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Ford Transit Connect may deliver profits

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Ford Transit Connect may deliver profits

Van leads wave of new commercial vehicles that could offset revenue lost from drop in pickup sales

Jeff Green and Keith Naughton / Bloomberg News

Southfield -- Ford's Transit Connect, a business vehicle used to haul goods such as food and paint, is leading a new wave of delivery vans that may help replace profits lost when Americans fell out of love with pickups.

Nissan will add a commercial van this year from a U.S. plant built to make Titan pickups, while Chrysler may use models from Fiat as the core of a new business fleet. General Motors is also studying a global truck design to enter the category, people familiar with the planning said.

"Now would be a good time to be coming into this market," said Chris Fisher, an analyst at Power Systems Research in Eagan, Minn. "A lot of the increased sales volume will be driven by increased consumer spending in the latter half of the year, which should continue into 2011."

Reaching more commercial-vehicle buyers would help offset a 55 percent plunge in sales of large pickups since 2005 as rising fuel prices chased off casual customers and the recession cut fleet purchases. That collapse robbed GM, Ford and Chrysler of the source of most of their profits in the past two decades.

Commercial vans typically account for about 2 percent of U.S. vehicle sales. Instead of trying to make up each dollar of lost pickup revenue, automakers prize the new models as a source of higher profit margins than passenger cars.

In Europe, light commercial vehicles such as the Transit Connect provide returns of 6 percent, double what automakers earn on cars sold to individuals, said Barclays Capital analyst Brian Johnson.

Chief Executive Officer Alan Mulally "is trying to bring that success over to North America," Johnson said. The Transit Connect won the Truck of the Year award last month at the North American International Auto Show in Detroit.

Widening market

Maximizing profits on commercial vehicles is crucial for automakers because volumes and prices are smaller than for large trucks.

U.S. large-pickup sales in 2009 slumped to a 17-year low of 1.12 million, according to researcher Autodata, while consultant IHS Global Insight said sales of delivery vans and other light-duty commercial vehicles were 167,320. Transaction prices averaged $30,900 for trucks and $22,600 for light-business models, said researcher J.D. Power & Associates.

Using those figures, Autodata records and IHS projections, the large-pickup market was valued at about $34.5 billion last year. That compares with $3.8 billion for commercial vans. By 2014, the pickup market would increase to about $58.7 billion, and vans would rise to $9.5 billion.

IHS forecasts van sales would more than double by that year to 417,456, with North American production at almost twice 2009's levels.

Jim Hall, an analyst with 2953 Analytics, said automakers should be cautious in setting aside factory capacity for a niche market.

"If this takes off, you're fine, but if not, you're left with an investment in a commercial vehicle you can't recoup," said Hall, who is based in Birmingham. The Transit Connect "may cause a change, but we'll see."

European sales of the Turkey-built van began in 2002, and U.S. sales totaled 8,834 last year after Ford brought it to the United States in July. Prices start at $21,475, according to Ford, which doesn't give profit margins for individual models.

"We're not doing this for a hobby," said Len Deluca, Ford's director of commercial truck sales and marketing. "It's got to make money and it does."

Nissan's offering

Nissan's NV2500 van is derived from the 7-year-old Titan pickup, and is scheduled to reach showrooms in the fourth quarter, said Joe Castelli, vice president of commercial vehicles and fleet.

Japan's third-largest automaker said in April 2008 that profit on the new North American van might be as much as 8 percent.

The NV2500 will be assembled at the Canton, Miss., factory. Nissan will unveil the production version in March at a commercial-truck show in St. Louis.

"We see a good opportunity," Castelli said. He said Nissan is also considering bringing a smaller commercial van from Europe after seeing the Transit Connect's success.

A spokesman, Brian Goebel, said GM isn't commenting on any future models beyond the current lineup, which includes the Chevrolet Express and GMC Savana large vans.

From The Detroit News: http://detnews.com/article/20100211/AUTO03/2110367/1148/AUTO01/Ford-Transit-Connect-may-deliver-profits#ixzz0fF8igT2S

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