Truck Outlook Gloomy, Tied to Housing Market

By Jim Mateja  on December 7, 2007

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Pickup trucks are the lifeblood of the auto industry, contributing an estimated $5,000 to $15,000 to automakers’ coffers for each one sold.

But trucks are in need of a transfusion, and the outlook isn't very bright this year or next.

People staying put in their home — fearful of moving up in a dismal market — might have money to spend on a new car. But those who build homes can't afford to buy new trucks when there are no homes being built. 

General Motors has a 150-day supply of unsold Chevy Silverado and GMC Sierra pickups in stock, more than twice the normal 60-day supply. Dodge has a 120-day supply of unsold Rams, while Ford is at 91 days of F-Series pickups.

The Toyota Tundra, a relative newcomer in the market, is at 76 days, but has its own problems. It had hoped to become a power in the full-size truck market that’s dominated by the domestics; the automaker even built a plant to produce them in San Antonio in hopes of doing so.

"The plant cost two times more to build than estimated, and even with extraordinary incentives of $4,000 to $5,000 this year on a brand-new truck, it will fall short of capacity at San Antonio," said Aaron Bragman, research analyst with Global Insight.

With new versions of the Ford F-150 and Dodge Ram coming this fall, automakers will have little choice but to offer incentives to dispose of the 2008s gathering dust — or snow — on dealer lots, or to cut production of new ones to relieve the glut.

"I don't see anything like selling trucks at employee prices, but incentives averaging about $4,000 industry-wide now won't go away. Still, incentives alone won't reduce inventory. They have to cut production," said Erich Merkle, director of forecasting for IRN Inc. in Grand Rapids, Mich.

To avoid having a glut of leftover ‘08s when those redesigned Ford and Dodge trucks come next fall, GM, Ford and Dodge have all cut truck output in the first quarter of next year.

Yet a couple of factors don't bode well for a rebound in the truck market soon. Analysts insist heavy incentives this year sped up truck sales from those who weren't going to buy for a year or two. That means future demand will take a hit.

"I'd expect the pickup sales decline to accelerate in December and January in part because of the payback, but mostly because residential construction is still in the tank,” Merkle said. “There's a 10-month supply of unsold homes in the market, highest since 1999. The people who build homes are the carpenters, plumbers, bricklayers, painters and other trades that buy pickups. Things will get better, but it will take time. Many don't think new home sales are going to bottom out until late next year. Housing is like the auto industry — you have to reduce existing inventory before you start building new ones."

Some, like Global Insight's Bragman, are a little more optimistic — with reservations.

"New product at Ford and Dodge next year should help generate some excitement,” he said. “If automakers can get 2008 inventories down, and if consumers can once again afford mortgages, and if housing construction once again resumes, we could see the start of a recovery late next year."

That’s a lot of ifs.



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