Too Many Trucks?

[Atomic]

Big Pickups Clog U.S. Dealer Lots, Concern Analysts

Analysts and industry officials worry whether the U.S. economy will depress the usual surge in pickup demand in the second-half. If buyers don't show, heftier incentives could result -- especially from GM -- and drag down profits.

July 9, 2011 - 12:01 am ET

DETROIT (Reuters) - Big pickup trucks are clogging many U.S. dealer lots, causing headaches for General Motors and other automakers, and raising concerns about price wars and lower profits later in the year.

GM has garnered much of the attention for its inventory of Chevrolet Silverado and GMC Sierra full-size trucks that stood at 122 days at the end of June, according to the Automotive News Data Center. That's about 50 percent higher than the 80 days typically preferred and above the industry's still-hefty average of 99 days, according to Ward's Auto.

Chrysler Group LLC and Toyota Motor Corp. also lag at 93 days supply, while Ford Motor Co stood at 79.

"Clearly most manufacturers overestimated the kind of demand we were going to get for full-size trucks in the first half," said analyst Jesse Toprak with online car-buying research website TrueCar.

"Do we have high inventory levels for full-size trucks? Yes. Is it a major issue? It's not at crisis level, but it's above healthy levels," he said.

Pickup trucks have been a bright spot this year for Detroit automakers. Silverado and Ford F Series sales are up 10 percent, while Ram demand has surged 32 percent and Sierra sales have climbed 22 percent. Overall U.S. car and  light truck sales are up 13 percent through June.

But what makes analysts and industry officials most nervous is whether the U.S. economy will depress the usual surge in demand in the second-half. If buyers don't show, heftier incentives could result -- especially from GM -- and drag down profits.

"That is what we would like to know," Richard Bame, Toyota's national marketing manager for trucks, said of fears of higher incentives later in the year.

"We thought Ford was showing some pretty good restraint," he added. "But we haven't seen so much of that from General Motors and Chrysler."

Sales of the Toyota Tundra are down 12 percent this year, in part because of inventory shortages following the March earthquake in Japan.

Buyer incentives for full-sized pickup trucks are $5,350 per sale for the Sierra, $4,880 for the Silverado, $4,450 for Chrysler's Dodge Ram, $3,750 for Ford's F-Series and $2,654 for the Toyota Tundra, TrueCar said.

GM raises the most concern with the high number of trucks on its dealer lots.

"If demand doesn't come back in the second half, that means fire sale come December," Toprak said of the risk to GM. On the flip side, if demand does rebound, the company will be sitting pretty with lots of trucks to offer, he added.

Buckingham Research analyst Joseph Amaturo already believes GM will boost its deals, increasing incentive spending by September by about $700 per vehicle. That would match levels seen in January and February, when the No. 1 U.S. automaker was heavily criticized for being too generous with deals.

Higher incentives by GM would force its rivals to respond to keep up, hurting everyone's profits, analysts said.

GM officials have tried to assure Wall Street that its inventories are not out of control, and will fall to between 100 and 110 days by year end.

Don Johnson, GM's U.S. sales chief, said on Friday that a production stoppage for two weeks in July at the company's pickup truck plants and a pickup in second-half sales will help lower the inventory level. He also said GM will not get aggressive with incentives.

Johnson said GM sells a larger share of its pickup trucks to retail customers than Ford, requiring a broader range of trucks on hand to satisfy buyers' various needs in a segment where prices can range from the low-$20,000s to the high $40,000s.

The different cab sizes and bed lengths, and engine types in pickups demand a higher inventory to ensure a potential customer does not walk away, industry executives said.

Officials at Chrysler, which is managed by Italy's Fiat , and Toyota said they were satisfied with their inventory levels as well. "We're not in a bad place," Toyota's Bame said.

However, analysts are concerned because the costs associated with building the big pickups are higher than cars and it is more expensive for dealers to maintain those inventories on their lots. Toprak is worried especially that GM will have to offer financial aid to dealers if the trucks sit too long.

While fuel-efficient cars are getting a lot of attention with the high gasoline prices, it is still big pickups that generate big profits. Toprak estimated automakers net $5,000 to $6,000 per truck.

Analysts fear a big hit to GM's finances. Amaturo said on Thursday Buckingham Research expects GM's third-quarter truck production to be 65,000 lower than the second quarter, "which would suggest a loss of $520 million in profits", assuming $8,000 per vehicle profit margin.

