For Detroit, pickups still haul in the cash

Alan Mulally, president and chief executive officer of Ford Motor Co., speaks to the media after the unveiling of the F-150 Atlas concept truck during the 2013 North American International Auto Show (NAIAS) in Detroit, Michigan, U.S., on Tuesday, Jan. 15, 2013. Ford Motor Co., trying to fend off new pickups from competitors targeting its top-selling F-Series, showed an F-150 prototype with features that boost fuel economy and foreshadow its future for the segment. Photographer: David Paul Morris/Bloomberg *** Local Caption *** Alan Mulally
Alan Mulally, president and chief executive officer of Ford Motor Co., speaks to the media after the unveiling of the F-150 Atlas concept truck during the 2013 North American International Auto Show (NAIAS) in Detroit, Michigan, U.S., on Tuesday, Jan. 15, 2013. Ford Motor Co., trying to fend off new pickups from competitors targeting its top-selling F-Series, showed an F-150 prototype with features that boost fuel economy and foreshadow its future for the segment. Photographer: David Paul Morris/Bloomberg *** Local Caption *** Alan Mulally

— Japanese automakers are about to make another run at challenging Detroit’s dominance in light trucks. And they will bang head-on into John Lucchese.

When it came time to replace his 9-year-old Ford pickup, Lucchese, 49, a software engineer from Los Angeles, drove Chrysler’s new Ram truck and even gave Toyota’s Tundra a try. He ultimately ended up right where he started: at Ford, with a $48,000 F-150 with leather seats and a 360-horsepower V-8.

“I’ve been a Ford guy all along,” he said.

When it comes to pickups,loyalty runs deep. There is no model more important or more zealously defended by Detroit. The $8,000 to $10,000 in gross profit each truck hauls in for U.S. automakers accounts for the majority of their earnings - 90 percent for Ford and two-thirds for GM, according to Morgan Stanley.

Pickup sales are poised to soar this year, thanks to a parade of new products from Detroit and a surge in housing starts, which jumped 28 percent last year to the fastest rate since 2008, according to U.S. Commerce Department data.

U.S. pickup sales are expected to top 1.7 million this year, up more than 50 percent from 2009’s low of 1.1 million, according to forecasts by researchers IHS Automotive and LMC Automotive. Sales could eventually reach the historic high of 2.5 million set in 2005, said Fred Diaz, president of the Ram truck brand.

Toyota revealed a redesigned Tundra last week at the Chicago Auto Show. Nissan is updating its Titan truck. But so far, the Japanese have barely put a dent in the last bastion of U.S. automotive hegemony.General Motors, Ford and Chrysler control 93 percent of the full-size pickup market, according to Barclays.

The billions in those profits finance the U.S. automakers’ entire business plan: fixing Europe, expanding in Asia, engineering electric cars. That’s why the new Ford, Chevrolet and GMC pickups over the next 18 months, on the heels of last year’s Ram 1500 refresh, are the most important introductions Detroit has on its calendar.

“It’s like an annuity stream that helps underwrite their less-profitable ventures,” said Adam Jonas, analyst for Morgan Stanley. “It’s the product where they know the customers best because they have generations of experience. There’s tremendous brand loyalty, and it’s a relatively protected market.”

That doesn’t mean it’s not hotly contested. GM is rolling out a new Chevrolet Silverado and GMC Sierra in the second quarter and Chrysler’s new Ram 1500 was voted North American Truck/Utility of the Year at the North American International Auto Show in Detroit last month. Those are aimed squarely at Ford’s F-Series pickup, the top-selling truck line in the United Statesfor 36 years.

Ford responded by unveiling a brawny new F-150 concept at last month’s auto show - lowering it from the rafters of the Detroit Red Wings hockey arena amid a shower of acetylene sparks - 18 months before it goes on sale.

“You can’t get timid,” Chief Operating Officer Mark Fields said as he stood beside the imposing Atlas concept pickup with an imposing chrome grille. “The minute you get timid is the moment your competitors overtake you.”

GM’s shares are up 10 percent since Oct. 31, while Ford rose 17 percent during that time. Both outpaced the S&P 500 Index’s 7.2 percent rise.

U.S. automakers sound more confident than ever that they can defend their turf.

“There are some things that are endemic to the American car makers; this is one of them,” Sergio Marchionne, chief executive officer of Chrysler and majority-owner Fiat SpA, said in an interview. “All three of us will defend the area tooth and nail. It’s our business, period.”

Without truck profits, Detroit would be out of business. Big pickups accounted for almost 1 in 4 sales by the Detroit automakers last year. More important, they are “the most profitable vehicles in modern history,” according to Max Warburton, an analyst at Sanford C. Bernstein.

Morgan Stanley’s Jonas figures the F-Series trucks accounted for 70 percent of Ford’s record $8.34 billion inpretax auto profits in North America last year. The truck’s contribution to global profit swells to 90 percent because Ford is losing money in Europe and Asia.

The Chevy Silverado and GMC Sierra and their sport utility vehicle derivatives also constitute as much as 70 percent of GM’s North American profits, Jonas said. On a global basis, that drops to about 65 percent when factoring in GM’s Asia profits and losses in Europe, he said.

Detroit has protected those profits better than any other vehicle category. When Nissan started selling the Titan in 2003 and Toyota rolled out the second-generation Tundra in 2007, each built factories capable of producing more than 200,000 trucks a year.

Last year, Toyota sold 101,621 Tundras and Nissan sold 21,576 Titans. Ford sold 645,316 F-Series. GM sold 575,497 Sierras and Silverados, and Chrysler sold 293,363 Ram pickups.

“I drove the Toyota and thought, ‘Are you kidding me?”’ said Lucchese, the software engineer. “For a couple thousand less, you’re getting a lot less truck.”

Toyota and Nissan build their trucks in the United States because of a Cold Warera law known as the “chicken tax” that levies a 25 percent tariff on any imported light truck. The law was established in 1964 by President Lyndon B. Johnson in retaliation for duties France and West Germany levied on U.S. chickens. It helped establish and preserve Detroit’s dominance.

Nissan aims to boost Titan’s annual sales to 100,000 with a redesign coming in 2015, Pierre Loing, vice president of product and advanced planning and strategy for Nissan North America, told Edmunds.com. Nissan may offer more engine choices and cab configurations in the new Titan, said Dan Bedore, a spokesman. The truck now comes only with a V-8 engine and in crew cab and extended cab. Ford began offering two V-6 engine options, which now account for more than half of F-Series sales.

Toyota failed to achieve its sales goal of selling 200,000 annually because “just as we were introducing our vehicle, the financial crisis hit,” said Bob Carter, senior vice president of U.S. auto operations. “We’re going to be a bigger player in the pickup market.”

Japan bet big on trucks a decade ago, driven by an expectation that Detroit was on the road to ruin, Jonas said.

“There was a case to be made back then that all three of the D3 would go bust,” Jonas said. “Now it’s been reset. And the D3 have more protection in full-size pickups than ever.”

Business, Pages 65 on 02/10/2013

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