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.