Looking back over last month's US sales stats (Frank Williams is readying his BTN analysis), it's easy to see that healthy sales of full-size pickup trucks have helped stave-off a radical downturn in The Big 2.8's fortunes. The Wall Street Journal reports the trend may be only a temporary reprieve from a generally declining automotive market, with a major reckoning dead ahead. Industry experts from within and without suggest that increased competition (i.e. an industry average of $4k in sales incentives per truck) has created an artificial and unsustainable market. "We're all watering down this truck market," Ford sales-analysis manager George Pipas told the Journal. "There's only so many buyers here, and we're not going to get more buyers from Mars." Pipas predicts a "rough fourth quarter" and says all the discounts, incentives and special financing lavished on pickups will end in tears. "Payback is inevitable." Given The Big 2.8's ongoing reliance on pickups for profits, Pipas might have also observed that payback is a bitch.
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“We’re all watering down this truck market,” Ford sales-analysis manager George Pipas told the Journal. “There’s only so many buyers here, and we’re not going to get more buyers from Mars.”
Doh! Why didn’t we think of this before?
Perhaps Ford shouldn’t publicize obviously classified Ford internal marketing intelligence, as it appears GM and Chryslerberus are still counting on the Martian buyer.
Wow, surprisingly candid remarks from Ford. Things must really be bad in Dearborn right now.
That is rare from Ford to be…honest. There must not be any “silver lining” for them to use puffery from some mundane fact. They probably can’t keep using the reducing fleet sales excuse (fleets sales are down but so are retail – almost the same %).
GM says they are reducing fleet sales but increasing commerical lease sales. I think they are simply changing the name of the fleet outlet to trick us.
Sajeev: I would think sales being off 21% (Sept) qualifies as “really bad”.
sales being off 21%
Nothing profound to say here but…dang, that’s brutal!
So, which company in the PU market can afford to play this game. I don’t think it is the same ones who can’t afford to lose it.
Rock and a hard place.
BTW jaje- my impression has been that Ford pretty straight forward about there problems. At least compared with the Bob Nutz show across town.
TTFN
Bunter
I posted last month of buying a new Dodge 1500 for $16K, a $10.5k markdown from the msrp. The $6k rebate included. While shopping for the truck, I looked at the F-150’s, and could have purchased one of those for less than the $16K I paid for the Dodge. The other day I noticed at the Ford dealership the same trucks I looked at over a month ago were still on the lot (the back lot) covered with dust. The truck market appears to have really slowed down out here, a lot of the auto ads are featuring big discounts on them.
@jaje
Ford is a strange duck, they screw up in amazing ways, yet they also astound with honest comments, of which this is just one example.
I remember a few years ago, some car rag tested cars with factory spoilers in a wind tunnel. The results were predictable, except for real sports cars — Porsche and Ferrari — the spoilers on most cars didn’t work, or worse, they actually destabilized the cars at high speed. The magazine people called a number of car companies and asked them to comment on their findings. All the companies contacted refused to talk with the exception of some engineers at Ford. The Ford engineer was told of the magazine’s spoiler experiment’s and the conversation went something like this.
Car Scribbler: “We tested a bunch of cars with spoilers in a wind tunnel. Do you know what we found?
Ford Engineer: “Yeah. They don’t work.”
CS: “You know that?”
FE: “Sure we know that.”
CS: “So why do you install these things on cars?”
FE: “Because the customer demands it.”
CS: “So why not install wings that actually work?”
FE: “Because customers complain that a working wing just doesn’t look right.”
Ford is also the only company that I know of which gives an estimate of how long their cars should last. Ford claims 10 years or 150,000K miles, whichever comes first.
skor: “Ford is also the only company that I know of which gives an estimate of how long their cars should last. Ford claims 10 years or 150,000K miles, whichever comes first.”
I hadn’t seen that. Can you give us a citation to the source?
“healthy sales of full-size pickup trucks”
I haven’t done any research on this topic, but it looks to me like the “full-size” pickup of 2008 is about 50% bigger than it was twenty years ago. The enormous number of 3/4 ton models (350/3500), has also made these vehicles even bigger than their enormous base model cousins.
50merc :
“Ford is also the only company that I know of which gives an estimate of how long their cars should last. Ford claims 10 years or 150,000K miles, whichever comes first.”
