Will The $787 Billion Stimulus Bill Help Truck Sales Pick Up?

Will The $787 Billion Stimulus Bill Help Truck Sales Pick Up?
by Tom Beaman

The $787 billion economic stimulus package that President Barack Obama signed Feb. 17 might spell relief for the pickup truck market after the train wreck that was 2008, when U.S. sales plummeted by 26.5 percent.

While pundits will continue to debate the stimulative value of spending $30 million on restoring wetlands and saving the endangered salt marsh harvest mouse in the San Francisco Bay Area, auto industry observers and others are expressing guarded hope that light-truck sales will rebound, at least temporarily, once federal dollars find their way into building and infrastructure projects that will drive the purchase of work vehicles.

Details of the compromise plan are still emerging, but the Associated Press reported that $48 billion has been allocated to transportation projects, including $27 billion for highway and bridge construction and repair, $8.4 billion for mass transit, $9.3 billion for construction of high-speed railways, $4.6 billion for the Army Corps of Engineers, $4 billion for public housing improvements, and $6 billion for clean- and drinking-water projects. Sales tax and interest paid on new-car purchases will now be tax deductible, and the bill also includes a tax credit of up to $7,500 for the purchase of plug-in hybrid vehicles, although that won't help pickup sales -- at least not in the short term.

Before you start planning parties to welcome back the pickup truck market, though, be aware that experts warn that the ongoing lack of consumer confidence and the uncertainty posed by future federal and state regulations could squelch a sustained sales rebound.

“We think when the final bill gets to President Obama, it should provide something between $120 billion and $150 billion over two years for construction activity, and that would lead to the hiring of 600,000-700,000 construction workers,” said Ken Simonson, chief economist for Associated General Contractors of America. “In addition to hiring more employees, companies will be buying more equipment, and to the extent a company hires workers and needs to equip them with trucks, it's going to be buying more pickups."

Aaron Bragman, a research analyst at IHS Global Insight in Troy, Mich., said that large-scale infrastructure improvements could translate to additional equipment needs for the companies doing the work.

“We already know there is pent-up demand for pickups and commercial vehicles because they haven't been purchasing them over this last year,” he said. “Once credit does start to flow again and we see a large-scale infrastructure improvement, it stands to reason that there would be a commensurate resumption in commercial-vehicle sales."

Jim Hall, managing director of 2953 Analytics in Birmingham, Mich., says the effect of the stimulus package will begin to be felt by the end of the third quarter and will run into 2010. Hall says the increase could be “in the five-figure area.”

If the billions of dollars flowing from taxpayers' wallets will indeed motivate a buying binge, which automaker will benefit most? Observers are placing their bets on two key attributes: new and domestic. They also foresee more trucks being sold for work than for pleasure.

"I think Ford has been as activist as any manufacturer in building trucks aimed at casual users, but Ford now understands that most of their buyers going forward are going to be using them for work – contractors, construction people, landscapers," said Terry Box, automotive writer for the Dallas Morning News, in the heart of truck country. "The forces are arrayed in the pickup truck segment in a real positive way. You've got a new F-150, you've got an excellent new Ram, the Chevy Silverado is still one of the best trucks in the segment, Toyota's hungry."

Michelle Krebs, editor of autoobserver.com, said domestic automakers have the most loyal truck buyers.

“As Toyota found, they really couldn't penetrate that," she said. "I think Ford, which has a brand-new truck that's winning awards, is well-positioned. They have a very strong work-truck orientation, as does General Motors."

Krebs did say, however, that consumers might have questions about Dodge products because of Chrysler’s uncertain future.

"I don’t think Toyota would be quite in the best position," Bragman said. "In terms of commercial buyers, there's far more strength among the domestic automakers. They have a lot higher loyalty for that kind of buyer. They tailor their products for far more variation and customization for those customers."

Even without a stimulus package, there have been glimmers of hope for pickup sales recently, confirming that people still need true truck capabilities. Full-size pickup sales in the U.S. increased in July and August of last year before slipping back down in September, according to Autodata Corp. in Woodcliff Lake, N.J. In January 2009, the top-selling vehicles in the U.S. were the Ford F-Series and the Chevy Silverado, although their sales were down 38.6 percent and 33.6 percent, respectively, from 2008 levels.

Wholesale used-vehicle prices increased by 3.8 percent in January 2009, according to Manheim Consulting, because weak new-car sales have resulted in fewer trade-ins. This situation bodes well for any new-vehicle purchase because higher residual value can translate into a larger down payment.   

"What that says to me is if you have a two-year-old truck or a four-year-old truck, the residual value of that truck is growing, so if you're inclined to trade, this is a pretty good time for you," Box said.

Automakers are hopeful that the stimulus package will lead to increased sales.

"What we've got with plant production and what's out there in stock, we would be prepared to meet any kind of increase in business in the short term," said Len Deluca, director of commercial truck sales and marketing for Ford. "If there's something out there that's going to help drive construction work, it'll be good for us."

