Affluent Consumers Drive New Pickup Boom

Pickup sales are rebounding, and uplevel trim packages for buyers with bucks are leading the way. Chrysler says it may need a third shift of truck production to meet heavy demand.

July 2, 2012

8 Min Read
Rich perforated leather distinguishes new rsquo13 Ford F150 Limited
Rich, perforated leather distinguishes new ’13 Ford F-150 Limited.

Pickup trucks are hot again, and much of the growth is coming from premium-trim levels with prices commonly seen in BMW and Mercedes showrooms.

The pickup market suffered ill effects from a sliding U.S. economy and sky-high gas prices over the past several years, but falling fuel costs and pent-up demand are converging to give the segment a long-awaited kick in the tailgate.

A call to Larry H. Miller, a Chrysler dealer near Salt Lake City, UT, which the Ram brand identifies as its No.1 market for heavy-duty trucks, ends abruptly when the flustered sales manager says he has no time to talk.

“If you’re trying to sell me something, don’t bother,” the manager says. “I’ve got three customers sitting in my office right now.”

Demand has been so brisk that Chrysler is considering a third shift at the light-duty Ram truck plant in Warren, MI. Chrysler also produces heavy-duty Ram pickups in Saltillo, Mexico. Until the auto maker restructured as a result of its 2009 bankruptcy, it also had a truck plant in St. Louis.

Chrysler began selling the Ram Laramie Longhorn in first-quarter 2011 with a western-styled interior. Rich leather bears the type of decorative filigree found on high-quality boots. Starting price for a half-ton crew cab Laramie Longhorn is $43,125, but transaction prices are quite a bit higher.

A heavy-duty version of the Laramie Longhorn is in the market now, and the average transaction price is $65,000, says Robert Hegbloom, director of Ram marketing. The price hasn’t scared off customers, however.

“We haven’t gotten to the point where people say, ‘That truck’s too expensive,’” Hegbloom says.

Kenn Bakowski, marketing manager for General Motors’ GMC Sierra pickup, sees more affluent customers driving the truck market, especially in the heavy-duty sector.

“These are folks with money,” he says. “They are more likely to be college-educated or have a graduate degree or consider themselves a professional or entrepreneur.”

GMC customers tend to be more wealthy than Chevrolet buyers, and within the GMC brand, the Denali buyer has a median income nearly 50% higher than that of a non-Denali buyer, Bakowski says.

Shoppers buy premium pickups to pull boats, snowmobiles and work trailers. Heavy-duty customers generally spend $10,000 to $15,000 more for diesel engines and higher tow ratings for hauling horse trailers, fifth-wheel campers and landscaping rigs.

“They buy these trucks because they need them,” Bakowski says, noting a recent uptick in recreational-vehicle sales, which will further boost truck demand.

It wasn’t always like this.

In 2004 and 2005, many pickup buyers didn’t use the trucks as intended. Pickups were expensive grocery-getters for people who liked the high seating position and macho image. Fuel was cheap, and U.S. pickup sales reached 2.5 million units, which represented 14.5% of the overall light-vehicle market, says Doug Scott, Ford Truck Group marketing manager.

And then came the global recession: Truck deliveries dropped to 1.5 million units, or 11.6% of the market.

In this great shakeout, Scott says the people who left for other segments “were poseurs and urban cowboys, the people in trucks who didn’t tow or go off-road and didn’t haul anything.”

Buyers left in the fullsize sector “are really those who understand, whether they are occupational or lifestyle users, that there isn’t a substitute that meets their needs,” Scott says.

Serious truck buyers waited out the economic turmoil, knowing that high fuel prices would drive down the resale value of their existing vehicles, which explains why the industry now is benefiting from both low fuel prices and pent-up demand. GM’s Bakowski says the average truck in the U.S. is more than 10 years old, up significantly from 2006.

Sales data for the year’s first five months confirms the trend: Large-pickup deliveries in the U.S. rose 14.2% through May against an industrywide uptick of 13.4%, according to WardsAuto data.

Specifically, deliveries of the best-selling Ford F-Series light-duty pickups were up 16.2%, compared with 7.1% for the Chevrolet Silverado and 9.5% for the GMC Sierra. Even the niche-filling Chevy Avalanche, which is leaving the market, was up 31.7% through May.

The biggest gain comes from Chrysler’s Ram division, which posted a 25.1% spike in light-duty pickups and 26.6% gain when including heavy-duty trucks.

The story behind the data that is harder to decipher is the growing popularity of the most expensive – and most profitable – types of fullsize trucks: crew cabs with 4-wheel drive and uplevel trim packages.

“Our pickup-truck mix has never been richer, it’s never been higher than it is right now,” Ford’s Scott says. “People in the market are those who are more affluent, and they are more inclined and more interested in well-equipped, high-series trucks.”

