Wall Street Analyst Bullish on Pickups

TRAVERSE CITY, MI – “We like pickups,” says Itay Michaeli, speaking not as a 4x4 truck enthusiast but as a suit-and-tie-wearing Wall Street auto analyst looking at the prospects of vehicle segments.

Pickup-truck sales are on a roll now, which partially accounts for his bullish outlook, but they hit a wall seven years ago. That’s when many industry people and others predicted the party was over, the damage was irrevocable and casual truck buyers who left the segment weren’t coming back.

“The industry had concluded this huge decline was permanent,” Michaeli, a director at Citi Investment Research & Analysis, says at the CAR Management Briefing Seminars here.

He cites a Ford industry report of the time. It said: “We are inclined to believe this shift is permanent.” Frightful light-truck sales numbers provided plenty of reason for a stunned automaker to think that. 

In 2005, U.S. pickup sales peaked at 3.18 million units, according to WardsAuto data. In the hard recession year of 2009, they had free-fallen to 1.38 million. But they’ve steadily increased since then, reaching 2.48 million deliveries last year. They are on pace to do as well this year with sales of 1.24 million through June.

Many people failed to realize in the dark recession years that consumers weren’t shifting away from the pickup segment but rather were deferring their purchases, Michaeli says.

“If they had shifted, you’d see lots of pickup trade-ins and eventually a glut on the (used-vehicle) market,” he says. “Not only did this not happen, but just the opposite happened.” Prices of used pickups picked up.

When new pickup sales soured, automakers did what they do in such cases: cut capacity. North American pickup production went from 3.56 million units in 2005 to 1.62 million in 2009, according to WardsAuto. Last year, 2.97 million units were produced in the U.S. and Mexico. Canada currently does not make pickups, but did earlier.

Capacity dropped 15% from 2001 to 2015, Michaeli says. “There are consequences when you reduce capacity. You see pickup prices going up and up because of decreased capacity. But we think there is more pent-up demand in years to come.”

A downturn certainly is possible, but it remains a relatively stable and “very special segment,” he says.

Consumers who buy pickups tend to not just want them, but need them, often for job-related reasons. Because of that, Michaeli predicts the trucks won’t be hurt by car-sharing and impending self-driving cars, which some industry-watchers fear could limit sales.

“In the shared- and autonomous-car race, there will be winners and losers,” Michaeli says.

Domestic brands control 94% of the U.S. pickup market . Sean McAlinden, the Center for Automotive Research’s chief economist, calls that an “oligarchy.”

However, Michael Robinet, managing director at IHS, says, “It may be 94%, but it is intensely competitive.” 

Pickup sales undoubtedly are strong today, “but five years ago, it was a very different story,” G. Mustafa Mohatarem, General Motors’ chief economist says, adding, “You can’t become too dependent on one segment in an industry that is susceptible to shocks.”

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