By on August 24, 2006

15-07-tundra222.jpgTiming is. Everything. Case in point: Toyota is about roll out its re-designed Tundra. The full-size pickup represents a huge investment for the automaker, including a brand new factory deep in the heart of Texas. By all accounts, the new Tundra will hit the market just as “lifestyle” load luggers have left the building, abandoning the genre for smaller, more fuel efficient machines. But as bad as Toyota’s timing may be for their corporate aspirations, it's worse for the so-called domestics.

It’s no secret that the majority of The Big Two Point Five’s profits (such as they are) come from SUV’s and pickup trucks. Nor is it a revelation that the enormous profits generated by the genre during the last two decades enabled their short-sighted product lethargy. Now that America’s truck optional buyers are leaving their gas-guzzling leviathans in droves, the Big Two Point Five are feeling the pain of putting all their eggs in a truck-shaped basket.

The Mustang is the only main-line car generating significant profit for Ford, and both GM and Chrysler are building direct competitors. DCX has the 300 and the Caliber, but their product mix is still heavily skewed towards SUV’s and pickups. GM is thoroughly truck-dependent. All three companies are busy retrenching, slicing production to match the new marketplace realities. All are incurring huge costs. When it comes to their line of profitable pickups, none are looking for a fight. But a fight is what they’re gonna get.

Many industry types scoff at the prospect. Toyota has been selling full-size pickups of one sort of another for over a decade, without great success. Nissan’s Titan jumped into the fray a couple years ago, to equally modest sales. Their failure to crack this money rich market segment begs the question: what have The Big Two Point Five done right?

Possibility one: the so-called domestics make great trucks. Despite general problems with vehicle quality, the Big Two Point Five have managed not to create a large pool of angry pickup truck buyers. Sure, they’ve built some duds, but nothing dire enough to alienate customers. The foreign owned automakers’ “full size” pickups have also been rather smaller, to no great advantage.

Possibility two: loyalty. The so-called domestics tout loyalty as their trump card, and concentrate their attention on beating each other up. But loyalty hasn’t kept foreign-owned automakers from making inroads into the compact pick-up business. And it hasn’t stopped Toyota from overtaking Ford in the overall U.S. sales chart.

Possibility three: luck. It’s not what Ford and GM have done; it’s what Nissan and Toyota haven’t done. Until now, Toyota and Nissan haven’t built the right products or added enough production capacity to build a significant number of pickups trucks.

Toyota is set to attack on all fronts. The company has spent hundreds of millions of dollars to create a Tundra that’s a match for the industry leader, the Ford F150. The new Tundra is bigger and stronger; more macho, durable and comfortable than any previous Toyota entry. If that isn’t enough to lure brand loyalists, Toyota will do whatever it takes to recoup their investment. With new American production capacity north of 250k units per year (and room for more), Toyota will react to market indifference by launching a price war.

There are two main reasons profit margins on pickup trucks are so high: supply and demand. In the last few months, U.S. pickup sales have tanked, flooding dealers with product, forcing incentives, driving down margins, slicing profit. The injection of tens of thousands of new Tundras into the market will surely accelerate this trend. Toyota’s non-union cost advantage, their never-say-die, take-no-prisoners attitude and their deep pockets all guarantee that it's only a matter of time before they undercut prices and force the so-called domestics’ to pare pickup profits to the bone.

Initially, the fleet sector may see the most action. On its home turf, Toyota puts a lot of energy into grabbing fleet clients to sew-up market share. Fleet buyers are far less brand loyal than private buyers; business owners are far more amenable to rational arguments. You can bet Tundra salesmen are busy boning up on their cost of ownership charts.

Truth be told, the so-called domestics are well-positioned to stave off the threat— at least in the short term. Their pickups may be mechanically simple, but they’re highly evolved with more than reasonable reliability. No matter how good Toyota’s Tundra or low its price, conquest sales will be a bitch. But The Big Two Point Five are vulnerable; they can’t afford to fight on price. They need every pickup truck buck to fund their new product plans. DCX may not suffer badly (for now). But Ford and GM are so cost-heavy, cash-starved and product deficient that fierce pickup competition could mean that their time at the top of the heap is finally over.

