Why are America's automakers bleeding market share? How did Ford (NYSE:F) come to lose the title of "Worldwide No. 2" to Toyota (NYSE:TM)? Over the past two days, two different automakers, one American and one Japanese, contributed their thoughts on the subject of selling SUVs in a country that may soon see Rita-induced gasoline prices of $5 a gallon. In their comments, we may find a few clues to the answer.
First up, General Motors (NYSE:GM). Yesterday, GM began touting the virtues of its 2007 truck and SUV lineup. It's well known that GM derives the bulk of its profits (when it earns any) from SUV and truck sales. What's more, GM dominates the market for these gas-guzzling behemoths. According to GM executive Gary White, the company's strategy in the truck space is now taking form along the following lines: (1) Improve fuel efficiency and (2) move from "dominating" to "owning" the truck market. As he put it: "We've worked hard to grab that [62%] market share with our current lineup, now we're going after the remaining 38%."
If the company can make good on its promise to produce a fleet of mammoth Tahoes, Suburbans, and Escalades that produce prodigious horsepower while averaging better than 20 mpg, GM could well achieve its goal of further increasing its lead in this heretofore profitable market segment.
Nissan (NASDAQ:NSANY) takes a different tack. On Thursday, the company announced that it's on track to produce 3.6 million vehicles this fiscal year. Earlier this month, it described what kinds of vehicles those will be.
In contrast to Ford and GM, Nissan earns a better profit margin on its sedans than on its truck-based vehicles. Like GM, Nissan aims to play toward its strength, shifting its production to emphasize its more profitable offerings.
However, in Nissan's case, this means more cars and fewer trucks. The company cited Hurricane Katrina's effects on U.S. gasoline prices as a major reason for the shift. Nissan's move suggests that the company not only sees truck sales as less beneficial to its bottom line, but also sees the market for less fuel-efficient trucks drying up, at least in the short term.
This presents a dilemma to GM investors. Their company may well achieve its goal of owning the truck and SUV segment, both through its own efforts and from its competitors retreating from the market. But if those competitors are reading the market better than GM, the Detroit car king's victory may prove Pyrrhic.
Who's got the better read on the trend in sales of trucks and SUVs, GM or Nissan? Share your thoughts on The Motley Fool's Buying and Maintaining a Car discussion board.
Fool contributor Rich Smith has no position in any company mentioned in this article.
