Truck Outlook Gloomy, Tied to Housing Market

2008fordf150

Pickup trucks are the lifeblood of the auto industry, contributing an estimated $5,000 to $15,000 to automakers’ coffers for each one sold.

But trucks are in need of a transfusion, and the outlook isn't very bright this year or next.

People staying put in their home — fearful of moving up in a dismal market — might have money to spend on a new car. But those who build homes can't afford to buy new trucks when there are no homes being built. 

General Motors has a 150-day supply of unsold Chevy Silverado and GMC Sierra pickups in stock, more than twice the normal 60-day supply. Dodge has a 120-day supply of unsold Rams, while Ford is at 91 days of F-Series pickups.

The Toyota Tundra, a relative newcomer in the market, is at 76 days, but has its own problems. It had hoped to become a power in the full-size truck market that’s dominated by the domestics; the automaker even built a plant to produce them in San Antonio in hopes of doing so.

"The plant cost two times more to build than estimated, and even with extraordinary incentives of $4,000 to $5,000 this year on a brand-new truck, it will fall short of capacity at San Antonio," said Aaron Bragman, research analyst with Global Insight.

With new versions of the Ford F-150 and Dodge Ram coming this fall, automakers will have little choice but to offer incentives to dispose of the 2008s gathering dust — or snow — on dealer lots, or to cut production of new ones to relieve the glut.

"I don't see anything like selling trucks at employee prices, but incentives averaging about $4,000 industry-wide now won't go away. Still, incentives alone won't reduce inventory. They have to cut production," said Erich Merkle, director of forecasting for IRN Inc. in Grand Rapids, Mich.

To avoid having a glut of leftover ‘08s when those redesigned Ford and Dodge trucks come next fall, GM, Ford and Dodge have all cut truck output in the first quarter of next year.

Yet a couple of factors don't bode well for a rebound in the truck market soon. Analysts insist heavy incentives this year sped up truck sales from those who weren't going to buy for a year or two. That means future demand will take a hit.

"I'd expect the pickup sales decline to accelerate in December and January in part because of the payback, but mostly because residential construction is still in the tank,” Merkle said. “There's a 10-month supply of unsold homes in the market, highest since 1999. The people who build homes are the carpenters, plumbers, bricklayers, painters and other trades that buy pickups. Things will get better, but it will take time. Many don't think new home sales are going to bottom out until late next year. Housing is like the auto industry — you have to reduce existing inventory before you start building new ones."

Some, like Global Insight's Bragman, are a little more optimistic — with reservations.

"New product at Ford and Dodge next year should help generate some excitement,” he said. “If automakers can get 2008 inventories down, and if consumers can once again afford mortgages, and if housing construction once again resumes, we could see the start of a recovery late next year."

That’s a lot of ifs.

By Jim Mateja | December 7, 2007 | Comments (24)

Comments 

ZB

Duh! Duh! The Toyota Tundra is sitting on dealers' lots. What a shocker!

Toyota may eventually learn that ugly vehicles may hurt their balance sheet. Toyota has been very successful selling ugly vehicles, but their luck may run out.

I parked beside a big Toyota Tundra Super Cab the other night. Talk about ugly.

The size of these slow selling trucks may be a reason they're setting on dealers' lots. The vast majority of trucks are just too big, especially when gas prices are over $3.00 a gallon.

Let's hope the new Ford F-150 is even bigger. Is there such a thing as "foreclosed" dealerships? "Ford closed" dealerships is probably the wave of the future.

Mark

Duh! Duh! The FORD F-150 is sitting on dealers' lots. What a shocker too!

FIXS OR REPAIR DAMAGES....

ZB

What damages? You mean being an ugly-looking truck. That may be hard to fix by a mechanic.

KJ

It's about time consumers stopped buying these gas guzzling trucks just for hauling groceries. Maybe the CEO's of these truck lines will wake up and realize trucks should be getting smaller, not bigger.

Mart

This will probably sound like a ridiculously juvenile observation/question, but why are car makers making so much money on trucks? If they are so profitable surely they'd be better off knocking $10k off the price and selling them for peanuts?

I know it'd hurt their profits, but if it is common kowledge that companies are making $5-15k profit per car why are people still ok paying that ammount for them? I don't think anybody resents a company making a profit, but $10-15k a vehicel is obscene and shouldn't be allowed.

I think i would like to live in some kind of socialist superstate where companies have a mandated profit per vehicle, say $3k. Essentially, car companies would be forced to charge whatever it costs per vehicle to make plus $3k. It'd flatten the market considerably, would reduce profits for the manufacturers and everybody would have a far more accurate picture of the true worth of their vehicle...

I'm full of great ideas!