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30 Comments on “Toyota Set to Pilfer Pickup Profits...”


  • avatar
    dolo54

    a friend of mine has a titan. that thing is hilariously huge. and hes a little guy, like 5’5″. I don’t even know how he gets in the thing. maybe with a running start.

  • avatar
    Martin Albright

    I’d add two points to this:

    First, Toyota has been making mid- to large-sized pickups for the world market since at least the 1950′s (based on the Venerable Land Cruiser platform.) True, these are not “full sized” trucks when compared to modern American trucks, but if you compare them to other trucks that are sold throughout the world, they fit right in (they’re also about the size of American pickup trucks of the 50′s, before the current ‘bloating’ trend started.) So this is not terra incognita for Toyota.

    Second point, if GM and Ford start to get onto shaky ground financially, and rumors of Chapter 11 start to gain traction, both individual and fleet buyers are going to start wondering if their warranties are going to be worth anything in the future, and that’s another reason to jump ship in favor of Toyota.

  • avatar
    Logan

    Please pass the popcorn, I don’t want to get up and miss part of the show!

  • avatar
    taxman100

    Small pick-up trucks have been left to rot by the Big 2.5 – the Ranger is about a billion years old due to Billy Boy wanting to buy British crap companies, the Colorado has a goofy engine, and DCX left the market segment.

    The Big 2.5 will spend what they have left to protect pick-ups.

  • avatar
    Spartacus

    taxman100:

    “…and DCX left the market segment. ”

    Nope. You’re forgetting the Dakota, redesigned (and flippin’ angular) for ’06. They’re also making the Mitsubishi pickup based on the Dakota.

  • avatar
    taxman100

    Spartacus,

    I thought DCX marketed the Dakota as “midsized”. I don’t have the specs with me, but I know they do not offer it with a 4 cylinder, which both the Ranger and the Colorado offer.

    Myself, I’d like the Ranger with a diesel, but I’d really like a smaller F-150, ala the prior design.

  • avatar
    Sajeev Mehta

    Small pick-up trucks have been left to rot by the Big 2.5 – the Ranger is about a billion years old due to Billy Boy wanting to buy British crap companies.

    Taxman: that was a shocker, while most NA products festered like the Ranger, Ford actually spent a lot of money making the new F150, and it shows.

    Excellent article, Andrew. After talking to plenty of my fellow Texans about our love of ‘dem pick-em-up Trucks, all three of your possibilities are right on the money. Hell, I have a friend who loves the look and performance of Chevy trucks, but only drives Fords because of their lower cost. That’s nuts, but it shows that loyalty and a good product go a long way here.

    Fleet sales is the other thing: a large chunk of Tundras running around Houston are of the fleet variety. Which is fine, but the Tundra’s recalls, including ball-joints, make them susceptable lost sales on fleet front. Many companies insist on the “go with what you know” principle and any wise Ford/Chevy fleet manager will point out the Tundra’s quality shortcomings.

    The other thing about Toyota and Nissan trucks is that they seem to entice Import-minded people who wouldn’t normally consider an American truck. Now that fuel economy is important again, most of these people will gravitate to a Japanese sedan, maybe a Hybrid instead. But the core of Ford/Chevy/Dodge fans seem to stand by their pickup.

  • avatar
    radimus

    I think one of the big reasons Ford and GM will continue to outsell Toyota in this segment is due to legacy issues.

    In the truck segment I think one of Ford and GM’s weaknesses, too many dealerships, is actually an asset. Outside of the major urban and suburban areas the number of Toyota, Honda, and Nissan dealers gets a bit sparse whereas Ford and Chevy have a dealership of some kind in almost every modestly sized small town in the US. This is a factor because when you get into the more rural areas more people own some kind of pickup truck, and why would they want to buy a Toyota when the closest dealer is twice as far or more away than the local Ford or Chevy dealer? If the Ford or GM dealer was smart enough to locate themselves very close to a major farm equipment dealer then all the better.

