American Pickup Sales Leading Best Sales Year Since ’07
Business is booming at Pioneer Natural Resources Co. (PXD), an oil and gas exploration company, and so is its demand for pickups. Pioneer bought more than 250 new Ford F-Series trucks since August and is ordering 200 more.
“We’re definitely going through a growth period,” said Lynn Lyon, the Pioneer executive in charge of purchasing the trucks and converting them to run on the natural gas Pioneer extracts by fracking rich reserves from Texas shale fields. “If you drive through our parking garage, you will see a lot of very nice, new, high-end Ford trucks.”
Record energy production coupled with a sustained housing recovery are pushing pickup sales to the highest level in as much as eight years and driving Detroit’s comeback. U.S. automakers have gained 1.2 points of market share this year, the first time all three have gained share during the January-though-May period in at least 18 years, as sales continue on a pace for the best year since 2007.
“It’s a great time to be in the truck business,” Kurt McNeil, GM’s vice president of U.S. sales operations, said yesterday.
That’s an understatement: This moment may be unequaled for Detroit’s automakers. A resurgent economy with growing momentum is meeting America’s best lineup of vehicles in a generation, with newly lean carmakers offering freshly redesigned high-profit pickups just as builders and oil workers need them.
Fueled by low-interest-rate car loans, light-vehicle sales have picked up every month this year. Investors who doubted the companies’ recovery have been piling into the stocks starting in April. General Motors Co. (GM), Ford (F) Motor Co. and Fiat SpA (F), the majority owner of Chrysler Group LLC, are up 20 percent or more since March. Detroit-based GM will rejoin the S&P 500 Index, another milestone of the automaker’s comeback from its 2009 bankruptcy, S&P Dow Jones Indices LLC said in a statement.
“If we use our own sales as a barometer, it appears that the recovery is becoming even more broad-based,” McNeil told analysts and reporters on a conference call yesterday.
U.S. economic growth will accelerate to 3 percent or more in 2014 after averaging an annualized 2.1 percent during the first four years of the recovery, according to projections by forecasting firms Moody’s Analytics Inc. and Macroeconomic Advisers in St. Louis. That would be the fastest rate of expansion since at least 2005, the year before Ben Bernanke became central bank chief.
Bernanke’s expansive monetary policy has helped auto sales directly. Banks reported that the most common rate for a 48-month new-car loan was 4.69 percent in February, the most-recent reporting period, according to the Federal Reserve. The rate is the lowest since the Fed began tracking the figure in 1972.
Gary Bradshaw, fund manager for Dallas-based Hodges Capital Management, last month bought 30,000 shares of Ford to add to the 150,000 he already held. He was attracted, in part, by Ford’s booming truck sales.
“You drive down the road in parts of these areas and there are so many big fracking trucks hauling water and sand that you’ll get run over if you’re not watching out,” Bradshaw said. “Hopefully, it will all keep booming and it will be good for truck sales.”
GM rose 1.6 percent to $34.96 at the close in New York, its highest since February 2011. Ford fell 0.7 percent to $15.78. Fiat declined 1.7 percent to 6.22 euros.
Ford’s F-Series sales rose 31 percent last month, the line’s best May since 2005. GM’s Chevrolet Silverado pickup jumped 25 percent and Chrysler’s Ram truck rose 22 percent. Now arriving in showrooms is a redesigned Chevy Silverado that gets 23 miles (37 kilometers) per gallon on the highway.
“The strength of the Detroit Three in pickup trucks remains,” Mike Jackson, chief executive officer of AutoNation Inc. (AN), the largest U.S. auto retailer, said in an interview. “The Asians put a bull’s eye on that segment. They made a tremendous investment and effort to break in and change the dynamics of the segment, as they did in many others, and the Detroit Three did a great job of defending their turf.”
Pickup profits, which analysts say are as much as $10,000 per truck, are funding the Detroit carmakers’ overhaul of their entire lineup. They’re spending those riches to improve styling, technology and fuel economy on models such as the Ford Fusion family car and the Cadillac ATS sports sedan.
