As I previously reported on Ford has dialed back production of the F-150 to reduce inventories. This comes on the heels of ongoing concern with the leading truck maker about the future of the truck market. With new products coming to market in the next few years and the stagnant outlook by Ford, a big question looms over marketers and product planners. Is the U.S. truck market becoming too saturated? I believe the answer is yes and here’s why.
Without a doubt the truck and SUV market has been booming in recent years following the 2008-2009 recession. This explosive growth is starting to finally cool with sales down 4.2 percent last month across all automakers. While sales are still really high, automakers are also seeing a lot more competition.
Every amateur economist knows when times are good businesses spend lavishly on new products and when times are bad, they cut back. Looking back, we can see just how much the industry has grown.
Consider this, in 2012, the truck market was just beginning to pick up steam. Automakers reported their best year since 2007 and things looked to be better in 2013. Auto executives were forecasting annual sales would grow to at least 15.5 million annually as things improved.
In 2012, people were still buying a lot of cars and the truck competition was moderate. Looking at just trucks and mid-size through 1-ton models, Ford offered 3, Dodge Ram 3, GM 3 (Colorado/Canyon was discontinued), Toyota 2, Nissan 2 and Honda 1. Many of these models hadn’t been updated and there wasn’t a lot of buzz around trucks.
Flash forward to 2016 and the auto industry is forecasted to record 17.1 million units (down .3 percent from the 2015 record of 17.47 million). Plus, all truck makers have made significant improvements to their products in the past few years (except for the Nissan Frontier – which is having its best sales year in recent memory). Also, the variety of offerings has grown. Looking again at just mid-size through 1-ton models, Ford still has 3, yet with a new Super Duty, Raptor and a vastly updated F-150. Ram still has 3, yet they have an off-road version now in the Rebel and have a commercial division. General Motors now has a truck in each category with the Chevrolet Colorado/GMC Canyon coming back to much critically acclaim especially equipped with the diesel engine. Toyota has a new Tacoma and will have a new Tundra next year. Nissan has 3 models with their tweener XD, half-ton and the aforementioned Frontier. Honda has a new Ridgeline which is attracting a lot of attention.
Looking ahead, we can see even more competitors. For example, Ford is playing around with the idea of bringing back the Ranger and putting a diesel in the F-150. Jeep is going to bring a pickup to market in the form of the Wrangler. Nissan will update their Frontier next year it seems. Plus, Hyundai may build their Santa Fe concept into a Ridgeline competitor. Finally, there are still whispers of VW building an Amarok in the U.S. to boost sluggish sales after their diesel debacle.
If you look globally, Ram is expanding into more markets, Mercedes-Benz is going to build a truck (taking a platform option and turning it into a product), Toyota is thinking of partnering with Suzuki to get better access into India (the largest mid-size truck market in the world) and who’s to say Subaru doesn’t bring back one of their car-based pickups.
Let’s say all of these competitors come to market by 2020. Adding it up, consumers could choose between 24 different truck products. In 2012, there were 17 different options.
It may seem like 7 additional products isn’t much in a 17 million unit market, however, just adding one product often can cause repercussions throughout the industry. For example, when the Ford F-150 Raptor was unveiled consumers immediately flocked to the new truck and sales of other vehicles dropped. Also, other automakers were faced with spending millions on R&D to develop their own counter products. If this one product can have that much impact, imagine what others may have.
For example, let’s say the market expands to include more car-based trucks like the Ridgeline, Hyundai Santa Fe and a Subaru product. If sales slump, as analysts are expecting, adding new truck products will cause greater competition which could doom their development. Why invest heavily in a product that is only going to sell a limited number of units? You don’t and this could ultimately hurt innovation.
As the market tops off, we are likely in for a few months of sluggish sales with consumer demand satisfied. This makes the business case for new products a much more risky endeavor for automakers. However, with slow car growth, it benefits them to give trucks and SUVs more attention. Yet, just how much money do they invest. Time will tell, but for now, the market seems to be too saturated.
A market based on Bigger and bigger vehicles is doomed to collapse.