    Another issue is familiarity. Again, outside of the more urban areas you don’t find large numbers of car brands outside of the Big 2.5, so local mecahnics and DIY’ers are more familiar domestic trucks. The parts are more plentiful, especially third party parts, and the prices are reasonable.

    Toyota could do it, but they’d have to start planting dealerships in places they don’t server to get there.

  • avatar
    Dave M.

    I think DCX has the most to lose, since it seems to me Ford and Chevy owners are more loyal. My FIL has a loaded Tundra, and although I love all things Japanese, I think the F150 actually has a higher feel of quality and better driving habits. Based on what I can see, the F150 is just as reliable.

    That everyone abandoned the small pick-up market is shameful. I had a Nissan “Hardbody” (remember those??) that I adored, got 25/32 mpg with the V6/5 speed, and ran to 250k before I needed something with airbags and 4 doors. That no one sells something comparible is sad.

  • avatar
    dean

    To add to Andrew’s possibilities:

    Possibility 4: The domestic trucks are available in a much larger number of configurations. Long box, short box, extended cab, regular cab, crew cab, 2 or 3 different gasoline engines, diesel engine, heavy-duty versions, 4-wheel drive, 2-wheel drive, tow-packages, etc. The imports offer fewer different configurations, meaning either the customer can get something closer to what they want with a domestic, or they simply perceive that they need more variety than the imports can offer.

    Possibility 5: Outside of the lifestyle buyers, the demographic that actually buy trucks to use them and beat the snot out of them are probably proportionately more likely to avoid imports than the population at large. In other words, your typical blue collar truck buyer is more likely to support American union jobs by buying domestic.

    And radimus’ comment about dealer availability is spot on, especially in the rural “heartland” of pickup sales.

  • avatar
    ctowne

    Note: Revenue != Profit.

    *Revenues* from F150 sales are being used to fund new car development. Ford is not profitable at this time.

    Ditto GM.

    And I’d personally go with the “smartest kid in the room” theory about why domestic pickups have been so successful. Until recently, a focused attempt at penetrating the market by the Japaneese hasn’t really existed. New (large) trucks from Ford and GM seem to be much higher quality than previous, but that only levels the playing field. The new Toyotas and Nissans are also of higher quality than pickups previous. It will now be a last man standing scenario for large pickups and SUV’s. May the best product win.

  • avatar
    guyincognito

    Toyota faces the same problem with unseatiing big 2.5 truck buyers that Ford and GM face with gaining traction in the car market, buyer loyalty. Japanese trucks do not have the long built reputation that the domestics do. And the domestics actually do work dilligently to improve their trucks. For a long time the truck divisions were practically their own companies, with all the resources and top engineers. They (over)design them to take a hell of a lot of abuse as well. That said, there is no doubt buyers will be converted and truck profits will be pushed further along their never ending slide for the big 2.5.

  • avatar
    Martin Albright

    Dean, you said:

    Possibility 5: Outside of the lifestyle buyers, the demographic that actually buy trucks to use them and beat the snot out of them are probably proportionately more likely to avoid imports than the population at large. In other words, your typical blue collar truck buyer is more likely to support American union jobs by buying domestic.

    That may be so in the “rust belt”, where union representation and union feelings are strong, but in the far west where I live, people are generally indifferent or actually hostile to unions. You rarely see “buy American” or “buy union” bumper stickers on pickups in Wyoming or Colorado. The same is true of the South, where pickups are as common as cars.

    Besides, with some significant percentage of truck building taking place in Mexico, how “union friendly” are the domestics, anyway?

    Also, regarding the supposed paucity of import dealers in “truck country”, big-name imports like Toyota and Honda are well established in rural areas, in many cases “doubled up” with a big 2.5 dealership. For example: In Laramie, Wyoming, where I went to school the local Jeep/Chrysler/DCX dealer also sold and serviced Subaru. I’ve seen similar situations where a Chevy or Ford dealer will also sell Nissan or Honda. So I don’t think the number of dealerships is neccessarily an advantage to the American companies.

