By Josh Keefe
The all-time record for U.S. auto sales was set in 2015, a record many analysts expect be broken again this year. But it’s not car sales that are driving a booming auto industry – it’s light trucks, which includes pickups, vans, SUVS and crossovers.
American consumers purchased 17.46 million vehicles last year, and almost ten million of them were light trucks, nearly double the number of light trucks sold in 2009. Car sales increased just under 40% over that same period. Last year’s all-time best auto sales numbers actually came amidst a decline in car sales, which dropped from 7.9 million to 7.7 million between 2014 and 2015.
Conventional wisdom says light truck sales growth is a result of low gas prices. This is true, but not the whole story.
“Outside of gas prices, the move toward light trucks has been a growing consumer preference for over a decade,” said Tim Fleming, an analyst at Kelley Blue Book.
More than two decades have passed since the SUV hit the American auto market, and in that time one thing has become clear: Americans prefer bigger vehicles. They just can’t always afford them. Historically, light trucks have been more expensive than cars, with differences in fuel economy adding to the cost gap.
But that gap is shrinking. Almost all auto manufacturers have introduced small SUVs and crossovers, which have a lower price point and higher fuel economy than the gas-guzzling SUVs of the past. Technology has improved fuel economy across nearly all product lines, but the improvement is most noticeable with light trucks. These product enhancements come as increases in auto loan periods have lowered the monthly cost of owning a pickup or SUV.
“I can finally afford a new car, and I’m getting an SUV,” said Juan Ortega, 41, from Queens at as he sat inside a 2016 Nissan Rogue (26 city MPG) at this week’s New York International Auto Show. “This thing gets better gas mileage than my old Honda.”
Small SUVs and crossovers are fueling light truck sales. In 2008, small SUVs and crossovers made up around eight percent of the retail auto market. Now they are the largest segment in the industry, comprising 14 percent of all sales.
“When you actually start to pull back the onion and look at what’s selling, a lot of the growth in light trucks has come in these smaller SUV segments, with vehicles like the Ford Escape and Honda HR-V,” said Jessica Caldwell, director of industry analysis at Edmunds. “The big reason is the fuel efficiency of these vehicles.”
Small SUVs and crossovers are now only three to five miles per gallon less fuel efficient than traditional sedans.
Crossovers and small SUVs from the New York International Auto Show:
flash 24cameramake Appleheight 2448orientation 1camerasoftware Photos 1.0.1originaldate 3/26/2016 10:34:31 PMwidth 3264cameramodel iPhone 6
But they are even closer to the fuel economy of sedans from six years ago, which is about the average age of a trade-in. When consumers see that an SUV gets the same fuel economy as the car they were driving for the past six years, they tend to go for the SUV.
“You’re getting something bigger with more flexible cargo capacity and a better ride height and you aren’t really losing anything in terms of paying for gas,” said Caldwell. “So they decide to go into a small SUV instead of another mid-size sedan or compact car.”
The price gap has shrunk as well: small SUVs are on average about $2,000 less than traditional sedans, according to Kelley Blue Book.
That shrinking price difference is now drawn out over longer loan periods. In the fourth quarter of 2011, just 14 percent of new vehicle loans had durations between 73 and 84 months. By the fourth quarter of 2015, that number had doubled to nearly 30 percent, according to Experian.
Over the course of an 80-month loan, $2,000 equates to just a $25 increase on monthly auto payments.
“It’s helping people afford monthly payments,” said Fleming, who noted that 70 to 80 month loans used to be a rarity. “I just can’t imagine all of these people still paying off their trucks in six to seven years.”
Low gas prices have affected pickup sales more than any light truck category. Ford’s F-150 continued its 34-year streak as the best selling vehicle in the U.S in 2015, but sales were down over the first part of the year. In June, F-Series sales had declined almost nine percent over the previous year. But as gas prices plummeted over the second half of 2015, pickup truck sales soared. In December, Ford sold 85,000 F-Series trucks, a monthly total the company hadn’t achieved in over a decade.
But as with other light truck sales figures, gas prices aren’t the whole story.
“Light truck sales give us a clue about how housing is doing,” said Ryan Sweet, a senior economist at Moody’s. “The housing marketing is improving, housing starts are up, construction employment is rising, and work for contractors is growing. So we should expect truck sales to be up as well.”
<iframe width=”600″ height=”371″ seamless frameborder=”0″ scrolling=”no” src=”https://docs.google.com/spreadsheets/d/1EnI7ucuMoHmD4XOLAv1R8mHiYgkjKi2R8JjOW0G5oSY/pubchart?oid=690793385&format=interactive”></iframe>