Bloomberg News

Ford Sees Bigger Profits Exiting Small Pickups GM Embraces: Cars

November 29, 2011

Nov. 23 (Bloomberg) -- U.S. automakers are split on whether to abandon their small pickups, which buyers have left for dead and regulators may try to revive.

Ford Motor Co. is ending U.S. sales of Ranger, the former mid-size pickup leader. General Motors Co. has committed to the Chevrolet Colorado compact truck past the 2012 model year. Chrysler Group LLC is weighing whether to replace its defunct Dakota that it stopped building in August.

Ford is betting it can hold its share of full-size trucks by concentrating resources on the F-Series. GM is wagering that buyers may come back to the mid-size segment if gasoline prices rise, and that it may ultimately entice small-truck owners to large pickups. Mid-size pickups cost almost as much as their full-size counterparts without much boost in fuel economy.

“The segment has been in decline for quite a while, so that calls into question whether it’s viable,” R.L. Polk & Co.’s Tom Libby, who is based in Southfield, Michigan, said in a phone interview. “The trend going in the other direction is fuel-economy requirements and an inevitable movement toward smaller vehicles. It’s an unsettled situation.”

Full-size trucks remained the top-selling vehicles for U.S. automakers as GM and Chrysler reorganized under U.S.-backed bankruptcies in 2009 and Ford lost $30.1 billion from 2006 through 2008 before rebounding to profitability. Ford’s F-Series and GM’s Silverado rank No. 1 and 2 in U.S. vehicle sales.

‘Relentless Efforts’

“You really can’t argue with the sales numbers here,” said Mike Levine, a Ford spokesman. “We have very strong demand for full-size pickups, and that’s where we are putting our time and investment.”

One in five owners of GM and Chrysler’s smaller trucks who returned to market for a new vehicle last year moved up into the full-size segment, according to Polk data. The rate among Ford owners was about one in six. If Ford’s gamble falls through, it would undo relentless efforts to protect the “crown jewel” F-150 from Toyota Motor Corp. and Nissan Motor Co., Libby said.

“The domestic manufacturers poured everything they had into their products to try and stop Toyota” and have succeeded, he said.

Compact trucks have plunged to 16 percent of pickup sales this year through October, from one-third of the market in 2000, according to Autodata Corp. Toyota and Nissan now have 56 percent of the mid-size truck segment and only 7 percent of the full-size market.

Buyer’s Perspective

Ford is on pace to sell fewer than 70,000 Rangers in the U.S. this year, about one-fifth its total in 2000, the year it sold 330,125 Rangers and the last year the industry delivered more than 1 million compact trucks. The Dearborn, Michigan-based automaker relinquished small-truck leadership to Toyota’s Tacoma in 2005.

Kurt Weaver, 44, a Ranger owner who buys and sells antique car parts for a living, said he bought his pickup this month to replace a Chevrolet S-10 compact truck he owned for eight years.

“I was looking first and foremost for fuel economy,” he said in a phone interview from Georgia, where he traveled from his home in East Earl, Pennsylvania, to buy parts. “I don’t haul anything heavy.”

Ford is pulling Ranger as the truck recorded a 21 percent gain in deliveries in the year’s first 10 months, putting the model on pace for its first annual sales increase since 1999.

‘Pricing Gap’

GM is throwing the Colorado a lifeline for the U.S. market by shifting output to a plant that makes full-size vans in Missouri. For the Detroit-based automaker to have any success at triggering a rebound in compact trucks, it needs to make its Colorado cheaper and more fuel efficient compared with its big brother Silverado, said Dan Luria, director of research for the Michigan Manufacturing Technology Center.

“You need a minimum $4,000 to $5,000 pricing gap and you need a fuel economy gap of at least 4 or 5 miles per gallon” in favor of a Colorado, Luria, who is based in Plymouth, Michigan, said in a phone interview. “And then I think you can sell all of these you want.”

A base version of Ford’s 2011 F-150 started at $22,790, while iterations of Ranger started at as high as $22,425. Rangers with six-cylinder engines get combined city and highway fuel economy of 17 mpg, no better than similarly equipped F-150s.

“The relevancy of small pickups has died off as the bigger ones get more fuel efficient,” Dave Sullivan, a product analyst at AutoPacific Inc., said in a phone interview.

Ram’s Value

Base model prices for medium- and full-size trucks are usually in the range of $14,000 to $18,000, and the extra size has made full-size trucks the better buy, said Dan Cheng, lead partner of consultant A.T. Kearney’s automotive practice.

An extreme example is Chrysler’s Dakota, which Cheng says is more expensive on a total cost of ownership basis than its larger Ram counterpart because the smaller truck depreciates in value more quickly than the full-size model.

GM may still continue to sell fewer than 40,000 Colorado trucks a year when output of a revamped version of the pickup starts, AutoPacific estimates. Production may begin in the second half of 2013, according to the Tustin, California-based researcher.

Even at those sales, a shadow of the more than 200,000 compact trucks GM delivered in 2000, the wager may be worth making, Sullivan said. Costs are being spread because the company is making Colorado in Thailand, the world’s largest market for mid-size trucks. Ford also is selling Ranger outside North America.

Toyota’s Tundra

Regulators are requiring that the average vehicle achieve 54.5 mpg by 2025 in Environmental Protection Agency ratings, a level that translates to about 37 mpg on a window sticker. Automakers need to improve the fuel economy of cars by 5 percent a year and trucks by 3.5 percent most years to meet those targets.

With large pickups, Toyota made its Tundra bigger to try to take sales from F-Series, Silverado and Ram and constructed a $1.28 billion San Antonio plant to build the model. So far this year, Tundra has captured only 5.6 percent of the U.S. full-size pickup market compared with F-Series’s 38 percent, Silverado’s 28 percent and Ram’s 16 percent. Nissan has 1.4 percent share with its Titan full-size truck.

Chrysler is still exploring a possible replacement to Dakota, said Dave Elshoff, a spokesman for the Auburn Hills, Michigan-based company.

“We believe there is still a substantial market for small pickups,” he said. “We’re studying the demographics and business case for a small Ram pickup.”

--With assistance from Tim Higgins in Southfield, Michigan. Editors: Bill Koenig, John Brecher

To contact the reporter on this story: Craig Trudell in Southfield, Michigan at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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