  • avatar
    bunny

    Dean:

    Your possibility 4 is actually an evidence of his possibilities 1 and 3. And your possibility 5 belongs to possibility 2.

  • avatar
    mikey

    DEAN hit the nail on the head us blue collar, beer drinking, ball cap wearing. NASCAR fans,and there is lots of us. We buy CHEVYS and FORDS and DODGES.Its why the CAMARO is coming back and the MUSTANG is so popular.
    At last the big 3 is waking up and building the vehicles WE are gonna buy.I wish the TOYOTA plant in TEXAS lots of sucess its good for the local economy. But I d`ont think the big 3 has much to worry about in the truck world.

  • avatar
    Rakinyo1

    I spoke to an Engineer at the 2006 Auto Show in Detroit. He confirmed that the V8 Tundra already has the green light to get a Hybrid version getting a little over 45 mpg.

    Its a global market…it’s time for the domestics to start thinking and competing that way. Domestic car companies live in a fish bowl. The past 20 years can be credited to loyal consumers. The next 20 will be credited to a diverse consumer. A consumer so unpredictable and volatile they actually wanted a cooler version of the “station wagon”.

    While the good Ol’ boys are doting on one another and adjusting their bibs; the competition is reinventing the cotton gin (made from titanium).

    I wish I could pull Rick Wagoner aside and give him a pop quiz over the basic components of a John Deer Push Mower.

    And poor Billy does not know if he is coming or going.

    And you mean to tell me these two morons have a cult following?

    Jim Jones and David Coresh have to be kicking themselves in hell right now. They both had the right concept just the wrong vehicle.

  • avatar
    Martin Albright

    I spoke to an Engineer at the 2006 Auto Show in Detroit. He confirmed that the V8 Tundra already has the green light to get a Hybrid version getting a little over 45 mpg.

    Uh, is that even possible? The Prius weighs in at what, 3,000 lbs, and gets around 45mpg, but a full size truck will weigh 4,000-4,500 empty. Is this a hybrid diesel or is there some kind of super-duper breakthrough in Hybrid technology that Toyota is keeping under its hat?

  • avatar
    Blunozer

    Loyalty… Or familiarity?

    My father’s been complaining for years about his 2000 Chev Silverado, bad dealer service, cheap interior bits combined with frequent and expensive repairs. He also finds it too big and thirsty.

    For months he researches midsize trucks. I go with him to test drive various vehicles.

    Honda Ridgeline… “Interior’s too dark!”
    Toyota Tacoma… “Too long”
    Nissan Frontier… “Don’t like the tilt steering!”

    So what did he order just last week to replace his troublesome Silverado? A 2007 Avalanche.

    Go figure.

  • avatar
    Rakinyo1

    Martin, imagine my jaw when I heard it twice.
    I asked the ditsy model chic when the auto show came to my po’dunk town. She concured (twisting chewing gum around her finger) that it was true…a definate hybrid version with enough horsepower to make you believe you were either Bo or Luke Duke.

    In a pick up truck? C’mon!
    I ran into this article today at http://www.leftlanenews.com/

    Lexus is planning a hybrid version of its forthcoming LF-A supercar, according to a published report. It will likely use the same powerplant as the Lexus 600h sedan, according to the U.K.’s Autocar magazine. The 5.0-liter V8 coupled with an electric motor will produce a total output of 435 horsepower, the magazine said. The car will likely be capable of reaching 60 mph in under 4.0 seconds, and hitting a top speed of over 200 mph. The Autocar report also indicates Toyota has decided to drop the car’s planned V10 engine in favor of a V8. The move is a part of an effort to closely align the car to F1 racing, which recently transitioned from V10 to V8 engines. Toyota is hoping to capitalize on its major involvement in F1, and is expected to use the car at next year’s Japanese Grand Prix as the official pace car. The event coincides with the 2007 Tokyo Motor Show, where the car is expected to be unveiled. If you’re not familiar with the LF-A, have a look at the gallery at
    http://www.leftlanenews.com/2006/08/24/report-lexus-planning-hybrid-supercar/

    Im sure its not Rocket science but I believe manufacturers are capable of using a “General” parts bin for their products.