ZB

I'm with you, KJ.

I guess car companies figure a fool is born every minute who's willing to pay big bucks for a truck. So far their strategy has worked and worked quite well.

I think quite a few previous fools have gotten some smarts lately.

Remember the Ford Thunderbird prices. Ford dealers figured fools would gladly pay $10,000 to $15,000 more. I couldn't believe the dealer gouging. I think the base price of a Ford Thunderbird was around $37,000, but quite a few dealers were charging $50,000. It's nice work if you can get it. Very nice!

Just a few years later Ford then announced that the Thunderbird, from day one, was planned as a limited production car. I guess Ford figured fools would buy that line.

Folks,
I think you're confusing large SUVs with full size pickup trucks. We're talking about trucks here. Trucks have always sold well. They didn't go through the boom like big SUVs in the 1990s. Although things have shifted to full-size rather than a healthy mix of compact and full-size trucks.

An F-150 or Silverado starts in the $18,000 range. Yes, you can equip them all the way up to the $40s but they start under $20k. Tundra and Titan start over $22K.

The problem isn't really how much money they make off of each, the problem is also in the high volumes they're sold at. The F-150 is still the best selling vehicle in America.

If these companies lose the volume they're going to get hurt worse.

ZB

Dave,

You're right! The higher profit margins are in SUV's. Trucks are not so profitable, unless you're talking about really expensive trucks like the Lincoln. It's just a glorified Ford F-150 costing $10,000 to $15,000 more.

Kevin

Here's a question for Dave and ZB.

The story says, "Pickup trucks are the lifeblood of the auto industry, contributing an estimated $5,000 to $15,000 to automakers’ coffers for each one sold."

I don't believe the story author thinks any pickup trucks only cost $5000 to $15,000. So the statement of "contributing" to the bottom line would seem to mean profit as in margin.

I think even an $18,000 F-150 could "contribute" $5000 to the bottom line. Does this story's author not know what he's talking about?

So set me straight please.

I'm not saying one or the other. I'm saying they both contribute. But some commenters are saying all truck buyers are dumb when you can get a truck for a decent price. The more expensive trucks lead to those big margins. The less expensive trucks less so. That's just the way it is. I'd have to check profit margins to get the exact figures.

ZB

I think Mr. Mateja is talking about profit margins.

I'm fairly new to this Web site. The articles I've read so far seem to be written by knowledgeable writers in tune with what's happening in the auto industry.

I think the writers here are more in tune with what's happening in the auto industry than the auto executives in Detroit.

Amuro Ray

Guys,

Trucks are $$$$$$$ makers!!! (Same thing for SUV). Reasons r very simple.

(1) THERE HAS BEEN NO MAJOR CHANGE in the last 30-40 years! Most changes are the engines, length of bed, and interior comfort level. But as far as sheet metal goes, almost nothing. This is such a cost saving for manufacturers such that they don't have to upgrade many of the equipments to make new trucks.

(2) Trucks are big - so they have plenty of space to put whatever they want to put in. For example, many modern cars are loaded with stuff in their engine bay, so whatever features - say an ABS module, a new design is required, and this design may only work in this model and not another one...and when it's time due for a re-model, it's possible that a NEWER ABS module is required. With trucks, there are so much space in the engine bay - there's no need to redesign many of the things. Same thing for the engine - it's always cheaper to build a large engine than a small one. Rule of thumb is that, the smaller a design, the more expensive it will be.

(3) Less human power involved. Look at trucks - other than the cabs - they are essentially all metal. Machine can do the assembly for the metal parts. Fewer humans involvvement = more $$$!

(4) Less complexity. In the US, many safety rules don't apply on trucks. As a result, you don't need to design and assemble "safety this" or "safety that" in order to pass the DOT safety check.

(5) Our stupid brain. Because we equate big = getting more, we have this false sense that a big truck gives us all these metal, so it deserves to be more expensive (but reality is that you are actually getting less from a truck).

There are many more reasons why truck's profit are greater, but as a used-to-be teenager who worked in dealerships, I've found that we would make the most profit selling trucks (and SUV) - and that's even with those $5000 (more or less) rebate included!

Think 'bou it. Why the heck can you always hear THOUSANDS of DOLLARS OFF on a truck or suv, but never on a car? Why would the UAW try to keep all the truck plants open and not the car ones? Because trucks are $$$ maker, and the more $$$ manufacturers get from selling trucks, the less likely the chance of another major layoff!

RHG

For you "manly" truck buyers who think that My 2007 Toyota Tundra looks ugly,since when does a TRUCK supposed to look "PRETTY". Only women like pretty trucks. I buy a truck for performance and dependability. I've owned Chevy,Ford,Dodge trucks and got tired of working on them. Get off your EGO trip and start thinking and acting rationally.