In the end, analysts fear they have seen this story before. "The concern is that it looks more like the old GM again," IHS Automotive analyst Tracy Handler said.

[3.0L V6]

Considering the high fuel prices and lack of economic growth, I could see why a $40,000 pickup would not sell in these times.

I'd imagine the automakers could just idle their pickup plants and get inventory down fairly quickly. The Silverado, F-150 and Ram sell at pretty respectable rates, so I'd imagine a month or two would burn down inventory well. Adjusting the production mix to what the market demands might help too.

[ifcar]

Considering the high fuel prices and lack of economic growth, I could see why a $40,000 pickup would not sell in these times.

I'd imagine the automakers could just idle their pickup plants and get inventory down fairly quickly. The Silverado, F-150 and Ram sell at pretty respectable rates, so I'd imagine a month or two would burn down inventory well. Adjusting the production mix to what the market demands might help too.

Inventory is based on sales, of course, so it theoretically wouldn't take any longer to burn through 122 days worth of Ferraris then Silverados. In other words, the fact that they're selling well was already factored into the calculation. 

[280Z Turbo]

Cry me a fucking river. Everybody knows that those things are tied directly to gas prices, so this should come as no surprise.

[GoCougs]

Considering the high fuel prices and lack of economic growth, I could see why a $40,000 pickup would not sell in these times.

I'd imagine the automakers could just idle their pickup plants and get inventory down fairly quickly. The Silverado, F-150 and Ram sell at pretty respectable rates, so I'd imagine a month or two would burn down inventory well. Adjusting the production mix to what the market demands might help too.

Even in the malaise of 2008/2009, full-size trucks were top-10 sellers. Economists it seems always underestimate the determination of the American consumer.

[Laconian]

Even in the malaise of 2008/2009, full-size trucks were top-10 sellers. Economists it seems always underestimate the determinationnearsightedness of the American consumer.

OH LAWD PAIN AT TEH PUMP THESE GAS PRICES ARE KILLING ME

[GoCougs]

OH LAWD PAIN AT TEH PUMP THESE GAS PRICES ARE KILLING ME

Buy a 6,000 lb, 350 hp dreadnought they said...

[3.0L V6]

Inventory is based on sales, of course, so it theoretically wouldn't take any longer to burn through 122 days worth of Ferraris then Silverados. In other words, the fact that they're selling well was already factored into the calculation. 

Ah, I see. Anyway, I hope GM doesn't have to learn their lesson again with regards to rebates and overproduction.

Even in the malaise of 2008/2009, full-size trucks were top-10 sellers. Economists it seems always underestimate the determination of the American consumer.

Indeed. I'm curious to how much fleet demand/commercial demand is as a percentage of sales. While personal purchases tend to be relatively flexible (most people don't need a full-size pickup), fleet demand should stay relatively constant even with the spike in fuel prices.

A few years ago, both the Ford and GM twins were selling close to a million units per year. Even the Ram was moving 400k/year. It seems that some demand has been dampened since 2008.

[GoCougs]

I saw a stat not long ago that said fleet sales of full-size trucks was actually fairly low - IIRC the F-series was the highest at ~20-25%...

[Eye of the Tiger]

Too many trucks, not enough diesels.

[Rupert]

Buy a 6,000 lb, 350 hp dreadnought they said...

Dreadnought! Good word for it!

[GoCougs]

Dreadnought! Good word for it!

It truly is. In my vast experience with these things 5-10% of buyers can materially justify such massive capacity of a Tahoe, F150, or my personal  facepalm  favorite, a ~$50k, 400 hp, twin turbo, 7000 lb 4x4 pickup. LOL. You gotta be kidding me...

[Rupert]

Yeah, that's pretty much what we use for work.

[AutobahnSHO]

IF I didn't need a truck but had the cash, I'd totally be rocking a Raptor. 

As it is, 80% of SUVs and trucks are a waste of gas moneys. Good thing someone else is picking up on that stupid tax- I'm not gonna pay it.

[Atomic]

i read somewhere recently that cadillac will move forward and continue to build a truck based escalade suv along side the next chevy tahoes (also confirmed) and chevrolet/gmc suburbans when the next generation is produced (in 2013) as '14 models. gm once said that they were seriously considering making the next 'lade a buick enclave-like crossover vehicle. with staggering gas mileage and the price of fuel, more clean diesels should be the order of the day. few people seem interested in hybrid trucks, imo.