Since my ’96 T-Bird ‘died’ (OK, I just din’t want to replace the water pump, air conditioner, oh and transmission) in 2006 at 163,000 miles, I’d say they engineered it exactly at the point they wanted to.
@50merc
I read it in some car rag, and I don’t remember which. The writer put the question to a number of car companies and he only got an answer from Ford. He was told that a Ford car would go, on average, 150,000K miles or 10 years.
Toyota already is preparing for increased competition and for the inevitable storm that will hit the pickup market and any automakers using heavy incentives to sell them.
Toyota decreased Tundra incentives in August and has kept them low since then. GM had a round of truck incentives in August, another round in September, and now yet another new round in October.
Dodge is literally giving away Rams just to keep sales up, and Ford is putting heavy incentives on the F-Series.
For 2008, Toyota has lowered prices on the Tundra and expanded the lineup of Tundra models which means Toyota will be able to use less incentives to make a sale. And lower Toyota prices is really bad news for Chrysler, GM, and Ford in this market.
What was predicted long ago on TTAC is happening right now. First Toyota came with the new Tundra and caused a storm in the market. Everyone increased incentives. Now Toyota has decreased incentives, lowered prices, and further expanded the Tundra range. This will force the American Big 3 to either increase incentives or also lower prices as a response to Toyota.
Either way you look at it, profit margins in the pickup truck segment will continue to get smaller and smaller at a time when Chrysler, Ford, and GM need those profits most.
And when Toyota puts an HD Tundra into production, it will be yet another blow as HD trucks are the *most* profitable in the truck segment. An HD Tundra will really hit the American automakers where it hurts.
Toyota decreased Tundra incentives in August and has kept them low since then.
Johnson, I just checked Edmunds and the Tundra has $3000 cash on the hood. (even the 5.7L model) The 4.7L versions are being advertised locally (in Houston) with 0% financing too, so Toyota is discounting HEAVILY to penetrate this market.
Its enough to make me wonder if they’re taking a loss (or close to it) to gain customer acceptance of a new Toyota product…just like they did with the Prius. And IIRC, they got busted for dumping their minivans about 8 years ago.
Everybody hurts!
Sajeev Mehta,
Yes there is $3000 on the hood, but that’s compared to the over $4000 that you could have had off of a Tundra in July and earlier months. Dodge offers a lot more than that in terms of discounts, GM offers about the same, and Ford offers a bit more.
And sorry but local discounts ARE NOT representative of what the whole company is doing. Company-wide, or nationwide Toyota has reduced incentives. Some dealers locally may be offering huge discounts, but those are not nationwide discounts.
Toyota had a huge boost in net profit for Q2 of this year. Believe me, they are not losing money on the Tundra.
And for 2008, because Tundra prices have been lowered, that means even less incentives will be used than now.
Toyota’s strategy with the Tundra reminds me of the price wars between Chevy and Ford in ’55 and ’56. They priced so aggressively that they deliberately sacrificed profit margins. Their apparent goal: hammering the independents, who couldn’t afford to keep up. If Nash and Hudson hadn’t merged to form AMC, they would have died, and it was a real nail in the coffin for Studebaker.
Yes there is $3000 on the hood, but that’s compared to the over $4000 that you could have had off of a Tundra in July and earlier months. Dodge offers a lot more than that in terms of discounts, GM offers about the same, and Ford offers a bit more.
I guess that’s just a difference of opinion: $3000 on all models is far from my definition of low incentives. But you’re probably right, I imagine Toyota is still making $$$ on each unit.
But, since you mentioned it, all four truckmakers are adding insane incentives, making it unprofitable for everyone. Price wars get ugly for almost everyone involved…because they are the feisty upstart, maybe the Tundra will be the only one who emerges unscathed.
Nobody in their right minds would want to fight a marketing war of attrition with Toyota. Strategically Toyota is in an excellent position. They have a strong brand and a highly profitable non-pickup-truck lineup. They can afford to sell trucks at near cost levels to build share should they choose to do so.
Ford, GM and Chrysler are lucky that Toyota isn’t managed like a small airling with cutthroat pricing as the #1 sales tool.
Truck sales are rapidly trending back to their historic ~25% market share, which means a contraction of half from their peak market share. Nothing is going to change that now. Several posters have mentioned that somebody should be selling a good, cheap, small, better-fuel-economy truck like the Hilux, Luv, etc. of old, but so far there are none in the No. American market.