projoCars
Automakers are planning for the future of the fading truck
01:00 AM EDT on Sunday, July 13, 2008
DETROIT — For now, Tylene Henry’s 2004 Buick Rainier is the right vehicle for her.
The SUV has plenty of room and makes Henry feel like she’s keeping her 2-year-old son, Anthony, safe. But at $76 per fill-up, the Rainier won’t be right for long.
“I probably will go to a car next, especially if things stay the way they are now,” said Henry, 25, of Beverly Hills, loading groceries at a Meijer in Southfield.
While concerns such as Henry’s are among the factors in a steep decline in truck and SUV sales, what remains of the market when it bottoms out will be critically important for Detroit’s automakers.
“Someone who has to haul the big trailer or the big boat is going to need some kind of a work vehicle,” said Joseph Phillippi of AutoTrends Consulting Inc. “There are always going to be people who need something like that.”
So as the Detroit Three restructure again — retooling and closing plants and laying off workers — they must protect their truck leadership and profits estimated at $8,000 per large vehicle.
“This is an important question because it has much to do with your manufacturing plants,” said George Pipas, chief sales analyst for Ford Motor Co. “How many plants, how many shifts of production does the industry want to put behind the large truck and SUV categories?”
Automakers, which typically plan three to five years into the future, are trying to adapt as quickly as possible.
Analysts expect that nearly half of General Motors Corp.’s and Ford’s North American truck plants could end production or be converted to car plants in the next couple of years, as the automakers adjust to fuel-economy regulations and rising consumer demand for more efficient vehicles.
Chrysler LLC is slated to close at least one of its truck plants. And Toyota Motor Corp. is expected to shift production at its underused Princeton, Ind., SUV and minivan plant to the popular Camry sedan, though Toyota says no decision has been made.
The category of light trucks includes pickups, SUVs, minivans and crossovers. Most of the cuts have come in the pickup and SUV segments.
GM recently announced plans to cut production of 700,000 trucks annually, or 40 percent of its truck capacity, by idling four North American truck plants by mid-2010.
The automaker also is considering “all options” for its hulking Hummer brand, has already committed to quickly ramping up to build more cars and crossovers and has announced plans to build nearly 140,000 fewer pickups and SUVs through shift cuts at assembly plants in Pontiac; Flint; Oshawa, Ontario; and Janesville, Wis., in the second half of the year.
GM continues to make incremental cuts to production. This week, GM decided against its earlier plan to speed up the line at its SUV plant in Janesville to 58 vehicles per hour from 44 in July when it cuts production from two shifts to one.
Meanwhile, Ford is slashing its pickup and SUV production, building 280,000 to 350,000 fewer vehicles overall in North America this year.
The company expects to eliminate one of two shifts making Explorers at its Louisville Assembly Plant, but reportedly plans to maintain its 2,000-member workforce through rotating weekly layoffs.
Next month, Ford expects to offer guidance on its pickup and SUV forecasts, which will help the company chart out its long-term manufacturing plants.
Automakers are simply responding to changes in demand that have come about because of the struggling economy, mortgage crisis and $4-a-gallon gas — matters that Ford executives are expected to discuss with UAW officials and plant managers at a private meeting Friday.
Through last week, U.S. consumers spent $206.9 billion on gasoline, nearly 22 percent more than they did last year, even as they consumed less, according to MasterCard SpendingPulse, a weekly report on gasoline consumption.
“Sales have essentially stopped on these big SUVs, big vehicles,” said Russ Shelton, owner of Shelton Pontiac-Buick-GMC Inc. in Rochester Hills.
“People are staring at this $4-a-gallon gasoline, even with incentives as good as they’ve ever been, and they’re frozen,” Shelton said.
Just this year, the U.S. market share for light trucks — including pickups and SUVs of all sizes — has dropped from 52.5 percent of the market in January to 43.1 percent in May.
Market share for trucks could stabilize around 43 percent to 45 percent if gas prices don’t go much higher and consumers see some upside in the national economy, said Jesse Toprak, Edmunds.com’s executive director of industry analysis.
“For things to stabilize in this market and really any other segment in the industry, we need to see some glimmer of hope in the housing market ... at least stabilization, if not an increase in consumer confidence,” Toprak said.
Eventually, trucks will once again become a part of a growing U.S. auto market, said George Magliano, director of North American automotive industry research at Global Insight.
After languishing at less than 15 million this year and next, U.S. light vehicle sales should start growing again in 2010, he said. By then, the burden of the credit crunch and housing crisis should be out of the way. Then so-called millennials — estimated at 78 million people, the largest generation since the baby boomers — will be buying vehicles, propelling a market that could surpass 18 million vehicles a year.
“By 2015, we’ve got a much bigger economy,” Magliano said. “We’ve got a much bigger population.”
Ultimately, some truck buyers will fall out of the market completely.
The era of the mom with two or three kids in a Suburban may be ending.
“Most of those people are going to switch to the Acadia, Outlook or even to some extent the Flex. The Acadia has as much room as the regular-size Tahoe and seats seven very comfortably,” Phillippi said. “The era of the fully tricked-out, personal-use light truck is probably over.”
While trucks will decline, however, there will still be a workforce that needs them.
“Plumbers, carpenters, they need a work truck, but then also end up using the vehicle for personal use. A little Ford Ranger is not going to suffice.”
But “they may very well buy less pickup,” Phillippi said, opting for a more basic truck instead of the $45,000 fully loaded version.
Erich Merkle of consulting firm IRN Inc. forecasts a rebound in pickup sales, expecting them to reach 2.7 million in 2012, up from 2.4 million this year.
“People think it’s going down, but it’s not going down forever,” Merkle said. “People still need pickups for utility. SUVs are different.”
Over time, Phillippi said, he could envision the automakers coming up with smaller pickup truck offerings.
“Something like the Canyon, Colorado and Ranger, built on a reinforced small-car platform,” he said.
“There are potential solutions, but it’s billions of investment and it’s a function of time,” Phillippi said. “If they pulled the trigger today and said let’s make an Acadia-based pickup truck, you’re talking three-plus years until you see it.”
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