with a 3.6-liter V-6 engine surpassed Ford to offer the best fuel economy in a big pickup, getting 17 miles (27 kilometers) per gallon in the city and 25 mpg on the highway.

That will give Chrysler an opportunity to lure truck buyers from Ford and GM, Fred Diaz, president of the Ram truck brand, said in a Jan. 9 interview.

“Now that we’ve got the mpg story, we think we’re going to see even more and more defections,” Diaz said. “To get a tried-and-true Chevy guy or a Ford guy to try a Ram, that’s like sacrilegious. But if somebody’s in the market to buy a truck, if we can get their butts in our seats, they buy our truck.”

GM’s pickups, last redesigned in 2006, offer three new engines with fuel-saving technology such as cylinders that shut down to maximize mileage. Additional “fuel-economy strategies” are coming, Mark Reuss, GM’s North American president, told analysts in a Jan. 3 conference call, without elaborating.

Market Share

“GM will put a huge amount of marketing resources behind these two products because they are extremely important,” said Tom Libby, lead North American analyst for auto researcher Polk & Co. “GM needs to have these launches stop their share erosion.”

The trucks will help reverse the automaker’s market share slide in the U.S., Mary Barra, the automaker’s product development chief, said in a Jan. 8 interview. GM’s U.S. share fell to an 88-year low of 17.9 percent in 2012.

“It will have a very beneficial effect,” Barra said of the truck’s impact on GM’s U.S. market share. The new vehicles are “very strong,” she said.

GM Chief Executive Officer Dan Akerson said yesterday that he expects a “modest” share gain this year. The average estimate of five analysts surveyed by Bloomberg is that the company will maintain its 2012 share this year.

Seeking Lead

Ford is seeking to regain fuel-economy leadership by improving the mileage of its next F-Series by as much as 20 percent, said two people familiar with the plan. Ford aims to boost mileage by cutting 700 pounds (318 kilograms) from its truck through extensive use of lightweight aluminum body panels, said one of the people, who asked not to be identified revealing internal plans.

“The fuel economy war in the full-size pickup segment is second to none,” IHS’s Robinet said. “The old 15 is the new 25. Everyone is trying to get 25 mpg on the highway.”

The focus on fuel economy and smaller engines is a reversal for buyers who traditionally believed bigger is better, Scott said. Ford didn’t even offer a V-6 engine on the last major redesign of the F-Series in late 2008. Last year, V-6 engines, which Ford added to the F-Series in 2011, were installed in 53 percent of the trucks it sold, Scott said.

“We may be at a tipping point,” said Jake Fisher, director of auto testing at Consumer Reports magazine. “We’re going to see a lot of work done on pickups to make them more efficient. Could they be smaller and not have a 10-foot hood? Probably.”

Demand Strengthens

The improving mileage on new pickups, along with the strengthening economy, will continue to drive truck owners to trade in their old models, said Lacey Plache, chief economist for automotive researcher Edmunds.com. Trucks on the road today average a record 10.4 years old, according to Edmunds.

“The housing market is the big driver here,” Plache said. “People start getting work and they see work ahead of them and they start looking at their trucks, which are older than ever, and they think, ‘Well, I could use a new truck.’”

Chrysler is “seeing a lot of people trade in their old rigs for new rigs,” Diaz said.

Housing starts rose 22 percent in November to an annualized rate of 861,000, according to the Commerce Department. Morgan Stanley’s Jonas predicts housing starts will top 1 million this year, which will expand pickup share of the auto market.

“Consistent improvement in the housing sector is the best positive news you could look for if you’re in the full-size pickup truck business,” said Ford’s Scott, who said it’s “reasonable” to expect annual pickup sales to eventually top 2 million in the U.S. “Two million doesn’t seem out of the question.”

Peak Achievable

Diaz said the truck market could even get back to its peak in 2005, when 2.5 million pickups were sold, accounting for 14.5 percent of U.S. auto sales. Last year, full-size pickups accounted for 11.3 percent of U.S. light-vehicle sales.

“We’re finding that we’ve got more and more customers that are looking at trucks, because of how nice they are on the inside, as their primary mode of transportation and their new family haulers,” Diaz said. “More people who have not considered trucks in the past are now considering trucks.”

Chevy Dealer Stewart said it will take time for the benefits of the housing recovery to be fully felt in his showroom. Having new trucks to sell as all those contractors return should fix the weakest piece of his business.

“The last few years weren’t really bad, they were just minus truck sales,” Stewart said. “The piece of the puzzle that was missing was trucks. And now here it comes.”

To contact the reporters on this story: Keith Naughton in Southfield, Michigan, at knaughton3@bloomberg.net; Craig Trudell in Southfield, Michigan, at ctrudell1@bloomberg.net; Tim Higgins in Southfield, Michigan, at thiggins21@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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