Do Americans Still Love Trucks?

Exploring the Myths and Realities of the Truck Sales Recovery

Do Americans Still Love Trucks

The United States is the undisputed pickup truck capital of the world. Its domestic automakers have long featured trucks as a key part of their portfolios, relying on truck sales to bolster their profit margins. In turn, American consumers embraced trucks as part of their strong, tough, and individualistic image and relatively cheap gas made it economically feasible to drive a truck. Yet, the past few years have been rough on the truck segment of the market. The recession and gas crises took their toll on truck sales and indeed, the heyday of the truck appeared to have passed as austerity and fuel efficiency edged out opulence and horsepower as the trends in vogue.

But, automakers have not given up on trucks. A host of recent new models will hit the market this year, featuring improvements in fuel economy, while maintaining performance. Plus, the revival of homebuilding suggests demand will soon strengthen for trucks. Accordingly, analysts and other industry observers are heralding 2013 as the Year of the Truck. With this buzz, the time is right to take a closer look at the truck market and the state of its recovery. Commonly held beliefs about this market abound, but what is reality and what is myth? Read on to find out.

Belief #1: Trucks lost ground with the recession and have not recovered in line with the rest of the market.

Total light vehicle sales plummeted 35 percent from 2007 to 2009, as the Great Recession wreaked havoc on jobs, income, credit availability, and consumer confidence. Large trucks fared even worse, with sales falling 49 percent and share dropping nearly 3 percentage points. Since 2009, though, light vehicle sales have rebounded to 90 percent of 2007 levels, with double digit growth each year. Meanwhile, automakers have struggled to jumpstart large trucks. As of 2012, sales for these traditional profit rainmakers had achieved only 76 percent of 2007 levels. The trouble appears to be squarely centered in large truck sales to the personal market, reporting in at just 69 percent of 2007 levels, compared to 90 percent for the total light vehicle sales personal market, according to data from Polk. Non-personal retail truck sales — including non-fleet firm and financial institution sales — also came in low compared to non-personal retail sales of total light vehicles. Large truck fleet sales, in contrast, have solidly outpaced the recovery of total fleet sales.

Conclusion: Part Myth/Part Reality
Overall, large truck sales still lag total light vehicle sales, but a closer look reveals that large truck fleet sales have actually recovered more than their total light vehicle counterpart.

Do Americans Still Love Trucks

2. There is lots of pent-up demand for large trucks.

Pent-up demand has been a buzzword around the auto industry for quite a few years now as sales sunk and industry analysts calculated the corresponding sales boost when buyers would return to the market. At first glance, it looks like the large truck segment can count on its fair share of pent-up demand too. The truck fleet’s average age hit a record 10.4 years in 2012 and the share of trade-ins accounted for by large trucks has fallen steadily since 2007.

But, certain evidence suggests that consumers may just not be as interested in trucks as they once were, given the increased selection of smaller, more fuel efficient vehicles on the market, many of which can meet the average consumer’s towing and hauling needs. Large trucks lost share in the new vehicle market during the recession and despite sales growth in 2011 and 2012, have not regained pre-recession share levels. In fact, new large truck sales to non-fleet customers — the bulk of the truck market — significantly lag new vehicles overall in terms of sales pace of recovery despite no substantial differences in the age or income distributions of truck buyers versus average buyers. Plus, large truck owners have increasingly traded in their trucks for other vehicles when they return to market. In particular, the share of crossovers purchased by every age group has grown since 2007, as the share of large trucks has decreased.

While these data raise red flags about demand for large trucks, it may still be too soon to tell whether large trucks have really lost some appeal. Chevrolet, GMC, and Ram all have all-new versions of popular large truck models on the market the year — typically a strong share driver. And, a growing recovery in the housing market — a market whose growth is highly correlated with truck sales — is also expected in 2013. These two events — formerly missing from the truck recovery scene — should draw out pent-up demand for trucks — and give a better sense of how much pent-up demand is out there.

Conclusion: Still Myth (for now)
While truck owners have been waiting along with many others to return to market, weaker truck sales and the declining share of new truck purchases by former truck owners call into question whether large trucks will realize their fair share of pent-up demand when the waiting truck owners do decide to replace their aged vehicles.

Do Americans Still Love Trucks

3. The housing market recovery will rejuvenate the large truck segment.

Housing starts and large truck sales are widely accepted by industry analysts to be highly correlated. While this relationship might be expected to especially benefit truck sales in today’s market with its aging truck fleet and decreased truck share, it is not a given that a housing recovery will help grow share for large trucks. The key issue is that other light vehicle sales also have a high correlation with housing starts. As a result, in order for any sales boost from the housing recovery to translate into a share boost, large truck sales will have to increase relatively more than sales in other segments — and this growth will depend on the other factors that influence sales for each segment. For example, such growth could occur if more pent-up demand exists for trucks than for other segments. On the flip side, if changes in buyer tastes mean less pent-up demand exists for trucks, trucks could even lose share, despite higher sales. Similarly, more all-new truck models this year could amplify the impact of a housing recovery, whereas higher gas prices — traditionally a source of share growth for small cars — could dampen the share impact for trucks.

Conclusion: Part Myth/Part Reality
The housing market recovery should give new life to large truck sales but it will also give life to the rest of the market. Trucks will likely have to depend on other factors to boost share substantially.

Do Americans Still Love Trucks

Lacey Plache is the Chief Economist for Follow @AutoEconomist on Twitter.

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