Will Ford Find a Market for F-150 Trucks Above $60,000?

timjsmith

Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published August 10, 2015

Ford Motor Co. will be marketing a new F-150 Limited in 2016 with prices starting at $60,000.  It will be one of the most luxurious trucks on the market offering heated leather seats, blind spot monitoring, panoramic vista roof, 10 speaker sound system, and many other amenities.  While many may think luxury and work are in competition, Ford believes that a luxury work truck will sell.  Should we believe them?

2016-Ford-F-150-Limited-16

Market Signals

Ford has been getting signals that demand for luxury work trucks is strong.  For instance, in 2015 Ford trucks priced above $50,000 and accounted for 30% of their sales — up from 13% in 2010.  The average selling price was also up by $3,000 from a year earlier to $44,000 in June of 2015.  And, overall industry pickup truck sales grew at twice the average rate.

Clearly there was demand for high-end luxury trucks in 2015.  But will it last over the 2016 production cycle?  Let’s look at the drivers to the demand.

Demand Drivers

Low fuel costs constitutes one type of driver to demand, the other portion of demand deriving from of a strong job market. With Aramco fighting a price war against Texas Frackers and Iranian oil poised to re-enter the global market, these low fuel costs are likely to stay for the next year.

TThe results of low fuel costs don’t have to express themselves through truck market growth.  We could have seen demand increase in all luxury cars or in sports utility vehicles.  The above numbers imply the growth was disproportionately oriented towards trucks.  Clearly something more truck specific is happening.

Demand for a luxury work truck is said to come from successful blue-collar entrepreneurs.  (What a nice name for a contractor.)  Looking no further than the housing market, we can see why luxury trucks in particular may be in demand.

In 2005, housing starts hit a zenith of 2,068 million.  This was unsustainable as the great recession demonstrated.  By 2010, new housing starts hit a nadir of only 431 million.  That implies that roughly one in four people working in the housing industry found themselves out of a job during the great recession.  No housing demand.  No blue-collar jobs.  No truck sales.

Since this nadir, the recovery has been a long slog delivering steady improvements.  In June of 2015, new housing starts hit an annualized high of 1,174 million.  Moreover, the housing market inventory is below its long-term point of stability, hence more new housing starts can be expected in the near future to fulfill demand.  Good housing demand.  Good blue-collar jobs.  Good truck sales.

With recovery in job security and wealth, and having successfully survived the worst recession in most of our lifetimes, truck buyers are in a better position and mind-frame to spend.  Moreover, since many blue-collar entrepreneurs spend a significant part of their day driving their truck, and it is normal for people to want their working environment to be comfortable, they are willing to spend for luxury work truck.

These facts point to an underlying overall demand growth and a demand shift towards more luxurious offerings in the work truck market.  (See the market demand to benefits bottom portion of the below graphic.)  Rationally, Ford responded to these market trends by positioning its 2016 F-150 Limited at the higher end of the market.  (See the price to benefits plot at the upper portion of the below graphic.)

The identified truck market trends are predicated on both low oil prices and a healthy job recovery.  That is, Ford is betting on good times for all but oil workers for the next year.  I believe they might be right.  (Sorry oil industry workers.)

Ford_F-150_Price_to_Benefits-2

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About The Author

timjsmith
Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.