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GM's Bringing Back the Canyon and Colorado. Good Move?

By Daniel Miller - Apr 20, 2013 at 8:00AM

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Why GM's move to get back into the midsize market is bigger than you might think.

I've already stated my displeasure as a Ford (F -2.72%) investor that the Ranger isn't for sale in the U.S. while it's offered in 180 other countries. The problem is that consumers who don't use vehicles for work are buying smaller vehicles with better fuel mileage and lots of technological innovations. That's why I think the decline in the midsize pickup could reverse in the future. General Motors (GM -1.99%) sees the opportunity, too, and has moved back into the midsize market that it had previously abandoned. Here's why it's a good move, and how it could affect investors.

American exodus
None of Detroit's Big Three currently makes a midsize truck. Chrysler killed the Dodge Dakota in 2011. Ford had quite a loyal following in addition to fleet sales that made the Ranger popular -- but it also killed production in 2011. Last year, GM discontinued production of its smaller Chevy Colorado and GMC Canyon models.

That left all the market spoils to Toyota's (TM 1.78%) Tacoma and the Nissan Frontier.  Now Toyota and Nissan can try to make headway in a segment they've been consistently shut out of. They have the opportunity to learn more about truck consumers and build loyalty at the entry level.

Trucks represent the most profitable vehicle segment in the U.S. market, but the midsize truck isn't as profitable as the full-size variety, and its segment of the market had been in decline for years. Last year, the full-size market represented 1.6 million trucks, compared with 264,000 smaller models. And that's why Detroit bailed.

As a former marketer, I know that segment gaps can be bad for top-line revenue growth. Larger companies want their products at every level, from the entry level to the luxury. So why did the Big Three do what they did?

Ford, for its part, said its loyal consumers would simply step up to the F-Series. That didn't happen. Meanwhile, the market share for the Tacoma surged 16% in 2012 and is up 22.9% in the first quarter of this year.

GM is fixing its mistake and plans to revitalize the market by bringing back the Canyon and Colorado -- for starters.

"We're going to really target different buyers with these two trucks," said GM North America President Mark Reuss. He added: "We'd love to have a truck like a Chevrolet midsize truck go really attack the West Coast with a lifestyle truck that is really beautiful and fun. It's a different positioning than a semi-serious, duty-cycle truck that we might do with a Canyon."

That's a perfect way to attack the market and prevent competition between its models. I expect the American consumer to jump at the chance to buy one of these trucks, and I think GM will be the market leader in the midsize segment by mid-decade.

Think long-term
As an investor and writer, I preach investing with a long-term mindset. I have great things to say about Ford's recent vehicles, its management, and its bright future, but in this case, I think management made a short-term decision that could cost the company later.

If the downsizing trend takes hold in the truck segment, Ford could miss the rebound in smaller trucks. It could also lose F-Series sales if all of its competitors end up offering entry-level midsize trucks from which consumers could step up to competing larger models.

GM sees potential in the midsize pickup, while Ford apparently doesn't. I like GM's decision here and expect investors to be happy with the developments over the next year. Maybe Ford sees something I don't? What do you, as consumers, think? Let me know in the comments section.

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General Motors Company
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