Housing Isn't the Only Boon for Pickups
By Kelsey Mays, Cars.com
Pickup truck sales are surging. Full-size pickups from the Detroit Three, Nissan and Toyota have piled on 22.6 percent in sales through July, outpacing industry growth to account for 12.1 percent of all new vehicles sold this year. Given that pickups tend to sell well in the final months of the year, we could see full-size pickups break into the 13 percent range by year's end. That would mark the first time since 2007 that full-size pickups accounted for such a high percentage of new vehicles.
Conventional wisdom suggests the housing industry drives just about all of that. At a conference in January, Citi Investment chief analyst Itay Michaeli told reporters that pickups and the housing market have a 95 percent correlation. It makes sense: After all, pickups sell heavily to contractors and other small-business owners — and in June, CNW Market Research said contractors accounted for more than 50 percent of all pickup sales for the first time since the 1980s.
But it's not that simple. The relationship, once hand-in-hand, has shifted, and a number of other factors have driven pickups to their current height.
Kenn Bakowski, marketing manager for the GMC Sierra and Canyon, said things began to shift nearly a decade ago, in 2005.
"The dynamics of the housing market changed," Bakowski said last month at a Sierra event near Chicago. The housing market became volatile, he said, and pickups didn't keep pace.
'Signs of Trouble'
Erich Merkle, a sales analyst at Ford, chronicled the break.
"We saw housing first start to show signs of trouble back in the middle of 2006," Merkle said. "It started to drop off, and certainly in the second half of 2006, you could see that there was some real trouble there. And pickup trucks at that time wanted to go lower, but the automakers, because of the [production] capacity at the time, wanted to keep up, to support pickup trucks. And they did that through ever-increasing incentives."
New-home construction went into free-fall after 2005, and automakers propped up pickup market share for another two years, but demand eventually fell beyond what incentives could support:
"Pickups trucks did drop off dramatically, along with housing," Merkle said. "When we got into late 2008, certainly 2009, pickups seem to have fully capitulated."
Gas prices accelerated the slide. At the outset of 2006, a gallon of regular unleaded ran $2.24, according to the Energy Information Administration. In January 2008, it was $3.11; that was sobering math to anyone shopping for a 15 mpg, V-8 truck.
Realignment in Store?
A realignment has just begun to appear. In 2013's seven-month average of seasonally adjusted housing starts, the market has climbed 16.8 percent over 2012. Trucks are on a similar up slope, up 22.6 percent in sales through July.
Still, the housing recovery has been uneven. For starters, Merkle noted, it's hardly an accurate portrait in a still-shaky economy of demand for new homes.
"When you look at the data, it shows that there was a point, and that was in, oh, early in 2010, shall we say, when we saw housing starts recover," he said. "But [that was] because of what the government was doing with home-buyer tax credits and programs that the government had in place at that time."
Energy Boom, Lifestyle Return
Enter Joe Langley, a principal analyst at research firm IHS. Langley said that in places like North Dakota — where oil fracking helped the economy grow in 2012 at five times the national rate — the energy boom fueled pickup sales long before the housing recovery gained speed. So did an agriculture boom: U.S. farmers earned a record $109 billion in 2011; from 2009 to 2012, farm-equipment manufacturer John Deere piled on 60 percent in overall revenue.
"Pickup trucks boomed before housing even came back," Langley said. "Housing's only become a story in the past six months, nine months or so. What really helped the pickup sales in the early part of the recession recovery, from late 2009 to 2010 and 2011, was the energy sector, energy and agriculture. Those two sectors of the economy were really beginning to boom, and they also rely heavily on pickup trucks."
Now that housing has caught up, the tailwind for pickups has reached gale force. And businesses aren't the only ones driving it. Bob Hegbloom, who directs Chrysler's Ram brand, noted that industry sales to small businesses have increased just 15 percent in 2013. That's well below full-size pickups' 22.6 percent gain.
"The small-business side of it is very important, obviously," Hegbloom said. "You get into heavy-duty trucks, you get into what they use these vehicles for, [and] it's very important. But it's not driving everything. Here you can see there's another 8 percent lift in the overall truck segment."
Who's picking up the slack? The so-called "lifestyle" buyer.
GMC's Bakowski noted that "maybe a disproportionately high" chunk of the 2.5 million lost pickup sales from the segment's halcyon years came from lifestyle shoppers who left the segment. But they're still around. After all, a quarter of all light-duty pickup owners never tow a thing, he said.
Even if you do, Ford's Merkle added, you may still be a lifestyle buyer.
"A lot of those folks are not necessarily as big a part of this segment as they may have been, say, eight years ago," Merkle said. But "there is still a purpose for the truck nowadays. You might be pulling a powerboat or a trailer, but I would argue that that's a lifestyle. You're not going to pull it with a car. You're going to need a truck."
More Features, Higher Prices
And a nice truck at that. Sixteen percent of Ram 1500s are well-equipped Laramie or Laramie Longhorn editions, and 22 percent of Ram HDs are Longhorns, Chrysler's Hegbloom said. "If you take a 3500 Laramie Longhorn with the diesel and the dual [rear] wheels, that's a $65,000-plus truck, and they're flying off the shelves," he added.
Well-equipped trims are sprouting like spring poppies, from Ford's King Ranch and Ram's Laramie Longhorn to Toyota's 1794 Edition and Chevrolet's High Country.
