Why the War for Midsize Trucks Matters -- and Will the Tacoma Lose Its Top Spot?

By Markets Fool.com

During media days earlier this month at the 2015 North American International Auto Show, commonly referred to as the Detroit Auto Show, the general manager of Toyota's U.S. division, Bill Fay,didn't pull any punches when speaking about Toyota's redesigned 2016 Tacoma to a crowd of reporters. While I can't repeat his exact language, suffice it to say that Fay thinks his truck is about to become a big bully in the midsize truck segment.

Continue Reading Below

Personally, the 2016 Tacoma reminds me more of a stubborn teenager. More specifically, a teenager whose parents have begged him or her to clean their room for years and years before it finally happened. It's been roughly 10 years since the Tacoma has had a major redesign -- but finally Toyota's hand was forced and it has breathed new life into the midsize truck.

Surely that means its dominance of the midsize truck segment will continue, right?

Not so fast
Sure, Toyota's Tacoma has dominated the segment in years past, but don't give the truck too much credit. It accounted for more than half of compact pickups sold in 2014, but it essentially did so by default.

Consider that Ford Motor Company'sRanger and Dodge's Dakota had their last full year of sales in 2011, before being discontinued, and Chevy's Colorado and GMC's Canyon had their last full year in 2012. So, really, if you wanted to purchase a new midsize truck recently, you essentially had the Toyota Tacoma or the Nissan Frontier as your only options.

Now that General Motorsis bringing back the Colorado and Canyon, the days of the Tacoma dominating by default are over."The Tacoma redesign comes at the perfect time for Toyota, as fresh, new product is needed to defend its midsize turf," said Akshay Anand, automotive analyst at Kelley Blue Book, according to International Business Times. "Toyota is well aware that the truck will need to pack some serious bang for the buck, as the domestic midsize trucks have been garnering accolades abound [sic] since their launch."

Continue Reading Below

On top of increasing competition, the newly designed Tacoma will have its hands full since the midsize segment has faced increasing pressure as sales of full-size trucks have boomed over recent years.


Graph by author. Data source: Automotive News DataCenter.

Why does it matter?
The Tacoma defending its turf is more important than many realize. Despite sales of 155,041 Tacoma vehicles in 2014, which is just under one-third of the sales the Camry recorded last year, those sales could be critical if Toyota ever wants to get a foothold in the full-size truck segment -- which is often considered the most profitable segment in the U.S. market.

The theory behind that is that truck buyers are considered very loyal; many buyers stick with the same truck brand their entire life. Moreover, consumers of midsize trucks are often younger buyers -- think of all the Rangers and Dakotas that used to fill high-school parking lots in the early 2000s. Winning the future sales bloodline for trucks in America is extremely important, and offering a great midsize truck is one way to start that process.

The upshot
The Tacoma has built quite a loyal following for its midsize truck over the last decade, yet it has gained zero traction with its full-size Tundra. However, management hopes that as its loyal, and younger, truck buyers eventually step up to full-size trucks, they might begin purchasing the Tundra at a higher rate. That would be an absolutely huge step forward for Toyota's sales and profitability in the U.S. -- and the automaker already does well, to be sure.

The next two years will be very telling in regard to how much sales potential the midsize truck segment has. And it will also be very telling to see if the Tacoma can fend off a reinvigorated Detroit presence in the segment. Both will be important stories for investors to follow.

The article Why the War for Midsize Trucks Matters -- and Will the Tacoma Lose Its Top Spot? originally appeared on Fool.com.

Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.