Detroit's Latest Offering: Big Pickups at Bigger Prices
11 February 2019 - 11:29PM
Dow Jones News
By Mike Colias
Pickup trucks that cost $50,000 or more were a rarity on dealer
lots a decade ago. But Detroit's auto makers, eager for new sources
of income, have been steadily yanking up truck prices -- and
finding that buyers will pay up for better engines and more
frills.
Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles
NV have in recent years introduced trucks at price points well into
luxury-vehicle territory, offering plusher interiors, more powerful
engines and premium options like massage seats and touch screens
the size of small TVs. Some trucks are even priced above $75,000,
making them more expensive than certain luxury cars.
The rise in pickup-truck pricing was on display this past week
when GM and Fiat Chrysler reported fourth-quarter earnings that
were bolstered in part by robust truck sales in their home U.S.
market. Ford last month said strong U.S. truck sales offset losses
in each of its overseas businesses in the fourth quarter.
Customers like Don Newlon exemplify the new truck buyer. Mr.
Newlon recently paid $52,000 for a dark gray Ram Laramie truck with
a yawning sunroof, heated second-row seats and a video feed that
shows a 360-degree aerial view of the truck's surroundings.
"I particularly love the surround cameras to park this beast,"
said Mr. Newlon, a 49-year-old small-business owner from southwest
Ohio.
Such spending hardly counts as a splurge. Last year, pickup
buyers paid more than $44,000 on average for a full-size pickup
truck, 61% higher than a decade earlier, according to research firm
J.D. Power. By contrast, the average price paid for all vehicles
industry wide, rose 28% during that same stretch to about
$32,500.
All three Detroit car makers have grown increasingly reliant on
strong pickup-truck profits in North America to offset weaker
results in China and other overseas markets. They're now narrowing
their focus further on these hulking vehicles to drive growth this
year and help fund future bets on electric and self-driving cars.
Falling demand for passenger cars has also prompted auto makers to
drop many less-profitable small car and sedan models and focus more
on higher-margin trucks.
GM and Ford relied on trucks like the Chevrolet Silverado and
Ford F-Series pickup to drive the vast majority of their global
profit last year, analysts say, even though those models only
accounted for only 10% to 15% of each company's total world-wide
sales. GM's strength in pickups helped deliver a global operating
margin of 8% last year, on par with German luxury car makers BMW AG
and Mercedes-Benz parent Daimler AG.
Ram truck sales are also driving a disproportionate share of
Fiat Chrysler's bottom line, along with its Jeep brand. The
company's operating margin has climbed steadily since the company
ditched two car lines in 2016, hitting 6.1% last year.
Detroit's edge in the U.S. pickup-truck market has been helped
by a longtime 25% tariff on foreign-made trucks -- in place since
the 1960s -- that has deterred competition and supported premium
pricing. Barclays automotive analyst Brian Johnson has described
the Detroit Three's lock on the market as an oligopoly.
Some analysts and executives wonder how long the frothy truck
pricing can continue, as dealer lots get crowded with new pickup
offerings. Ford recently introduced a new Ranger midsize truck --
matching a move made by GM five years ago to offer smaller pickups
-- and Fiat Chrysler is set to launch a new Jeep pickup truck this
year, called the Gladiator.
Last week, GM unveiled a revamped heavy-duty version of the
Silverado capable of towing 35,500 pounds with a diesel engine --
about 10,000 pounds more than the maximum capability of trucks a
decade ago. Ford has hinted that an upcoming version of its Super
Duty pickup could top that towing power.
The proliferation of truck models could start to pressure
pricing, Morgan Stanley analyst Adam Jonas said in an investor note
Thursday. He expects GM's 2019 profit to come in below the
company's forecast of $6.50 to $7 a share, citing "intensifying
price competition in the SUV and pickup segments."
GM President Mark Reuss said the industry needs to be careful
not to push truck prices too high. "The engineering challenge will
be how we achieve more upside in the trucks without adding more
cost and hitting that price ceiling," Mr. Reuss said last week.
Some analysts believe truck sales in coming years should hold up
better than the broader auto market, barring an unexpected spike in
gas prices. The average age of a pickup truck in 2017 was nearly 14
years, compared with about 10 years for cars, according to federal
data, which points to further pent-up truck demand.
Ed Wachenheim, CEO of Greenhaven Associates, a major GM
shareholder, believes many investors overlook the profit potential
of Detroit's truck franchises. His firm owned 20.4 million GM
shares as of Dec. 31, its top holding by value. The firm also owned
about 32.8 million Ford shares.
"Eventually," he said, "investors will realize that these are
fundamentally truck companies."
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
February 11, 2019 07:14 ET (12:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Fiat Chrysler Automobile... (NYSE:FCAU)
Historical Stock Chart
From Apr 2024 to May 2024
Fiat Chrysler Automobile... (NYSE:FCAU)
Historical Stock Chart
From May 2023 to May 2024