[rohan]

more clean diesels should be the order of the day. few people seem interested in hybrid trucks, imo.

It won't happen with Obama in charge of the EPA because his people (libs not blacks) are completely against evil diesel which is ridiculous.  Also equally ridiculous is the pump price of diesel which no gas company exec will ever convince anyone isn't anything more than a bald faced money grab on the backs of working Americans.

[3.0L V6]

It won't happen with Obama in charge of the EPA because his people (libs not blacks) are completely against evil diesel which is ridiculous.  Also equally ridiculous is the pump price of diesel which no gas company exec will ever convince anyone isn't anything more than a bald faced money grab on the backs of working Americans.

North American refineries are set up to produce more gasoline than diesel, due to gasoline's popularity in automobiles. Diesel tends to be an industrial fuel only (generators, trains, tractor-trailers, etc.) so the pricing of diesel tends to reflect the usage in those areas.

The federal tax on diesel is 24.4cents/gallon versus 18.4cents/gallon for gasoline. On average, when state taxes are factored in, taxes on diesel fuel are 4.4cents higher than gasoline. Discriminatory, yes, but not conspiracy grade evil.

http://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States

[Rupert]

It won't happen with Obama in charge of the EPA because his people (libs not blacks) are completely against evil diesel which is ridiculous.  Also equally ridiculous is the pump price of diesel which no gas company exec will ever convince anyone isn't anything more than a bald faced money grab on the backs of working Americans.

In what context would you qualify, "his people," with, "blacks not libs?"

[GoCougs]

In what context would you qualify, "his people," with, "blacks not libs?"

Because the undeniably often-used go-to defense of Obama is that criticism of him is borne of racism.

[rohan]

"blacks not libs?"

Where did I write that?

[rohan]

North American refineries are set up to produce more gasoline than diesel, due to gasoline's popularity in automobiles. Diesel tends to be an industrial fuel only (generators, trains, tractor-trailers, etc.) so the pricing of diesel tends to reflect the usage in those areas.

The federal tax on diesel is 24.4cents/gallon versus 18.4cents/gallon for gasoline. On average, when state taxes are factored in, taxes on diesel fuel are 4.4cents higher than gasoline. Discriminatory, yes, but not conspiracy grade evil.

http://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States

Diesel is easier to produce since it requires less refining and you get more diesel per gallon of oil therefore it should be cheaper almost by default.  Charging more for something which requires far less "manufacturing" is ridiculously anti-trust in my opinion when it comes to an issue which has so much potential to harm the nation.

[3.0L V6]

Diesel is easier to produce since it requires less refining and you get more diesel per gallon of oil therefore it should be cheaper almost by default.  Charging more for something which requires far less "manufacturing" is ridiculously anti-trust in my opinion when it comes to an issue which has so much potential to harm the nation.

From the Texas Oil and Gas Assoc -- http://www.txoga.org/articles/308/1/WHAT-A-BARREL-OF-CRUDE-OIL-MAKES

Product / Gallons per barrel
   
gasoline / 19.5
   
distillate fuel oil (Includes both home heating oil and diesel fuel) / 9.2
   
kerosene-type jet fuel / 4.1
   
residual fuel oil
(Heavy oils used as fuels in industry, marine transportation and for electric  power generation) / 2.3
   
liquefied refinery gasses / 1.9
   
still gas / 1.9
   
coke / 1.8
   
asphalt and road oil / 1.3
   
petrochemical feedstocks / 1.2
   
lubricants / 0.5
   
kerosene / 0.2
   
other / 0.3
Figures are based on 1995 average yields for U.S. refineries. One barrel contains 42 gallons of crude oil. The total volume of products made is 2.2 gallons greater than the original 42 gallons of crude oil. This represents "processing gain."

----

Diesel requires more volume of crude oil to produce the same volume of fuel as compared to gasoline. My quick internet search shows that while refining processes can be changed to yield more diesel (as oil refineries do in Europe), the volume of gasoline produced still outpaces the volume of diesel produced. The extra crude oil required offsets any savings due to lower refining costs.

[280Z Turbo]

Diesel trucks still stink like shit and blow out black soot. I'm not sure diesel is as clean as we've been led to believe.

[Rupert]

Where did I write that?

You didn't... Re-read my post.