GM spokesman John McDonald doesn’t foresee a big up-tick in pickup sales, pointing to market forecaster R.L. Polk’s estimate that the stimulus bill’s average tax credit of $330 might boost 2009 new vehicle sales by only 94,000 units, or one percent, based on January’s annualized sales rate of 9.6 million vehicles. “Anything is helpful, but the optimistic scenario only indicates a very small contribution.”

He says unemployment, home values, and credit must stabilize before a sustained improvement in vehicles sales can be realized, but once that happens, there’s plenty of pent-up demand. “Pickup sales will be the first indicator that things are coming back,” McDonald says. “Pickup volume will drive other volume.”

Chrysler refused to comment for this story.

Despite manufacturers' cautious optimism and the prospect of a public-works-driven surge in pickup sales, the guys on the front lines aren't quite ready to break out the champagne.

"We're looking forward to it if it happens," said Mike Maheras, sales manager at Phillips Chevrolet in Frankfort, Ill. "Commercial sales are down big time -- 30 to 40 percent. We're hitting customers when they come in for service, and they say, 'Let's see how it goes.' We're getting a lot of leads, but not in commercial. We have to get consumer confidence up just a little and credit flowing."

And then there's the larger question that's been at the core of the debate about the value of a stimulus bill: How helpful will a temporary injection of manufactured demand be in sustaining growth in the pickup market, or the economy overall, if consumers are still afraid to make big-ticket purchases?

"The economy is still so scary that people are on the fence," Box said.

Hall said consumer confidence is still the issue.

"If you're not confident in the economy, you will not buy a vehicle regardless," he said.

Mike Nystrom, vice president of government and public relations for the Michigan Infrastructure and Transportation Association, says the stimulus package will benefit truck sales, but he's concerned about its sustainability.

Nystrom says Michigan's road and bridge expenditures for the past five years have averaged $1.3 billion a year, but in 2009 spending will decrease to $900 million. If, as Nystrom hopes, Michigan receives $900 million from the stimulus package (which must be spent within two years), the state can return to the $1.3 billion level, but only for those two years.

"Our concern is that this is a short-term fix to a much longer-term problem," Nystrom said. "We will certainly see a surge in the next two years in construction activity and therefore the purchase of materials and equipment, but beyond that we don’t have any funding in place at the state level to sustain that kind of spending."

The questions don't stop there. When IHS Global Insight's Bragman contemplates the future, he wonders if other government programs will be at cross purposes to the stimulus package.

"What may be an interesting foil to any kind of an increase in vehicle sales is what regulations may be coming down the pike from an emissions and fuel economy standpoint," Bragman said. "Those aren’t going to affect anyone immediately, and probably wouldn’t until [the] 2011 or 2012 model years, but if anything you may see people buying a lot of these vehicles before any kind of higher standards take effect simply because they won’t be available later on."

Comments

Here is a crazy idea for GM. If you are listening GM, get your 4.5 diesel to market soon. Push for a tax incentive for this because of the fuel economy, much like BMW and MB have done as well as VW. Offer this in a work truck package not LTZ or SLT or Denali. This would help by saving fuel for the consumer and help improve your CAFE average.

in 2007 somebody wake up and said we boost the fuel price,and we save the planet.....wow we whant car to save fuel and the planet,,,we forget all in 80,,the car compagnie bring the techonologie we refuse to bye,,and all the years before...today we blame the car compagnie...we ask the car compagnie for big engine and big car ,,because nobody want small soap box,,and we said to the car compagnie build somthimg we want,,,,,they did we refuse to bye ,,,,so today we cry for what we refuse to bye years ago,,and toyota never discover the perfection they only copy and build better quality....today american car is better or the same like toyo or honda but we still refuse to look the true..if you do your home work you see the japanes car quality.going down ,and other compagnie going up...this is your choice ..

That is a crazy idea. Are you just interested in saving fuel or without saving money for the consumer? Pickuptrucks.com had a recent article that stated the GM diesel costs in the neighborhood of $11,0000. So you have the big up front cost that you will never recoup. Then if diesel saves you 15% in fuel but costs 30% more, where are the savings?

I think Lutz was blowing smoke on the cost of the diesel compared to the gas. Compare a comparably equipped MB it is about $1000, BMW and VW are about $2000. If you figure in the tax incentive it wipes out much of the cost difference. I realize GM has stated it is this much more. How is it the Germans can produce it and not have that much difference?

Even if you got the diesel for free, which you won't, you're not going to save anything when diesel is 30% more than gas. Are you interested in saving the planet or money?

I think doing something for the planet would be good. Where I am at 87 octane E10 is $1.599 and 91 octane E10 is $1.799. Diesel is $1.989. Based on 25 mpg for a gas car and figure 20% gain for diesel is 30 mpg. My car gets better mileage with 91 than 87. TSX. If you are using 91 octane on 15,000 miles this is a net savings of about 80 dollars over the course of a year. Based on the information I have read on other sites this is conservative on a diesel car. My car gets better fuel economy with the 100% gasoline, but it is hard to find around where I am at in Oklahoma. Currently there is not enough information available on the pickups to know at this time.

Does anyone know what Miath said or tried to spell.



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