Slow Pickup Sales Hurts Detroit Automakers
DETROIT, July 10, 2006; Poornima Gupta writing for Reuters reported that U.S. sales of full-size pickup trucks have slowed in recent months on rising interest rates and high gas prices, increasing pressure on Detroit's automakers to boost incentives and clear swollen inventories.
The pickup truck segment has been a source of profitability for the Big Three automakers, which have steadily lost market share in other categories to Asian brands in recent years.
Although domestic automakers had been bracing for a drop in sales of SUVs this year, some had expected pickups to hold up better because of replacement demand from small businesses in industries like construction.
But U.S truck sales surprised industry watchers by dropping nearly 29 percent in June as buyers reacted to high gas prices and financing costs by holding on to their existing trucks for longer, analysts said.
"There were indications that some large pickup buyers are deferring purchases until they see what happens with gas prices," Bear Stearns analyst Peter Nesvold said.
That is a concern for Ford Motor Co., General Motors Corp and DaimlerChrysler AG's Chrysler Group.
Ford's F-series trucks are the best-selling vehicles in the U.S. market, followed by GM's Chevrolet Silverado trucks. Chrysler's Dodge Ram trucks is its top-selling line in the U.S. market.
Sales of pickup trucks slipped to 1.4 million units during the first half of 2006 from nearly 1.6 million a year ago. Paul Taylor, chief economist at the National Automobile Dealers Association, said Detroit would have to gear up to offer more aggressive discounts because inventories of unsold trucks were piling up on dealer lots.
Overall, automakers had a total of 1.02 million pickup trucks sitting on U.S. dealer lots at the end of June, up 11 percent from a year ago.
"High current inventories suggest that we will see strong sales of pickup trucks in August and September," Taylor said.
Other analysts agreed that pickup price war would heat up.
"There are going to more incentives on the large pickup trucks as a whole because GM needs to get rid of its GMT 800 trucks and make way for the redesigned Avalanche and Silverado," said Alex Rosten, an analyst with Edmunds.com.
GM is launching its redesigned line of full-size GMT 900 Series of pickup trucks later this year.
DETROIT BEARS BRUNT OF DECLINE
U.S. automakers already boosted incentives this summer though they have not reached the level of last year's frenzy when all three offered consumers the same discount pricing that they give their employees.
GM is offering zero-percent loans for 72 months on its GMT 800 SUVs and trucks, while Ford has big cash discounts on its vehicles. Chrysler has rolled out the most aggressive sales promotions, including employee-level pricing and money-back guarantees. Analysts say that Chrysler is sitting on an unsold inventory of over two months of vehicles, many of them Dodge Ram trucks.
In June, U.S. automakers bore the brunt of the decline in pickup trucks sales.
Ford saw sales of F-series trucks slip 10 percent in June for the second month in a row.
Although Ford has forecast it will sell about 900,000 pickup trucks this year, Ford's chief sales analyst George Pipas said last week that goal could prove "problematic" to achieve.
Analysts are concerned that the slowdown in the segment could hit Ford the hardest as the F-Series trucks accounted for nearly one-third of the company's overall U.S. sales in 2005.
"At Ford, we see a deteriorating product mix into 2006-07 toward the lower margin and more competitive car segment," Nesvold said. "The greater problem for Ford is that passenger car growth hasn't been offsetting truck and SUV sales declines."
GM's Chevrolet trucks plunged 46.5 percent last month. But the comparison is murky because of the abnormal sales pattern last year when GM launched its employee pricing discounts. That program sent sales surging, especially for pickup trucks.
"The category itself certainly is underperforming this year," said GM sales analyst Paul Ballew. "Part of that is the hangover from last year's overperformance.".
Ballew said he expected the segment to fare better in 2007.