Analysts Warn of Detroit’s Over-Reliance on Truck Sales, Profits
Profit Center Could Turn Into Loss-Maker
Truck sales over the last several years have had the Detroit Three singing “we’re in the money” all the way to the bank on continued strong demand for fullsize and midsize trucks. However, some industry analysts warn of trouble ahead for Detroit for the industry’s over-reliance on profits from the segment to offset softness in other areas, Automotive News reports. Pickups are believed to account for up to 55 percent of General Motors’ operating profit and as much as 67 percent at Ford. However, over-supply of pickups could erode GM’s profit by as much as $1 to $2 billion a year from pricing pressure and market-share loss as competitors add production capacity.
The manufacturers remain publicly confident of their pickup-intensive strategy and say that average transaction prices remain high and incentive spending is in check. FCA is expected to increase its production capacity with the next-generation Ram fullsize truck, due in early 2018. Although some are alarmed by Detroit’s truck-heavy strategy, one analyst notes that truck production capacity is still below 2007 levels when capacity was dramatically cut in the midst of the recession of 2008-2009. Another interesting development is the increased demand for used pickup trucks, as prices on new models continue to trend higher.
Source: Automotive News