Ford’s F-Series accounted for 90 percent of its global auto profits last year, while GM’s big pickups and sport-utility vehicle derivatives generated two-thirds of worldwide earnings, according to Adam Jonas, an analyst at Morgan Stanley. Booming truck sales bode well for second-quarter earnings.
“Trucks are what underwrite better and more competitive products from entry-level vehicles to move-up models,” said Kevin Tynan, auto analyst with Bloomberg Industries. “It all ties together.”
Ford and Chrysler each exceeded forecasts for their sales gains in May, while GM and Toyota Motor Corp. (7203) fell short. Combined, GM, Ford and Chrysler controlled 46.1 percent of the market so far this year, up from 44.9 percent last year, according to researcher Autodata Corp. Total U.S. auto sales rose 8.2 percent last month to 1.44 million cars and trucks.
The Detroit Three’s gains are the result of “a fundamental shift in consumer perception and preference,” said Jim Press, formerly Toyota’s top U.S. executive before he became president of Chrysler in 2007. He retired from Chrysler in 2009.
“The imports’ biggest nightmare is Detroit’s fondest dream,” Press said yesterday in an e-mail. Detroit’s “products are equal to or better than all import brands, giving consumers the green light to purchase American with pride.”
Consumers never stopped buying American pickups. GM, Ford and Chrysler control 93 percent of the full-size pickup market, according to Barclays. Sales of Nissan Motor Co. (7201)’s Titan pickup fell 35 percent last month, while Toyota’s Tundra truck rose 14 percent.
GM and Ford each saw pickup sales surge in energy states such as Texas and North Dakota. U.S. crude-oil output in the fourth quarter this year will exceed imports for the first time since 1995, as fields in North Dakota and Texas put the nation on track to surpass a production record set a quarter-century ago, according to the U.S. Energy Information Administration.
Technological advances in the use of horizontal drilling and hydraulic fracturing, or fracking, have allowed the U.S. to vie with Russia as the world’s largest producer of natural gas and may push oil output ahead of Saudi Arabia by 2020, according to the International Energy Agency.
Ford said energy exploration and the fracking boom is elevating pickup sales that had already been growing because of a rebound in housing and construction. Building permits jumped 14 percent to a 1.02 million annualized rate in April, the highest level since June 2008, according to the U.S. Commerce Department.
“We’re seeing a real rebound in tradesmen,” Jim Farley, Ford global marketing chief, said yesterday on Bloomberg TV.
Demand from energy exploration companies has “really been an added boost to the housing segment,” Ken Czubay, Ford’s vice president of U.S. marketing, sales and service, said on a call with reporters and analysts yesterday. “It’s been two drivers of this truck market.”
Not as much for Nissan and Toyota, which continue to lose pickup segment share to the U.S. automakers. New versions of the Titan and Tundra are coming, though they’ll compete against the redesigned trucks from GM, and Ford not long after.
“It only gets worse for Toyota and Nissan once the GM trucks get out there,” Tynan said. “The game, if not already lost, is getting very late.”
AutoNation’s Jackson said he’s seeing a changed mind-set among buyers of work trucks, who had been leery to invest in new vehicles during the recession and slow recovery. The average age of trucks on the road reached 13 years this year.
“We’ve cleared the overhang from ’06 and ’07,” Jackson said. “If you go to a construction site for a house, what do you see as far as the eye can see? Pickup trucks.”
The same is true on fracking work sites, such as the one in Weatherford, Texas, where Pioneer’s Lyon plans to visit this week in her Ford F-250 -- the same pickup she uses to take her son to soccer practice.
During the recession, Irving, Texas-based Pioneer slowed its truck buying and let some pickups in its fleet age to more than 100,000 miles.
Now, Pioneer, whose stock jumped above $145 last month from $12.10 in March 2009, is on a buying binge. And employees are hoping that Ford starts offering natural gas-powered F-150s, which are slightly smaller and fit more easily in the family garage, she said. For now, the F-250 is the smallest F-Series truck Ford offers that can burn natural gas.
“If I had F-150s that run on natural gas right now, we would have a large amount of employees” buy them for personal use, Lyon said. “We can run them on our own fuel and it’s less than $1 a gallon for us. You feel like you’re the dairy farmer drinking your own milk.”
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