[Byteme]

Diesel is easier to produce since it requires less refining and you get more diesel per gallon of oil therefore it should be cheaper almost by default.  Charging more for something which requires far less "manufacturing" is ridiculously anti-trust in my opinion when it comes to an issue which has so much potential to harm the nation.

Not if your refinery is not configured to produce it in quantity.   And I know you already know this, but the decision to make more diesel is not as simple as saying so and throwing a few switches turning a few valves and making it happen.  It involves a significant redesign and reconfiguration of the refinery. It's not cheap and the current demand for diesel fuel doesn't justify the costs to the refiners to do it. 

[Secret Chimp]

his people (libs not blacks)

I'm pretty sure you're the only person who needed this clarification...

[hounddog]

From the Texas Oil and Gas Assoc -- http://www.txoga.org/articles/308/1/WHAT-A-BARREL-OF-CRUDE-OIL-MAKES

Product / Gallons per barrel
   
gasoline / 19.5
   
distillate fuel oil (Includes both home heating oil and diesel fuel) / 9.2
   
kerosene-type jet fuel / 4.1
   
residual fuel oil
(Heavy oils used as fuels in industry, marine transportation and for electric  power generation) / 2.3
   
liquefied refinery gasses / 1.9
   
still gas / 1.9
   
coke / 1.8
   
asphalt and road oil / 1.3
   
petrochemical feedstocks / 1.2
   
lubricants / 0.5
   
kerosene / 0.2
   
other / 0.3
Figures are based on 1995 average yields for U.S. refineries. One barrel contains 42 gallons of crude oil. The total volume of products made is 2.2 gallons greater than the original 42 gallons of crude oil. This represents "processing gain."

----

Diesel requires more volume of crude oil to produce the same volume of fuel as compared to gasoline. My quick internet search shows that while refining processes can be changed to yield more diesel (as oil refineries do in Europe), the volume of gasoline produced still outpaces the volume of diesel produced. The extra crude oil required offsets any savings due to lower refining costs.

Wow. 

You do realize that is a production explanation of what happens to a barrel of oil and not a comparison of what a gallon of oil produces, right?

Not if your refinery is not configured to produce it in quantity.   And I know you already know this, but the decision to make more diesel is not as simple as saying so and throwing a few switches turning a few valves and making it happen.  It involves a significant redesign and reconfiguration of the refinery. It's not cheap and the current demand for diesel fuel doesn't justify the costs to the refiners to do it. 

I am pretty sure that was not his point, since I know what he is saying, and you should know that.

Less refining = more usable product

[3.0L V6]

Wow. 

You do realize that is a production explanation of what happens to a barrel of oil and not a comparison of what a gallon of oil produces, right?
I am pretty sure that was not his point, since I know what he is saying, and you should know that.

I'm not quite sure what you mean here. Could you clarify?

Diesel is easier to produce since it requires less refining and you get more diesel per gallon of oil therefore it should be cheaper almost by default.  Charging more for something which requires far less "manufacturing" is ridiculously anti-trust in my opinion when it comes to an issue which has so much potential to harm the nation.

I read this (specifically, the bolded text) as each gallon of crude oil yields more diesel than gasoline, as per the discussion we'd been having earlier. I was certain it did not - you need more crude oil to produce the same volume of diesel as compared to gasoline, which would support the explanation about why diesel costs more.

[giant_mtb]

I'm not quite sure what you mean here. Could you clarify?

He's saying the numbers you posted give the distribution of products that each barrel of oil produces.  Read: All those numbers add up to 42 gallons (plus the stated 2 gallons of "processing gains").  That is, 9.2 gallons of every barrel of oil go into making home heating and diesel type fuels, not that it takes one entire barrel of oil to make just 9.2 gallons of diesel-type fuel.

[hounddog]

He's saying the numbers you posted give the distribution of products that each barrel of oil produces.  Read: All those numbers add up to 42 gallons (plus the stated 2 gallons of "processing gains").  That is, 9.2 gallons of every barrel of oil go into making home heating and diesel type fuels, not that it takes one entire barrel of oil to make just 9.2 gallons of diesel-type fuel.

I read this (specifically, the bolded text) as each gallon of crude oil yields more diesel than gasoline, as per the discussion we'd been having earlier. I was certain it did not - you need more crude oil to produce the same volume of diesel as compared to gasoline, which would support the explanation about why diesel costs more.

If you could, then, please explain why for about 50 years diesel was about .50 cents cheaper than gasoline?  It only became more expensive in the last five or so years.