Dynamics in Surging Large Pickup Segment Mostly Point to More Market Share

Haig Stoddard 1, Industry Analyst

May 20, 2013

5 Min Read
Dynamics in Surging Large Pickup Segment Mostly Point to More Market Share

Big light trucks refuse to go away in the U.S.

That’s despite fuel prices that have been historically high for so long that $3.50 to $4 per gallon for gasoline has become normal, and in spite of the array of new small and midsize cars and cross/utility vehicles that have been introduced over the last few years that appeal more to price and fuel conscience shoppers.

Large CUVs and SUVs are part of the story, but pickups are roaring back despite their apparent demise as a personal-use vehicle, a phenomenon of the segment in the 1990s and 2000s that helped large-pickup share rise from 8.8% in 1992 to a peak of 14.8% in 2004.

Segment share fell below 11% during the 2008/2009 recession and the outlook was bad enough that North American manufacturers slashed capacity for large pickups to straight-time capability of 1.9 million annually in 2009, after having built as many as 2.9 million just five years earlier.

Capacity is rebounding with the addition of third shifts and crews, and the WardsAuto/AutomotiveCompass production forecast calls for North American output of 2.3 million large pickups this year, 6.6% above 2012.

Supporting the production rise are large-pickup sales in the U.S., which could top 1.9 million in 2013 and shoot past 2 million next year.

Volume for 2013 will be the highest since 2007, and give fullsize pickups a 12.6% share of the light-vehicle market, also a six-year high – WardsAuto is forecasting total LV sales of 15.3 million.

Through April, the segment’s share for 2013 is 11.7%, but that will continue to rise due to seasonal trends. Typically about 70% of large-pickup sales come in the final 8 months of the year, and over half the year's volume occurs in the last six months.

Besides a growing economy and rising vehicle demand, pushing sales of large pickups is housing and construction. Over the prior 20 years market share for large pickups nearly always increased when housing starts grew from the prior year.

Housing starts bottomed out in 2009 at 554,000 units, about one-fourth of the volume posted just four years earlier, according to data from the U.S. Census Bureau. As with the gradually recovering economy, housing is also slowly coming back, running at a seasonally adjusted annual rate of 963,000 in the first quarter of this year, still well below the 1.7 million averaged in the 10 years prior to the economic downturn in 2008.

Housing and construction should continue boosting large-pickup share after this year, but there will be a point where the extra spark from housing/construction begins to fade even if the sector continues to grow. However, large-pickup share could rise to over 13% in 2014.

Another positive is that two of the five competitors in the segment are overhauling their products in 2013 and 2014.

Unfortunately, that also creates a potential damper, with the possibility of an inventory squeeze caused by production slowdowns as assembly plants are retooled.

The new models are redesigns to the Chevrolet Silverado and GMC Sierra coming this summer, and a new Ford F-150 in the latter half of next year,

Days' supply for the segment could be in the 70s during all or most of the third quarter. That range is not necessarily low enough to produce a negative impact on sales, but last year the segment's days' supply averaged 99 during July-September, and paced at 85 in 2011.

Part of the reason for leaner inventory is stronger sales volumes as the year progresses. Another is General Motors is undertaking changeovers at two of the three plants building the Silverado/Sierra during 2013.

The last time GM redesigned its fullsize pickups, from fourth-quarter 2006 through first-quarter 2007, it had six assembly plants dedicated to them during the build-out phase -- it closed two after the changeover was completed. That gave the auto maker more flexibility to avoid inventory shortfalls by spreading out the changeovers.

This year, with only three plants building the trucks, GM is likely to see leaner inventories than it has had in a long time.

GM’s Silao, Mexico plant built out the older versions in April, assembling only 5,366 units – about one-fifth its capacity – and production in May is likely to be below par as it ramps up the new versions. Ft. Wayne, IN, builds out current models in June. (The Flint, MI, plant, the third source for the pickups, builds out at the end of the year and starts the new trucks in early 2014.)

Because demand for large pickups increases over the summer months, sales could begin straining GM’s inventory by August. Depending on how smoothly the ramp-ups go, days’ supply for the Silverado and Sierra could drop into the low 70s, or even lower, as soon as July. GM’s large-pickup days’ supply has not been that low for any month in the third quarter since the recession year of 2009. In fact, its average days’ supply for the third-quarter months over the last three years was 105 -- that includes Cadillac Escalade EXT and Chevrolet Avalanche, no longer in production.

A similar scenario could happen next year with Ford.

Ford redesigns the F-150 next year, changing over its Dearborn, MI, plant midyear, and the Kansas City 2 plant at the end of the year. SuperDuty, the heavy-duty version of Ford's F-Series pickups, gets re-engineered in 2016.

Expect Ford to ramp up production ahead of the changeovers to build up inventory – so don’t be alarmed if days’ supply for F-Series rises above normal for a time prior to the changes.

Ford and GM's new trucks are coming at an opportune time because of the resurgence in housing and construction. Growth in demand for pickups related to housing/construction likely will begin to level off before growth in that sector does, so riding the wave now could greatly benefit the players with newer products.

According to the Wards/AC forecast, of the remaining large-pickup competitors, Nissan Titan’s next redesign is 2015, Toyota Tundra in 2016 and Chrysler's Ram pickups, which did have a mid-cycle enhancement last year that appears to have helped sales, undergo their next re-engineering at the two plants building them in 2016 and 2017.

Depending on how long extra support from housing/construction lasts, the other segment players could be updating their portfolios on the downside of the curve.

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