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Bloomberg News
Ford’s F-150 Atlas concept truck is lowered during its unveiling at the 2013 North American International Auto Show last month in Detroit.

It’s all about the pickups

Big Three rely on loyal buyers in defending precious truck turf

Bloomberg News
GM truck engineer Jeff Luke speaks during the unveiling of the 2014 Chevrolet Silverado, right, and GMC Sierra pickups at a December event in Pontiac, Mich. Pickups are more important than ever to U.S. automakers.

– 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 nine-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 said.

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 Morgan Stanley.

Pickup sales are poised to soar this year, thanks to a parade of new products from Detroit and a surge in housing starts, which jumped 28 percent last year to the fastest rate since 2008, according to U.S. Commerce Department data.

U.S. pickup sales will 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, said Fred Diaz, president of the Ram truck brand.

Toyota revealed a redesigned Tundra this 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 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,” said Adam Jonas, 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 Chrysler’s new Ram 1500 was voted North American Truck/Utility of the Year at the Detroit auto show last month – 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 last month’s auto show – lowering it from the rafters of the Detroit Red Wings hockey arena amid a shower of acetylene sparks.

“You can’t get timid,” Chief Operating Officer Mark Fields said as he stood beside the massive Atlas concept pickup with an imposing chrome grille. “The minute you get timid is the moment your competitors overtake you.”

Even before Detroit’s pickup profit growth became clear, investors had warmed to GM and Ford as they laid out plans for European turnarounds and boosted earnings in North America. GM’s shares are up 10 percent since Oct. 31, while Ford rose 17 percent during that time.

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,” Sergio Marchionne, chief executive officer of Chrysler and majority-owner Fiat SpA, said in an interview. “All three of us will defend the area tooth and nail. It’s our business, period.”

Without truck profits, Detroit would be out of business. Big pickups accounted for almost one in four sales by the Detroit automakers last year. More important, they are “the most profitable vehicles in modern history,” according to Max Warburton, an analyst at Sanford C. Bernstein.

Morgan Stanley’s Jonas figures the F-Series trucks accounted for 70 percent of Ford’s record $8.34 billion in pretax auto profits in North America last year. The truck’s contribution to global profit swells to 90 percent because Ford is losing money in Europe and Asia.

The Chevy Silverado and GMC Sierra and their sport-utility vehicle derivatives also constitute as much as 70 percent of GM’s North American profits, Jonas said. On a global basis, that drops to about 65 percent when factoring in GM’s Asia profits and losses in Europe, he said.

While the automakers declined to reveal profit by vehicle, executives of the U.S. automakers don’t discount pickups’ financial contribution.

“It’s a big part of our corporation and where we derive our profits,” Chrysler’s Diaz said in an interview.

Foreign competitors

Detroit has protected those profits better than any other vehicle category.

When Nissan started selling the Titan in 2003 and Toyota rolled out the second-generation Tundra in 2007, each built factories capable of producing more than 200,000 trucks a year.

Last year, Toyota sold 101,621 Tundras and Nissan sold 21,576 Titans. Ford sold 645,316 F-Series, GM sold 575,497 Sierras and Silverados, and Chrysler sold 293,363 Ram pickups.

“I drove the Toyota and thought, ‘Are you kidding me?’ ” said Lucchese, the software engineer. “For a couple thousand less, you’re getting a lot less truck.”

Toyota and Nissan build their trucks in the United States 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. It helped establish and preserve Detroit’s dominance.

Nissan aims to boost Titan’s annual sales to 100,000 with a redesign coming in 2015, Pierre Loing, vice president of product and advanced planning and strategy for Nissan North America, told Edmunds.com.

Nissan may offer more engine choices and cab configurations in the new Titan, said Dan Bedore, a spokesman. The truck now comes only with a V-8 engine and in crew cab and extended cab, and doesn’t offer a V-6 engine, though fuel efficiency is now more important to truck buyers.

In 2011, Ford began offering two V-6 engine options, which now account for more than half of F-Series sales.

Fuel efficiency wasn’t a top reason to buy a truck when Nissan was first developing the Titan a decade ago, said Larry Dominique, then the Japanese automaker’s product development chief.

“We did more research in preparation for that truck than any other vehicle Nissan had ever produced,” said Dominique, president of ALG, an auto-lease researcher. “I give Nissan and Toyota a lot of credit for sticking with it. It’s a tough segment. For the foreseeable future, the domestics are going to own this segment.”

Toyota failed to achieve its sales goal of selling 200,000 annually because “just as we were introducing our vehicle, the financial crisis hit,” said Bob Carter, vice president of U.S. operations. “We’re going to be a bigger player in the pickup market.”

Long experience

Ford’s Fields said Toyota and Nissan struggle because they don’t have the experience or fully understand the needs of ranchers and hardhats.

“We’ve been at this for 70-plus years,” Fields said. “There’s a whole culture within our company. Engineers who join the company on the truck side stay on the truck side.”

And trucks engender fierce loyalty among their owners.

“People chose sides: You are either a Ford truck buyer or a Chevy truck buyer,” said Jessica Caldwell, an analyst with researcher Edmunds.com. “My dad is a Silverado owner, and once he identified himself as a Chevy buyer, that was it.”

Last year, 39 percent of Silverado buyers were repeat customers, according to Edmunds. At Ford, 36 percent of F-150 buyers were trading in an F-150. Chrysler’s Ram 1500 pickup had repeat business from 27 percent of its buyers.

By comparison, 11 percent of Ford Fusion buyers were repeat customers and 15 percent of Chevy Malibu buyers traded in the same car.

Chevy and Ford pickups top even the most loyal sedan buyers: Toyota Camry customers, who had a 33 percent loyalty rate last year, Edmunds said.

“Having that same buyer decade upon decade, you kind of get an idea of what they’re looking for,” Caldwell said.

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