The pickup hiccup: Over?
Old fleet, new optimism begin to lift a high-profit segment out of its slump
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Six to eight times a month now, someone who brings an F-150 into Earnhardt Ford for service ends up buying a new truck instead of going ahead with the repair.
The trucks coming in are so old and run-down that it makes more sense to replace them, says John Nissen, general manager of the dealership in suburban Phoenix.
"The trades we're getting are just worn out," Nissen says. "They have 120,000 miles, when they should have been traded in at about 75,000."
These falling-apart trucks are good news for the Detroit 3, which used to sell more than 3 million pickups a year and made gobs of money doing it. Amid positive signals from the housing market, declining unemployment and relatively stable gasoline prices, more consumers and businesses that held onto their trucks through the recession finally are upgrading to new models.
As a result, U.S. pickup sales appear on pace to hit 2 million this year for the first time since 2007. Deliveries of full-sized pickups, including the F-series, Chevrolet Silverado and Ram, rose 13 percent in the first half of 2012 and appear headed toward full-year sales of 1.7 million.
About 55 percent of pickup sales typically occur in the second half of a year, when harsh weather is on the horizon, truck marketing heats up and businesses have a better idea of how their budget is looking.
"Now that housing appears to be turning, you do have an opportunity to have that growth accelerate," says Jim Cain, a spokesman for General Motors, which is launching redesigned versions of the Silverado and GMC Sierra next year. "We are marching pretty systematically back toward prerecession levels of sales."
The average age of full-sized pickups reached a record 12.7 years old in the first quarter of this year, according to Experian Automotive, up from 11.5 in 2009. Among all vehicles, the average age was 11 years old, also a record, an Experian study found.
"We have 'Built Ford Tough' trucks, but at some point you're going to have to replace those trucks," Mark Fields, the president of Ford Motor Co.'s Americas division, told Automotive News in June.
"When the housing market rebounds," Fields said, "and it doesn't have to turn up anywhere near the records it was ... I really feel that we're very well positioned for a recovery in trucks.
Analyst: 2.2 million a year, tops
Strengthening demand prompted IHS Automotive to recently increase its North American production forecast for full-sized pickups to almost 2.1 million this year and nearly 2.2 million in 2013 and 2014. In 2009 the industry built fewer than 1.4 million.
But 2.2 million is about as high as the market for full-sized pickups is expected to go in the foreseeable future, says IHS analyst Tracy Handler. She predicts the segment will never regain the popularity it enjoyed from 1998 through 2005, when about 3 million were made annually and about one in five vehicles sold was a pickup.
"We won't reach those heights again," Handler says.
At 2.2 million a year, "that sort of gets everybody that needs a pickup driving a pickup," Handler says. "I think that's probably where normal is. That segment of the population that bought a pickup that didn't really need a pickup is definitely gone, and 800,000 units are probably lost forever."
Today pickups account for about 13 percent of U.S. vehicle sales. That includes small pickups, a segment that has shrunk by two-thirds in the past decade. Two models, the Ford Ranger and Dodge Dakota, were discontinued last year.
IHS expects full-sized trucks to have about the same share in 2014, as more home construction leads to rising sales, because overall industry sales are projected to be higher then as well.
Although housing -- and pickup sales -- had tapered off before the recession, just returning to those levels would be cause for celebration in Detroit. Analysts say automakers can earn up to $10,000 selling a single large pickup, with high-end trim levels such as the Lariat and King Ranch from Ford and Chrysler's Laramie offerings being especially good for the bottom line. Small cars generate miniscule profits in comparison.
"It is still the segment that the Detroit 3 dominate," Handler says. "Those are very profitable for the manufacturers."
Nissen, of Earnhardt Ford, says dealers also benefit greatly from higher truck sales. Pickup buyers tend to be brand-loyal, and because [pickups]cost considerably more than small cars, the profits just from obtaining financing for buyers are several times more, he says.
"It's huge," Nissen says. "It makes a big difference if you can sell a lot of trucks."
| Truck sales on the rise | |
| Annual U.S. sales of full-sized trucks | |
| 2007 | 2,137,685 |
| 2008 | 1,566,264 |
| 2009 | 1,117,706 |
| 2010 | 1,344,655 |
| 2011 (675,086 for 1st 6 mos) | 1,498,882 |
| 2012* | 762,965 |
| Source: Automotive News Data Center | |
Counting on housing
Nissen says he hopes the housing market, which was hit particularly hard in Phoenix, will begin gathering momentum and generate demand for Super Duty pickups, which are used by many building contractors. Nationwide, housing starts reached a four-year high in June.
He says truck sales at his store have doubled since the worst of the recession but remain far below past highs. Earnhardt is selling about 32 Super Duty trucks a month out of nearly 300 vehicles overall.
"It's quite frankly embarrassing. We used to do tons of them," Nissen says. "Sometime in the next year they're going to start building some houses."
In Houston, business from construction companies and other fleet buyers of pickups has risen significantly, says Dan Walker, a fleet manager at Spring Chrysler-Jeep- Dodge-Ram.
"Most fleet accounts, they didn't buy anything for the last couple years because they weren't feeling very confident," Walker says. "They feel like it's either recovering or their stuff's falling apart. They may not be buying en masse like they were, but it's just busy, busy."
The downside for dealers is that because so many of the trucks being traded in are older than usual, few are in good enough shape to put on the used-car lot; most head for auction instead.
Lacey Plache, the chief economist for Edmunds.com, says automakers can expect to see steadily rising demand for trucks in the months ahead as the housing market gets more traction. If business owners continue to see positive signs over a sustained period, they will loosen their purse strings more and more, she says.
"They have to have the confidence that their business's economic situation and the economy as a whole are looking promising," Plache says. "There's still a long road there. We're not going to just shoot right up overnight."
| Average vehicle age | ||||
| First qtr. of | 2009 | 2010 | 2011 | 2012 |
| Full-sized trucks | 11.5 | 12 | 12.4 | 12.7 |
| All vehicles | 10.1 | 10.4 | 10.8 | 11 |
| Source: Experian Automotive | ||||
You can reach Nick Bunkley at nbunkley@crain.com. -- Follow Nick on 
