Trucks
This year will be no less exciting in the truck segment, with more heavy hitters making noise. GM is releasing new models of the Chevy Silverado and GMC Sierra this year. Toyota just unveiled its 2014 model of the Tundra at the Chicago Auto Show yesterday, hoping to have more success than it did with the previous version. Trucks bring in a higher price tag and higher margins per unit than sedans. It’s no secret that the U.S. truck segment is what drives profits for Detroit’s big 3 automakers. Morgan Stanley analyst Adam Jonas estimated that trucks represent up to 70% of Ford and GM’s profit, a strikingly high number. If you’re looking to bump Toyota from its No. 1 automaker spot, it won’t be done through trucks. The volume lies in other segments. If you’re looking to keep the lights on and bring the profits home, the truck segment is where the party’s at.
Risks in 2013
While 2013 seems destined for greatness, in the auto industry, there are naturally risks we must keep our eyes on. For one, the U.S. economy unexpectedly shrank in the fourth quarter for the first time since the 2009 recession. If you dig into it, it doesn’t appear to be a worry for automakers, as the main reason was that Uncle Sam didn’t spend as much. Consumers, however, kept up their end, and that’s what matters for the auto industry.
Another thing to watch is how consumer confidence reacts to the payroll tax increase and gas prices. Both can have dramatic effects on spending and could dampen the strong demand we see now. With interest rates to remain low, I think the demand will stay strong. Take it from John Garff, CEO of Garff Enterprises, who sells 23 vehicle brands. “I’m optimistic about what 2013 will bring,” Garff said. “It’s a cautious optimism because there are so many unknowns out there.”
Bottom line
All three automakers have different needs and goals for 2013. Ford will be focusing on increasing its sales volume, as its operating efficiency and margins are up to par. GM will be doing the opposite. It has the sales volume and needs to make sure it translates to the bottom line in 2013, unlike prior years of poor margins and profits. It will also be focusing on the numerous rollouts of new models over the next 18 months, which will define its success over the next few years. Toyota will be aiming to smooth over its backlash in China from last year’s territorial dispute and maintain its global No. 1 sales position.
Investors want to see their company perform well in the booming segments, and these automakers are doing just that. If automakers can strike the balance between gaining market share and bringing home juicy margins, the rewards will be directly passed on to loyal investors. Stay tuned: The next few years look to offer a wild ride for those invested.
The article Which Automakers Will Profit From Sedan and Truck Surges in 2013? originally appeared on Fool.com and is written by Daniel Miller.
Fool contributor Daniel Miller owns shares of Ford. The Motley Fool recommends Ford and General Motors and owns shares of Ford.
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