The Power Information Network of J.D. Power and Associates reports 48% of large-pickup buyers so far this year range in age from 36 to 55; 84% are male; 23% pay with cash; 72% finance; and the median household income is $66,064.

In 2010, 9% of light-duty fullsize half-ton pickups sold for more than $40,000. Within a year, that figure rose to 13%, an increase of 44%, says Fred Diaz, president and CEO of the Ram truck brand and Chrysler de Mexico.

Likewise, in the heavy-duty segment, 22% of trucks sold for more than $50,000 in 2010, and a year later the figure climbed to 29%, he says.

“Demand for trucks continues to be very, very robust,” Diaz tells WardsAuto.

When asked of the potential for a third shift for truck production at Chrysler, Diaz says: “Those are things we are looking at as a corporation because demand is certainly outweighing supply.”

GM’s Bakowski says about a third of all fullsize pickups have upscale features.

For historical context, Bakowski is convinced transaction prices for pickups are up significantly over the past 15 years as crew cabs and 4WD have taken root.

“Many of these uplevel trims I don’t think even existed the way they are now,” he says. “And crew cabs didn’t even exist 15 years ago in today’s configuration.”

Bakowski says 60% of Sierra buyers opt for the crew cab. Sales of the Sierra’s two top trim levels, Denali and SLT, jumped 28% from 2011 to 2012, he says. In addition, when the upmarket Denali trim was offered in the heavy-duty Sierra in 2010, sales shot up 48%.

GM’s next-generation fullsize pickups and SUVs arrive in 2013.

The resurging truck market has even reignited trash talking among the Detroit auto makers, which had gone relatively quiet during the recent recession.

“For the last couple years, whether you are talking F-150 (light-duty) or Super Duty trucks, we have a $4,000-$5,000 transaction-price advantage over both Ram and GM,” Scott says of Ford’s F-Series. “It’s the best indicator we are doing the richest mix of those types of trucks.”

“We are 85,000-plus units ahead of Chevy for the first five months of the year,” Scott says. “Part of the reason behind 35 years of truck leadership is, we have that greater range of choice.”

But Chrysler’s Diaz says Ram’s gains have come at Ford’s expense, and that the “vast majority” of top-of-the-line Ram Laramie Longhorn buyers are trading in F-Series King Ranch pickups.

“We know how incredibly loyal these truck buyers are, but in the last 12-18 months things have been clicking for the Ram brand,” he says.

From 2010 to 2011, Diaz says Ram gained 3.4 points of share in the fullsize truck market, and an additional 2.2 points have been won so far this year.

Detroit auto makers, sensing an opportunity, are flooding the market with premium pickups.

Going further upmarket, Chrysler in April began producing the heavy-duty Ram Laramie Limited, and the initial allotment for the year to dealers sold out in three days. Warren Truck began assembling the Ram 1500 Laramie Limited this month.

Likewise, Ford is introducing a top-of-the-range Limited version of the F-150 for model-year ’13 and a Platinum-edition Ford Super Duty, Scott says. The F-150 received the Platinum trim level in 2009 and the Lariat trim package in 2011.

“This is not a recent phenomenon for us,” he says, noting his competitors jumped on the bandwagon much later. “We’ve been in the high-series or luxury truck business for a long time. You can go back to 1999 when we introduced the first Harley-Davidson (F-Series), and then the King Ranch came a year later. Then we migrated both those to Super Duty.”

A black mark on Ford’s luxury truck legacy was the upscale Lincoln Blackwood, which was derived from the F-150 and intended to attract upscale buyers. The Blackwood arrived late to market in 2002 due to a supply problem with the cargo box and exited within a year in the face of weak demand.

Scott says Lincoln dealers were not prepared to cultivate the pickup market and weren’t engaged in the used-truck segment.

Toyota tried to play in the upper trim level with the Tundra in 2007, but sales have been disappointing. Rich Bame, Toyota’s national brand manager, recognizes the premium-truck segment is “really active right now,” largely because customers perceive pickups differently since the arrival of crew cabs in the early 2000s.

“Prior to that, a truck was a truck,” Bame says. “Then people started identifying cab space had greater value than bed space; cabs got bigger and beds got smaller. And then people wanted the same amenities as in a Lexus or a Camry or an Avalon or a Mercedes. Ford was the first to really exploit that.”

Looking forward, Scott sees potential for the industry to sell 2 million fullsize pickups within the next five years, especially if the housing market begins to recover.

In the meantime, the industry can enjoy this spurt of activity in pickups. Even bit players Toyota and Nissan report rising sales of the Tundra (up 9.6% this year) and Titan (up 15.4%), respectively.

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