CSM Worldwide Says Pickup Segment to Hit Bottom in 2010

NORTHVILLE, Mich., Sept. 23, 2008 - CSM Worldwide, the global leader in automotive forecasting and advisory services, today announced that it expects the U.S. pickup market -- the engine of profitability for the U.S. "Big Three" automakers -- to continue to shrink in 2009 and 2010 to about half of the segment's 2001 sales peak of 3.3 million units, despite launches of the all-new Dodge Ram and Ford F-150 this fall.

"Each new shock to the economy, including the return of $4 per gallon gas and turmoil in the financial services industry, further undermines consumer confidence and delays the recovery in overall vehicle sales," said Charles Chesbrough, CSM senior economist. "But as shocking as today's headlines are, the real story remains the very weak housing market, high fuel prices, inflation and the limited availability of credit."

Pickup sales are particularly sensitive to fuel prices and housing, he noted.

"Until there is a meaningful recovery in consumer confidence and housing, pickup sales will continue to be weak," Chesbrough said. "Unfortunately, the housing correction has further to go."

New home construction starts fell to a 17-year low in August, according to the U.S. Commerce Department, and home prices have yet to stabilize. Foreclosure rates will continue to be high into 2009, and according to CSM's analysis, average home prices -- already down 10 percent from their peak -- may need to fall another 13 percent to return to the stable growth trend of 1990s.

"With so many economic headwinds, we believe the pickup segment will bottom out at 1.7 million units in the next two years. That's down nearly 40 percent from 2007," said Joe Barker, senior manager, global sales analysis. "New products may help Ford and Dodge hold market share, but they won't be enough to turn the tide." CSM sees the overall pickup segment starting a slow but steady recovery by 2011. But even by 2014, volumes will be only about 2.1 million units.

While automakers and dealers wait for the recovery, consumers who do buy trucks will see a changed landscape. CSM sees several market trends carrying into 2009.

Utility and Fuel Economy will Trump Luxury

New pickup trucks are better engineered than ever, with both Ford and Dodge claiming improvements in fuel economy, safety and towing. But the rich mix of "Quad Cabs" and "SuperCrew" body styles, high-end trim series and expensive options that automakers have relied on to improve profits will likely decline because price-conscious customers, such as fleets, now account for an increasingly large share of the segment's volume.

In part, that's because high operating costs are keeping "fashion buyers" -- customers who don't need trucks for work or towing -- out of the segment. For example, the EPA estimates that annual fuel costs for the 2009 Ford F-150 4x4 with a 5.4-liter V-8 or a comparable Dodge Ram with a 5.7-liter V-8 will be $3,842. That's $6.40 to drive 25 miles with gasoline priced at $3.84 per gallon. The most fuel-efficient models from both brands will cost about $242 less per year to operate, but that's still $1,200-$1,400 more than popular mid-size sedans.

Marginal Buyers Will Stay on the Sidelines

Tighter lending standards, lower disposable income and the falling resale value of used trucks also mean that fewer buyers will be able to purchase new trucks.

In its most recent report, the U.S. Department of Commerce said personal disposable personal income fell 0.5 percent in July compared with a year ago, while the Federal Reserve Board said its July senior loan officers survey that about 65 percent of commercial banks have tightened their lending standards since April.

Even when loans are available, they are expensive. According to the website myfico.com, a borrower with a FICO credit score of 720, which is considered to be very good, would pay $763 per month for a 36-month, $25,000 car loan. A marginal borrower with a score of 620-659 would pay $821 per month for the same loan.

According to Experian Information Solutions, the average FICO score in Texas, the largest pickup truck market, was 670 in February 2008, which is the most recent data available. That would indicate a payment $793. However, scores are likely to have fallen since then, according to CSM.

At the same time, the resale value of full-size pickups in August was down almost 17 percent, year-over-year, so returning truck customers will have to put more cash into deals to buy a new truck, especially if they have negative equity in their existing loans. Automakers likely will resort to cash incentives to help address this situation. In addition, lenders increasingly will demand larger down payments, especially for longer-term loans.

Leaner Inventories

At the same time automakers are cutting production to meet lower demand, dealers also are scaling back. They will be increasingly reluctant to carry large inventories of vehicles in slow-selling segments like pickups because their expenses for energy, floor planning and other costs are rising at the same time overall sales are weak.

The silver lining for automakers: Lower production and leaner inventories will tend to have a moderating impact on incentives, which have been very high this summer as automakers worked to reduce high inventories of unsold trucks.