PwC forecasts "a tough time for tough trucks" in U.S.

U.S.-based PwC automotive analyst Michael McKenzie ([email protected]) issued a PwC Automotive Institute Analyst Note on 15th February, forecasting tough times for the Detroit Big Three¡¯s most profitable products, full-size pickups, what with economic weakness in the U.S. and impending tough fuel economy rules.
 
As the housing market downturn extends into 2008, problems facing the full-size pickup segment in the U.S. are expected to intensify. Recreational buyers are fleeing the segment as fuel prices remain elevated, and a subdued residential construction outlook exposes additional weaknesses.
 
A material improvement in US economic growth is not expected until the third quarter of 2008. As near-term softness in labour markets combines with volatility in equity and credit markets, consumer spending on expensive and highly deliberated purchases like new vehicles will remain depressed.
 
A difficult operating environment complicates pricing as automakers attempt to sell down existing inventories ahead of new vehicle launches. The liberal use of incentives in 2007, to artificially stimulate demand, has resulted in demand exhaustion and leaves automakers little headroom for future increases.
 
A likely scenario may unfold this spring as Ford and Chrysler will be tempted to raise incentive spending on current model year pickups as a means to deplete stocks. However, in a defensive move, GM and Toyota are expected to respond with their own aggressive incentive schemes to maintain output and capacity utilization. For these players, there is simply no way of maintaining current assembly rates while simultaneously drawing down incentives.
 
For new models like the 2009 Ford F-150 and Dodge Ram, increased price sensitivity in the segment may constrain transaction price and profitability growth, limiting the full impact of such critical products. Additionally, a lack of past incentive discipline has contributed to the deterioration of consumer residual values, as well as diminished the returns of utilizing them as a sales resiliency tool when consumer demand falters.
 
These factors, along with a greater exposure in their portfolio, will likely result in further market share erosion for the Detroit 3. Ironically, selling profitable trucks is vital to generating the requisite funding for more fuel efficient future products and powertrain technologies that meet new CAFE standards.
 
The impact of revised fuel economy regulations are already being observed in product development. Examples include the myriad of ¡°lifestyle¡± unibody pickup concepts that have been shown by automakers racing to adapt to this fundamental industry shift.
 
From: auto industry/industry news

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