    Pretty Big hat… huh Martin?

  • avatar
    Wolven

    Many good points made but, personally, I believe “Possibility #3″ is the MAIN reason that the “big 2.5″ still lead in truck sales. Toyota just hasn’t really gone after this market… yet. The domestics are BETTER LOOKING, and have more options, styling and power wise. But let Toyota build a tough, fullsize, powerful, SHARP LOOKING pickup and I believe the “big 2.5″ will become the “also ran 2.5″.

    Once the visual appeal is there with the same power and capability, the other factors that have caused the “domestics” to lose the car market will lead to the same fate in the pickup market. Piss poor customer service, reliability not equal to Toyota, quality not equal to Toyota, overpriced…

    And as the under 30 crowd that has been raised to believe a 4 banger toylet with a fart can is a “muscle car” begin looking for a pickup, they are naturally going to gravitate toward the “imports”.

    Finally, for those that believe “loyalty” has anything to do with it… it’s time to wake up and smell the coffee. If Toyota bought Ford and GM tommorow, the MAJORITY of Americans WOULDN’T CARE… I would, but MOST people wouldn’t.

  • avatar
    Petra

    I’m betting that the new Tundra will not sell much more or less than the current model does. I think the main reason why is in that first paragraph: Timing. The new Tundra is entering a shrinking marketplace. The people who bought trucks just because they could afford it are starting to leave the party, leaving only the notoriously loyal, Blue-collar buyers, which, as the article states, will be extremely difficult to conquest.

    Of course, the catch here is that Toyota can easily afford for the Tundra to be an appalling failure. They’ll just re-tool the factory to build more Camrys, or whatever. The Domestics are in a different situation. Their next generation of trucks absolutely must perform, even as the marketplace shrinks. They’ve still got a few tricks up their sleeves (light-duty Diesels, for example), but it’s getting to a pretty serious do-or-die situation. I look forward to watching Toyota, Dodge, Nissan, GM & Ford twist in the wind in the next few years. It’s going to be an interesting battle.

  • avatar
    Rakinyo1

    For crying out loud!

    If Toyota bought Ford or GM the MAJORITY of Americans would fall on butter knives ending their lives, liberty and the pursuit of happiness.

  • avatar
    gearhead455

    LOL!

  • avatar
    jt87

    Rakinyo1:

    who do you work for and what are you on!!!

    unless the electric motors made 2/3′s of the power for the Tundra, there is no way in hell that the truck’s mileage could triple

  • avatar
    NVHGuru

    Toyota does not want to outsell the US 2.5 in pickups; they will be perfectly happy picking off the high-end, high-margin buyers from the ‘burbs who still want a truck. Leave the cheap, low-profit work trucks to the US makers.

    This will actually do much more harm as the loss of 250k high-margin trucks is much worse than losing 400k work trucks. And they don’t need to expand their dealer network to the middle of nowhere to do it.

  • avatar
    socsndaisy

    Not too long ago, I was a custom home builder. Ive owned most all of the full sized offerings as well as several of the smaller ones and Ford is the clear winner in my objective experience. That opinion has nothing whatsoever to do with any NASCAR mentality or poorly formed idea of what quality or reliability may mean. The Toyota was among the worst of all the vehicles in my experience. I dont take any joy in writing that either as I lost alot of money due to its downtime.
    My point is that it isnt quite so easy to poopoo the domestic loyalties since alot of these people make thier living using these vehicles. If anything, in my case, Ford has earned its position at the top of my buying list by delivering a superior product, both for me personally, as well as my business interests. Its no accident, and certainly not indicative of ignorance, that you see so many domestics on jobsites.
    This article is spot on but the one thing that helped the imports will hurt them in this segment: The small car market is an altogether different animal than the full size truck market. These FStruck buyers are the same folks who pay twice the price for a green and gold tractor or a milwaukee two-wheeler…and are happy to do so…and arent looking for an alternative anytime soon.

