Toyota Set to Pilfer Pickup Profits

Andrew Dederer
by Andrew Dederer
toyota set to pilfer pickup profits

Timing 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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  • Untow Bo Untow Bo on Aug 26, 2006

    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 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.

  • Paul Paul on Aug 27, 2006

    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.

  • Lou_BC I realized it wasn't EV's burning by the absence of the usual suspects.
  • Kwik_Shift A manual bug eye WRX wagon (2001-03) would interest me more.
  • El scotto Ferrari develops a way to put a virtual car in real time traffic? Will it be multiple virtual players in a possible infinite number of real drivers in real time situations?This will be one of the greatest things ever or a niche video game.
  • El scotto It's said that many military regulations are written in blood. Every ship's wheel or aircraft joystick has a human hand on it at all times when a ship or aircraft are under power. Tanks, APC's and other ground vehicles probably operate under the same rules. Even with those regulations accidents still happen. There is no such thing as an unmanned autopilot, ever. Someone has to be on the stick at all times.I do not think MB understands what a sue-happy nation the USA is. The 1st leased MB in a wreck while this Type 3 "Semi-Autonomous" driving, or whatever it is called, will result in an automatic lawsuit. Expect a class action lawsuit after the 1st personal lawsuit is filed. Yes, new MB owners can afford and ever are lawyers.Mercedes Benz; "The best wrecks or nothing!" Oh and has anyone noticed that Toyota/Lexus and Honda/Acura, the gray suit with white shirt and striped tie, automobile companies have stayed away from any autonomous driving nonsense?
  • Merc190 Very streamlined but not distinctive enough for a Mercedes. And besides, the streetcar of the early 20th century seems a far more efficient and effective method of people moving in essentially an autonomous manner. A motor car is meant to be driven with proper attention to what's important in every situation. To design it otherwise is idiotic and contradictory.