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Ram Is in the Driver's Seat for 2018

David Whiston, CFA, CPA, CFE

David Whiston: Full-size pickups make up about 16% of U.S. new light-vehicle sales, and last year the industry sold nearly 2.4 million of them. GM, Ford, and Ram have a stunning 93% share of the segment. These trucks are immensely profitable and likely contribute variable unit profit of over $20,000 in some cases by my estimate.

The new generation Ram, due out early this year, unveiled in Detroit last month, was the star of the show. The company took it up several notches and impressed everyone with a more plush interior, 12-inch touch screen, and reclining seats. It's also 225 pounds lighter despite being 9 inches longer, including 4 more inches in the cab.

Ram is doing something different by producing the outgoing generation Ram all year long to avoid overdiscounting the new generation truck to protect its residual value and probably also to steal share. This puts pressure on GM and Ford. GM has its new generation Silverado and Sierra out late this year while Ford, the segment leader with nearly 900,000 trucks sold last year, refreshed its F-150 last year with an updated front end and a new 10-speed transmission co-developed with GM.

The challenge is how do you protect profits and not lose too much share without overdiscounting. Ram has the newest product and may have the most growth this year. GM will have a shutdown later this year to retool for the new truck and plans to mitigate some of the 130,000 lost pickup truck production units with 60,000 units in its so-called Oshawa shuttle. What that means is bodies for the outgoing generation truck from Fort Wayne, Indiana, will go up to Oshawa, Ontario, for painting and assembly. This helps, but GM's real rebound in pickups is a 2019 story, as this year it loses net 70,000 units due to the changeover and can't bring in the real cash to recoup the trucks' development and launch costs until next year. Ford will have to walk a delicate line between discounting and not cutting too much into its most profitable vehicle. It's a fun battle to watch for those that follow the industry. Ram is in the driver's seat for 2018 with some of the best truck product it's ever had; but I think Ford and GM will remain the segment heavyweights over the long run.