Why Honda Is Relaunching This Mid-size Pick-Up Truck In The U.S.

-10.93%
Downside
36.43
Market
32.45
Trefis
HMC: Honda Motor logo
HMC
Honda Motor

In 2015, pick-up truck sales increased by 6% to 2.19 million in the United States. Traditionally, the segment has been dominated by Detroit based auto makers Ford Motor and General Motors. However, at the Detroit Auto Show in January, Honda Motors (NYSE:HMC) showcased its mid-size pick-up truck Ridgeline. US Pickup Truck SalesAs you can see from the graph above, Ford, GM and Chrysler have dominated this space with Toyota and Nissan trailing behind and Honda barely registering a presence.

However, the mid-size pick-up truck segment has behaved very differently from the overall pick-up truck segment. It was not too long ago that the segment was almost finished. Chrysler discontinued its Dodge Dakota and Ford did the same with its Ranger. General Motors also stopped selling their mid-size pick-ups Canyon and Colorado for a while. The highest selling vehicle in the segment, Toyota’s Tacoma hadn’t been redesigned in a while. Now, the segment seems to be blooming again. The Tacoma is being redesigned while the Canyon and Colorado are back in the market. Rumors of Ford’s Ranger being relaunched also abound.

The Importance of North America To Honda

Relevant Articles
  1. Growth Of Chinese EV Players A Looming Threat For Honda Stock?
  2. What’s Happening With Honda Stock?
  3. Honda Stock Looks Like A Buy Following Strong Q3 Results
  4. Is Honda Stock A Buy As Motorcycle Business Shines?
  5. Is Honda Stock A Buy At $27?
  6. Forecast Of The Day: Average Price of Honda Vehicles

North America accounts for more than two-fifths of of Honda’s unit sales and contributes around 40% of its automotive operating income, making it the company’s most important market. Honda’s financial performance is usually driven by strong sales of Accord and Civic, its two popular sedans. However, in recent years trends in the auto industry have changed. While auto sales have always been driven by the ticket price of a car, i.e. the fixed payment consumers have to make at time of purchase, that trend has been accelerated even more in the past 18 months with the fall in oil prices. As gas prices have hit all time lows, consumers have tended to prefer SUVs and pick-up trucks over sedans. Honda has benefited from this trend somewhat, as its SUVs CR-V and Pilot have sold well.

But Honda hasn’t been able to capitalize on the booming pick-up truck segment. A good strategy for this market might be to first capture the mid-size market before transitioning to the full-size segment. To be sure, this isn’t the first time Honda is entering this segment. When the mid-size pick-up Ridgeline was launched in the U.S. in 2005, sales peaked at around 50,000 units in 2006 but the company could not sustain sales of the model in subsequent years. But now the company is relaunching the vehicle as a 2017 model in spring this year.

The mid-size segment, unlike the full-size segment, isn’t dominated by Detroit based auto makers. In fact, Nissan and Toyota have a lead in this segment, and Honda wants to eat their cake with the Ridgeline.

midsizeThe worry is still that it isn’t certain whether sales of mid-size pick-ups will grow in the same way sales of full-zie pick-ups have grown. It isn’t a guarantee that gaining a stronghold over this segment will help at all in dislodging GM and Ford’s stranglehold over the full-size pick-up market. The F-150, Chevrolet Silverado and GMC Sierra have extremely loyal customer bases and are staples for the U.S. market, with the first among the three having been the best selling vehicle in the U.S. for the last 40 years. However, given the high profitability of the U.S. auto market and the high margins in mid-size and full-size pick-ups make it an extremely attractive segment for any car company, especially Japanese ones, which also have to deal with struggling demand in their native market.

Understand How a Company’s Products Impact its Stock Price at Trefis

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research