February 24, 2013

News & Features

Big Three bank on loyalty to pickup trucks as competition heats up

Bloomberg News


Ford F-Series pickups have been the top-selling truck line in the United States for 36 years. (Ford)

Japanese automakers are about to make another run at challenging Detroit's dominance in trucks. And they will bang head-on into John Lucchese.

When it came time to replace his 9-year-old Ford pickup, Lucchese, 49, a software engineer from Los Angeles, drove Chrysler's new Ram truck and even gave Toyota's Tundra a try. He ultimately ended up right where he started: at Ford, with a $48,000 F-150 with leather seats and a 360-horsepower V-8.

"I've been a Ford guy all along," he says.

When it comes to pickups, loyalty runs deep. There is no model more important or more zealously defended by Detroit. The $8,000 to $10,000 in gross profit each truck hauls in for U.S. automakers accounts for the majority of their earnings — 90 percent for Ford and two-thirds for GM, according to financial-services firm Morgan Stanley.

Foreign companies, domestic trucks

    Toyota and Nissan build their trucks in the U.S. because of a Cold War-era law known as the "chicken tax" that levies a 25 percent tariff on any imported light truck. The law was established in 1964 by President Lyndon B. Johnson in retaliation for duties France and West Germany levied on U.S. chickens. Since then, the law has helped establish and preserve Detroit's dominance.

U.S. pickup sales are expected to top 1.7 million this year, up more than 50 percent from 2009's low of 1.1 million, according to forecasts by researchers IHS Automotive and LMC Automotive. Sales could eventually reach the historic high of 2.5 million set in 2005, says Fred Diaz, president of the Ram truck brand.

Toyota revealed a redesigned Tundra last month at the Chicago Auto Show.

Nissan is updating its Titan truck. But so far, the Japanese have put barely a dent in the last bastion of U.S. automotive hegemony. General Motors, Ford and Chrysler control 93 percent of the full-size pickup market, according to financial-services firm Barclays.

The billions in those profits finance the U.S. automakers' entire business plan: fixing Europe, expanding in Asia, engineering electric cars. That's why the new Ford, Chevrolet and GMC pickups over the next 18 months, on the heels of last year's Ram 1500 refresh, are the most important introductions Detroit has on its calendar.

"It's like an annuity stream that helps underwrite their less-profitable ventures," says Adam Jonas, an analyst for Morgan Stanley. "It's the product where they know the customers best because they have generations of experience. There's tremendous brand loyalty, and it's a relatively protected market."

That doesn't mean it's not hotly contested. GM is rolling out a new Chevrolet Silverado and GMC Sierra in the second quarter, and the new Ram 1500 was voted North American Truck/Utility of the Year at the Detroit auto show in January. Those are aimed squarely at Ford's F-Series pickup, the top-selling truck line in the U.S. for 36 years.

Ford responded by unveiling a brawny new F-150 concept at the Detroit auto show 18 months before it goes on sale.

"You can't get timid," says Mark Fields, Ford's chief operating officer. "The minute you get timid is the moment your competitors overtake you."

U.S. automakers sound more confident than ever that they can defend their turf.

"There are some things that are endemic to the American carmakers; this is one of them," says Sergio Marchionne, chief executive officer of Chrysler and majority-owner Fiat SpA. "All three of us will defend the area tooth and nail. It's our business, period."


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