  • avatar
    Rakinyo1

    jt87 send me your address, Im going to ship you a brand spankin new butter knife.

  • avatar
    jt87

    Oh, dont worry about, shipping it to Canada might cost too much. why dont you use your 45MPG Tundra and personally deliver it instead?
    I’m sure for the $10 shipping charge you could get about 3.5 gallons, that’ll give you 250ish km range

  • avatar
    Untow Bo

    I manage a small (but growing) fleet of service trucks and vans and neither the Tundra or Titan are on my shopping list.

    While the “lifestyle” truck buyer is looking for styling, comfort, upscale features and price, the fleet buyer needs reliability, serviceability and flexibility…..and, yeah, price too. I don’t just shop for a truck, I shop for a solution to my company’s needs, both short and long term. Neither Japanese mfr offer people like me the solutions we’re looking for nor do the aftermarket suppliers of things like truck service bodies.

    Currently on my desk are catalogs for Reading, Stahl, Knapheide, American Van and Adrian Steel. Most of these upfitters offer a ton of equipment for the domestic trucks and vans. But the selection of aftermarket upfittings for Toyota and Nissan are slim to none. While I’ve seen Japanese trucks fitted with service bodies, they’re not commonplace on job sites across the country.

    As mentioned above, the domestics offer trucks and vans in a massive selection of bodies, cabs, engines, transmissions, drivetrains and trim levels. Most local dealers have a good selection of trucks and vans ready to go, which saves me time and money from having to shop a dozen dealers. I have two of the largest Toyota dealers in the Southeast local to me and I’ve never seen one upfitted Tundra service truck on their lots. Same with Nissan.

    And both Japanese mfr’s are notable for not offering any kind of van solution, nor any kind of 1-ton plus truck solution with a diesel engine.

    So….. Toyota and Nissan offer me…..no standard cab or crew cab offering that I can modify for service use. No 1-ton diesel truck offering. Nothing at all in vans.

    Ford and GM give me everything I want and the aftermarket fills in any gaps. While I’m sure the new Tundra will be a nice truck for the guy who wants a truck but would rather not buy domestic, I don’t see it being a big success beyond incremental sales. The domestics have all the bases covered; cheap and basic, expensive and luxo, fleet and service, gas and diesel, and a massive aftermarket support structure.

    I’ve bought 3 service vehicles this year so far and am in the market for two more. I might buy a new Tundra for myself but unless Toyota dramatically changes their game plan, there’s no way I’ll buy one as a company vehicle.

  • avatar
    Paul

    Like many of the previous posts have already mentioned, the imports have done fairly poorly when it comes to large trucks. Nissan knew that the full-size truck market would be very difficult to crack. In fact, their original goal was to attract former Dodge and Toyota customers, whom have little loyalty. They knew that Chevy and Ford owners would not deflect.

    The Japanese full-sized trucks have not held up very well when it comes to dependability. The Nissan Titan ranks dead last of the full-sized trucks in terms of reliability in the Consumer Report’s Survey. The Tundras have been plagued with constant brake problems.

    Also, styling is very important when it comes to pickups. Most truck buyer’s want something that looks aggressive. I believe that Toyota’s benign styling has hurt it’s sales.

    Import’s share of the pickup market has actually been sliding for the last 20 years. In 1985, imports accounted for a quarter of the pickup market. Today, that figure is barely over 10%. That probably has more to do with the evaporating compact pickup market than anything else. In fact, the Ranger is probably the only compact pickup on the market today. Everyone else makes midsizes or larger trucks.

    Loyalty may be something that’s hard to understand for folks living in the Northeast and west coast. But to people in the South and southwest, it’s everything.


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