Truck Sales Surging as Gas Prices Fall, Housing Improves

Not everybody needs a truck, but plenty of urban cowboys sure want one.

Analysts say truck sales that have jumped in the second half of 2015 will likely continue to be strong in 2016 as buyers no longer have to worry about high gas prices. And the strengthening housing market will increase the need for trucks large enough to haul tools and equipment.

Improved sales are helping boost revenues at companies, including Ford Motor Co.(ticker: F), General Motors Co. (GM) and Fiat Chrysler Automobiles (FCAU), the makers of Dodge – and that bodes well for investors who own stock in those companies.

Ford truck sales rose 8.2 percent in November versus the same month a year earlier. The company says retail sales of its F-series pickups rose 10 percent, making for the best November for truck sales in eight years.

Chevrolet truck sales rose for the 20th consecutive month in November. The company says sales of large pickups and SUVs were “particularly strong” as Suburban sales jumped 31 percent, Tahoe sales gained 17 percent and Silverado sales gained 4 percent – the best November for the line since 2006.

As gas prices tumble, truck ownership becomes more appealing. The increase in truck sales have coincided with declining oil prices, which are down about 24 percent in the past year, and a robust home construction market that has reached levels not seen since before the Great Recession.

“We see it historically that when fuel prices go down, SUV and truck sales correspondingly go up,” says Tim Fleming, an analyst with Kelley Blue Book, a vehicle valuation and automotive research company that tracks industry data. “While it may be difficult to (track) exact data, gas prices have an impact on the minds of consumers and their buying preferences.”

Nationally, gas prices have fallen to $1.90 a gallon, down 10 percent from a year earlier and more than half of the record high of $4.11 set in July 2008, according to AAA.

Crude oil futures traded in New York have plunged about 65 percent since hovering around $100 in June 2014. With oil and corresponding gas prices that high, buyers of trucks, typically gas-guzzlers, may pause before making a purchase.

Oil prices aren’t expected to rebound anytime soon and in 2016 are forecast to, at best, remain stagnant thanks to a global glut. OPEC nations refuse to cut production and instead want to maintain market share.

Even with fuel prices low, however, automakers are facing regulatory pressure to build more fuel-efficient vehicles. Ford is investing $4.5 billion in electric vehicles through 2020, creating 13 new electric and hybrid vehicles, and will offer electrification of 40 percent of its models. The company will develop an electric version of the Focus with a 100-mile range and quick-charge capabilities.

GM, for its part, has six models that get better than 40 miles per gallon.

While low gas prices are partially responsible for increased truck sales, housing starts have improved this year and are helping boost truck purchases as construction workers tend to need bigger, more robust vehicles.

“You do have a (sales) advantage with lower fuel prices, but a big driver for pickup trucks is housing,” says Erich Merkle, the U.S. sales analyst at Ford. “If you look at any construction site, you’ll see number of pickup trucks. As new home construction gains momentum as it’s been doing, that creates more of a need for pickup truck sales.”

Truck sales began to recover in mid-2015. Ford F-Series sales were languid in the first half of the year, company data shows. In June, sales of F-Series pickups were down almost 9 percent from the same month a year earlier. It was so bad, in fact, the company began offering incentives to buyers.

Those incentives disappeared with the introduction of the new aluminum-bodied F-150. After some production delays, the F-150 finally reached dealerships and were quickly snapped up by buyers. Thanks to improved sales, Ford was able to get away from offering deals, Fleming says.

General Motors also saw gains in pickup sales after reintroducing its mid-sized Chevy Colorado and GMC Canyon trucks. The 2016 Colorado was named Motor Trend’s truck of the year.

GM chief economist Mustafa Mohatarem says he expects auto sales to will continue to grow in 2016, including sales of SUVs and pickup trucks.

“We believe U.S. auto sales will continue to grow in 2016, based on the underlying strength of the economy, and we expect customers will continue to embrace crossovers and SUVs because they are meeting their fundamental needs for utility, comfort and fuel efficiency,” Mohatarem says.

Gas prices are likely to stay low in 2016, and housing starts are set for another strong year as interest rates remain low despite being raised by a quarter of a percentage point by the Federal Reserve in December.

Sean Becketti, the chief economist at Freddie Mac, says he expects housing activity will grow in 2016 despite monetary tightening.

Total housing starts are forecast to grow 16 percent this year, with single-family homes accounting for most of the construction increase, he says. That’s good news for truck-sellers.

Transaction prices are higher, meaning consumers are willing to spend more on higher-end vehicles, also a good sign for dealerships whose average truck prices are near $45,000, an increase of about 5 percent from the prior year, Fleming says. “There’s a pretty healthy demand right now so as long as that continues, those manufacturers that are building these big trucks, primarily the ones in Detroit, are going to be the ones benefiting the most.” More here 


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