Long ago it was Ford (NYSE:F) that was ridiculed as being an acronym of "Found On Roadside Dead," "Fixed Or Repaired Daily," "Factory Ordered Road Disaster," and some other nasty ones that aren't appropriate for my editors to publish. Fast-forward to today, and "Government Motors" or "General Tso Motors" is the joke of the day. But General Motors (NYSE:GM) is attempting to turn things around, both financially and in terms of replacing or redesigning 90% of its lineup by 2016. In particular, it's undertaking a move that its cross-town rival Ford has avoided -- midsize trucks. Will the relaunch of GM's midsize trucks, the Colorado and Canyon, enable it to capture more of the highly profitable truck market?
Why it's possible
We know that for the past 36 years, Ford's F-Series has been the No. 1-selling truck in America, and that won't change anytime soon, as GM splits sales between its Chevy Silverado and GMC Sierra. However, over the past three years, Ford has sold more F-Series trucks per year than those two combined and has outsold the two combined this year by nearly 40,000 units through July. Here's one possible way that could change because of the Canyon and Colorado.
In my former marketing job, we often placed opening price points that rarely brought the company much in the way of margin or profits. We did this in hopes that when the consumer arrived to purchase the basic product, we could up-sell him or her to a premium product through our marketing and packaging. Using that same logic, that's exactly what the midsize trucks should do. Those are often cheaper, more fuel-efficient trucks for first-time and often younger buyers. A decade ago, my high school parking lot was littered with Ford Rangers, and it's not a coincidence that many of them today own F-150s.
"We think there's a big market opportunity that hasn't been addressed," GM Chief Financial Officer Dan Ammann said, according to Detroit News.
He's right: There is a market opportunity, and it's even more enticing since Ford isn't willing to bring back its Ranger. That doesn't mean it will be a very profitable endeavor, because it probably won't be. However, it does give GM a chance to attract first-time buyers in the most brand-loyal segment, hoping that an increased bloodline of future truck buyers will boost sales of its Silverado enough to overtake the F-Series in the distant future.
So why does Ford avoid the midsize segment?
Ford discontinued its Ranger, and although it continues to sell globally, Ford has no plans to bring it back to America. It avoids the midsize market because it's a segment in serious decline. Last year in the U.S. market, fewer than 264,000 midsize trucks were sold, and sales have declined 19% in the first half of 2013, according to Autodata. Market share of the midsize trucks was a mere 8% in the mid-'90s and has declined all the way to less than 2%. Ford avoids the market because it sits on top of the full-size segment, and its loyal followers will continue to buy the F-150 -- which is drastically more profitable. So if Ford loses a few sales to the midsize segment, big deal. It's GM that needs to try a new strategy because it can't overtake the F-Series.
It's an intriguing move by GM, but it won't gain the company much profit or produce enough sales to help increase GM's record low market share. On the bright side for GM investors, the Canyon has been developed specifically for fleet buyers, while the Colorado is being developed for the retail market -- making a very efficient and more profitable sales strategy for the less lucrative midsize segment.
Full-size truck profits bring in majority of Ford and GM's profits, so if GM manages to steal young buyers and step them up into full-size pickups, it will be a development for investors to be keenly aware of. Ford is banking on having its loyal following continue regardless -- and I think that will be the case, securing Ford's profits for the foreseeable future.
Long story short: Ford's not worried, and it plans to keep on truckin'.
Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.