DETROIT (Reuters) - General Motors Co's return to selling smaller pickups in the United States has resuscitated a moribund market segment, but new data highlights the risk that the automaker's new trucks are cannibalizing sales of higher-priced models.
Since the launch last autumn of the Chevrolet Colorado and GMC Canyon, the midsize pickup segment has grown to more than 2 percent of the total U.S. car and light truck market from 1.4 percent last summer. Some industry executives believe the segment could double annual sales to 500,000 vehicles, which would have been 3 percent of last year's market.
However, beneath the encouraging numbers for the Colorado and Canyon are some less positive trends, said IHS Automotive analyst Tom Libby. Nine of the top 10 vehicles previously owned by buyers of the Colorado and Canyon are GM cars and trucks.
Owners of full-size Chevrolet Silverado and GMC Sierra trucks made up more than 16 percent of the consumers who switched into both smaller GM pickups, according to IHS data.
"That was ominous," Libby said. "There may be a deeper issue here” related to the potential for undercutting sales of higher-margin models.
Libby said it was early in the life of the new midsized trucks and the actual number of consumers who switched from other GM vehicles was small by comparison.
GM officials said the IHS data fails to take into account new buyers and Canyon marketing manager Kenn Bakowski said more than half of all the sales of the new trucks are buyers new to the company.
GM's new trucks have taken a bite out of long-time midsized pickup segment leader, Toyota Motor Corp's Tacoma. Last month, GM President Dan Ammann called the smaller trucks "a very good investment."
"It's a sleeper segment with huge opportunity," Rich Latek, GMC's director of marketing, said in an interview. GM recently added a third shift at the Wentzville, Missouri, plant where their trucks are built because demand is so strong. The automaker plans to offer a diesel version to expand the appeal of the models.
The Colorado and Canyon represent one leg of what GM executives call a "three-truck strategy." The other two are the large and heavy-duty versions of the Silverado and Sierra trucks, which are bigger and sell at higher prices.
The Colorado and Canyon, like the Toyota Tacoma, are aimed at people who want the utility of a pickup, but more for recreation - such as carrying bikes or camping gear - than for hauling lumber or oil field gear. The Colorado starts at about $20,120, about $6,000 less than the larger Silverado pickup.
Dealers say they are happy with the new trucks. "It's the right truck at the right time," AutoNation Inc Chief Executive Mike Jackson said. "They saw something that others doubted."
Still, it is not clear that demand will soon surpass the 1986 peak, when smaller pickups made up more than 9 percent of the market with more than 1.4 million sales, according to GM.
Midsized trucks generate less than the $10,000-$12,000 in profit per vehicle of the full-size models according to analysts, but GM officials said they are money-makers and a component of their strategy to achieve 10 percent profit margins in North America. Since their launch last fall, GM has sold 37,351 Colorado and Canyon trucks through March.
Demand for larger pickups remains much greater, however. Chevrolet sold 45,193 Silverados in March alone.
LMC Automotive sees the midsize segment hitting 2 percent of the overall market this year but slipping back under that by 2020. LMC forecasts Colorado sales to hit just over 74,000 this year but to fall by 8.4 percent over the next five years, and Canyon sales to hit almost 29,500 this year but slide almost 21 percent in the subsequent five years.
Susquehanna Financial Group analyst Matthew Stover said GM's smaller trucks will generate decent profit, but the smaller trucks are more significant for Latin America and Asia.
"Too many other products have emerged in the market to fill the place of the midsized pickup truck," Stover said.
Toyota, meanwhile, is gearing up to defend its position in the United States with a redesigned Tacoma due to launch this fall. The Tacoma has lost share in the segment, but its sales are still up almost 13 percent so far this year.
"Our biggest issue right now is trying to keep our dealers supplied," said Bill Fay, group vice president for Toyota's U.S. sales. Toyota added a third shift at its truck plant in Baja, Mexico.
Fay predicts the midsized truck segment could rise as high as 500,000 U.S. sales, which would be double last year's level. Tacoma sales could improve by more than 6 percent this year to about 165,000 trucks, he said, and rise another 10,000 or more next year.
And the segment will likely grow more crowded. Hyundai Motor Co is eyeing the smaller end of the market, and Daimler's Mercedes has said it will focus initially on non-U.S. markets.
However, GM's U.S. rivals - Ford Motor Co and Fiat Chrysler Automobiles - are still unconvinced of the viability of smaller trucks.
"We are investing in and expanding our F-Series lineup for the North American market," Doug Scott, Ford Truck group marketing manager, said of the company's full-size truck. "The compact pickup segment in the U.S. has been declining."
Editing by Joseph White and Matthew Lewis