ZB

Yeah, the dynamics of making trucks are different than making cars. You'd think after no major changes in 30-40 years trucks would almost be perfect.

Trucks have been $$$$$$$$$$$ makers. In the future, I think those dollar signs may be fewer, fewer, and fewer. Nothing in life stays the same forever, and there's lots of stormy clouds on the horizon. It is hard to predict the future, though.

Beauty is in the eye of beholder. I don't think anyone expects a truck to be pretty and win beauty contests. Most guys and girls want to own a truck that's at least easy on the eyes. I do! I don't care so much about quality up to a point. Most American trucks are pretty good products.

Manly? I do think American trucks are viewed as more manly. More reliable--probably not but pretty darn good.

Paul

Who needs new when those classic,rugged trucks of the 1970s (77-79 Fords are legendary)can be rebuilt over and over? I have seen numerous contractor businesses (construction,landscaping,refuse removal) take the old 70s trucks,have them totally refurbished,and they now have lasting value that wont dry up in 5-6 years.When that computer part fails in one of these new 08s in a few years and you cant buy it anymore,where will that put the high and mighty "modern" truck? In a premature graveyard thats where.300,302,351M,400,460...these are the classic terms of Tough,rugged,and everlasting.Todays overregulated,steroid laden "trucks" just cant and will never match that track record.

ZB

I might consider rebuilding one of those tough, manly, rugged trucks from the '70s. Sounds great!

I just hope it doesn't cost too much to install power windows, power locks, tilt and telescopic wheel, leather seats, and a navigation system.

A

Hey Mart,

I can tell you numerous reasons why socialism has not and will NEVER work along with giving you a few lessons in economics but this not the place. Before you get any more "great ideas", why not go read about what happened in Germany under Hitler, Russia under Stalin, and China under Mao. If you still want this archaic form of government, I suggest you leave America. I, on the other hand, prefer to make as much money as I can without any interference from the government.

Bowrider

Amen A...Amen. I wouldn't be surprised if the gov't started bailing out truck buyers who purchased vehicles they couldn't afford, not unlike what is going on in the housing market right now. What's sad is there are people running this country who think like Mart. God help us.

Max Reid

Not only that Toyota is struggling with Tundra, but Sequoia sales are also down 56 %. People dont want those mighty gas-guzzlers in the face of high gas prices.

Many job of contractors can be done using a cargo van, where things can be stacked up 1 above other giving double the capacity of a pickup.

Truck sales (SUV + CUV + Pickup + Minivan) sales are off 7 % is Nov-2007.

Troy in Ft Walton Beach

Well,

I bought my truck a year ago. It's not one of the models listed above. I drive the truck to work (industrial job) every day (5 miles each way) and then use the truck for yard work, moving furniture, Lumber, paint and bikes etc on weekends. It then fills duty for road trips as it's much more comfortable (seats 5) than the wife's small car. I'm consitantly getting 16-17 city and 22-23 hwy and, it's a 4wd. I truly beleive that people should only buy the amount of truck they really need and nothing more. I disagree with buying a truck for what it "could" do. How amny poeple actually exploit the full capability of their trucks? Maybe 15-20%???

ZB

Many Americans don't do anything in moderation. We fill our plates too high, we buy too much house, and we buy too much truck/car.

I like trucks, but small trucks.

Troy in Ft Walton Beach

ZB,

I agree 100%

ZB

Troy,

Holding back it tough. I think there's just too many option selections with some trucks. When there's all these bells and whistles, you generally go for it.

Offering a short bed, a medium-sized bed, or a large bed isn't very cost effective. I really don't know if a crew cab is a must. When I see a truck with a crew cab, there's generally no passengers. A lot of trucks offer it and it does pad their profit margins. At least it did. Probably not now.

In the past, Ford Ranger offered an option as to the rear fender styling. That's just crazy. All I care about is that is has a rear fender. In 2009 there will be no choice of a Ford Ranger, let alone a rear fender. It was and is a great truck. Now the Ford Ranger is a "Fordclosed" truck.

I wish George W. would bail the Ford Ranger out. Maybe if we tell him it's the Texas' Rangers, he'll go for it. He probably doesn't know the difference. Duh!

Its too bad the healthcare obligations of our current major auto manufacturers to their workers is currently crippling their ability to turn profits. These were instituted many years ago with the help of unions, which I'm sure against because Americans should not have the ability to organize as a group. Any sort of single payer government run health care, which socialized European and Japanese countries use yet somehow still compete with us, would just make us too much like them "foreners" and well, we can't have that.

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