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Trucks

Japan’s Big Three are still bullish on pickups

By
Doron Levin
Doron Levin
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By
Doron Levin
Doron Levin
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January 23, 2015, 12:08 PM ET
The 2016 Nissan Titan pickup truck is unveiled at the first press preview day of the North American International Auto Show in Detroit
The 2016 Nissan Titan pickup truck is unveiled at the first press preview day of the North American International Auto Show in Detroit, Michigan, January 12, 2015. REUTERS/Mark Blinch (UNITED STATES - Tags: TRANSPORT BUSINESS) - RTR4L3IJPhotograph by Mark Blinch — Reuters
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Japanese automakers, fighting a long and so far frustrating battle to sell pickup trucks in the U.S., are nevertheless refusing to surrender.

Last week’s press preview of the North American International Auto Show in Detroit highlighted the latest tactics in pickups by the Japanese Big Three. Selling trucks in the U.S. can be highly profitable, though the market remains dominated by General Motors Co. (GM), Ford Motor Co. (F) and Fiat Chrysler Automobiles’ (FCA) Ram division.

Toyota (TM), the biggest Japanese automaker, has shown the most ambition in trucks, having invested an entire assembly plant dedicated to full-size Tundra pickups in San Antonio, Texas. But Toyota full-size pickup sales haven’t yet lived up to expectations: the plant now assembles the midsize Tacoma, capacity Toyota had hoped to devote to Tundra.

Learn more of the latest news about Toyota from Fortune’s video team:

Michelle Krebs, senior analyst for autotrader.com, said Toyota’s facelift for Tacoma, shown in Detroit, “is long overdue” and only to answer competition in a category that’s been abandoned by Ford and others.

Nissan’s new Titan full-size pickup will be available in two versions, light and heavy duty, with the goal of drawing more than the trickle of buyers enticed by the slow-selling first generation.

“I have a sense that Nissan is looking as much at commercial market as the individual retail customer with the focus on diesel and heavy duty,” Krebs said, referring to a new diesel engine option. “That may be a good strategy since Nissan has had some success with its commercial vans, so they may be able to convince commercial customers with vans to add trucks to their fleets.”

Stephanie Brinley, senior analyst for IHS, said “the high profitability of pickups and the advantages of having a full product line are among the most compelling reasons for the Japanese makes to continue. In maintaining pickup truck entries, these mainstream, high-volume brands can claim offerings in most or all major vehicle segments.” She said Titan “has a long way to go to build credibility amongst pickup buyers loyal to the Detroit-based brands.”

I asked Carlos Ghosn, Nissan chief executive officer, if it made sense to invest in a next generation pickup after such poor results for the first one. He said once the capital is sunk, subsequent iterations aren’t prohibitive. He’s told his troops he expects 5% share for the new Titan, rising eventually to 10%. The current model stands at less than one percent.

Honda is “reengineering” its Ridgeline midsize pickup to give it a more conventional look. The idiosyncratic Ridgeline hasn’t contended against more mainstream midsize trucks such as Tacoma, selling fewer than 14,000 units last year. Tacoma, the segment leader, sold more than 155,000, to give Toyota about 60% share of the market.

The debut of GM’s Chevrolet Colorado and GMC Canyon twins will make the midsize pickup segment much more competitive in 2016. Some analysts are wondering if Ford Motor might bring a version of its global Ranger midsize to the fray.

Last year the industry sold two million full-size pickups in the U.S., making it one of the biggest market segments, along with midsize family sedans like the Ford Fusion and compact crossovers like the Honda CR-V. The midsize segment topped 250,000. With so many new entries and upgrades, planners will be watching closely to see if the 2016 total will surpass last year’s.

The other component of the equation will be transaction prices. If manufacturers have to pile on financial incentives to move their trucks, the profit rationale for investing in them will be eroded. The average transaction price of a pickup can vary from $40,000 to $45,000—meaning a variable profit of up to $10,000 a unit.

As Krebs noted, Hyundai displayed a pickup concept in Detroit to gauge reaction. The moneymaking potential of trucks isn’t lost on the South Koreans.

Full-size pickups, especially loaded with options, are Detroit’s luxury cars, the big moneymakers that carry the enterprise. The tussle for this business is worth watching.

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