Automakers love it. IHS' Langley noted that profit margins on optioned-out pickups are enormous. How big? Try as much as $10,000, which is what The New York Times, citing analysts, said in 2012 that automakers can make off a single pickup sale.
It's no wonder that with improving truck sales come improving profits. Ford and Chrysler turned in higher second-quarter profits this year, and even GM, whose profits fell from the year-ago quarter, posted its 14th straight quarter in the black.
Housing Still Matters
At the heart of the pickup recovery, experts agree that housing will be the lasting driver, and a warming recovery gives reason for optimism.
As "the housing market continues to grow, it will continue to fuel the economy," Ram's Hegbloom said.
Comments
My pickup truck is better than anyone who comments after me.
If you make a comment after this you are officially admitting that my pickup truck is better than your's is. I drive a Mazda Rotary pickup. You are all inferrior to me and my pickup!
I noticed all the guys at work are getting new trucks lately and these are people who work in an office just getting a truck because they want a truck.
@Jacob from New Jersey
Mazda rotary pickup production 1971 - 1979
Assembled in Hiroshima, Japan (does it glow in the dark?)
Did you pick it up at the antique mall?
Was Jimmy Hoffa behind the wheel?
Did hurricane Sandy beach it?
When I snap my fingers you will wake up!
Yea the trucks are big but the openings are small since all modern cars have the sloped back window over the truck and and a small opening.
@ Lou - Good one! Confucious also say, Man with hand in pocket feel cocky all day.
Still seeing fake posts using my name.
@Canadian Dodge RAM Owner - paranoid much? Aluminum foil hats mustn't work as well as tin foil hats?
Price of oil will climb. There are well over a billion Chinese and their middle class is growing. It is currently the size of the population of the USA. That is a lot of people who can afford automobiles. Then there is India. They are over a billion too.
It has been postulated that the best way to change people's driving habits and force them to conserve is through higher prices for fuel. That is more effective than increased mpg. Your paranoid rant is partially correct because if mpg increases along with cost of fuel, our overall costs stay the same.
Back on topic - I'd have to agree with the analysis that there are many factors beyond housing starts driving the light truck market. Any sector that is improving needs tools to do the job and pickups are the most common automotive tool. I also agree that as the economy improves, people will start buying luxury items and pickups used for recreation (lifestyle) are one of those luxuries.
@Lou there is a desire in the mainstream news media to be cheerleaders for the current president down here. The housing market is unhealthy today. There may be some regional exceptions to this, but here in Florida one in 5 homes is vacant. That is not a sign of health. We can admit that some speculators in housing are running up the PRICE of housing but this is very temporary; as soon as interest rates return to normal this will change. Most pickups are being bought by people who simply want a truck.
Part 2: Oil in China? The Chinese are presently building the biggest Coal to Gas (methanol) plant in the whole world. They will be energy independent very soon. I can't speak for India, but the Chinese are moving ahead. The US presently bans the use of methanol (as a motor fuel) despite the fact that we SUBSIDIZE the production of ethanol, which is almost identical to methanol. Either can be burned in the flex fuel cars and trucks many of us already have.
And as a construction company, we say our wood is harder than any others.
@papajim - I agree that there has been "cheerleading" going on by the mass media, especially the liberal media. It can be viewed as a self fullfilling prophecy. If you think things are getting better than you spend more and the economy improves.
I do think that China will run into trouble with its own populace due to polution. Coal conversion to gas is a dirty process.
Most of the world's electricity still comes from hydrocarbon based fuels and the proliferation of electronics will cause the USA to start running out of electricity. Other countries, especially the developing nations, need more power and it will come from hydrocarbons until other options are put in place.
There is one benefit to global warming, some experts feel that up to 13% of the worlds untapped oil reserves are sitting under Arctic ice. That melts and we will have more oil ;)
"Most of the world's electricity still comes from hydrocarbon based fuels and the proliferation of electronics will cause the USA to start running out of electricity." On the other hand, if I didn't have my head up my ass, I would know that the "proliferation of electronics" increases electrical consumption only marginally....this consumption is more than offset by loss of manufacturing in the US...which have typically been the big consumers of hydro electric power. Sorry I’m an idiot and you can’t fix stupid!
Lou, I think it's time to retire from PUTC! Do us all a favor and go for a long drive down one of those gravel roads. LMFAO!
I want that Black commercial front grill and Black front bumper
on my new silver Laramie Longhorn 2014 6.4L Hemi, Power Wagon, sunroof,alpine 9 speaker 500 watt surround sound, 4" Mopar lift 37"s tires and black rims.
GIT R DONE!
@HemiV8 - you may be right and then PUTC can be the exclusive domain of brand blind loyal morons and trolls.
@Lou, you say Coal to Gas is dirty but you cite no numbers. Why is converting coal dirtier than converting crude oil?
Regardless of what brand of truck a person chooses to buy, they're going to get worse fuel economy and mpgs than from an econobox.
If a person has to worry about the cost of fuel for their truck they ought not to buy a truck.
I use a lot of gas for my Tundra and to me that's just part of the cost of living.
I felt the same way when I had my 1988 Silverado and my 2006 F150. You buy a truck for its utility. Not for its fuel economy.
The Housing/Building market is a great driver of the economy and of pickup truck sales, but the guys in that business don't worry about the cost of fuel.
They just pass the cost on to the ultimate buyer of their products. That;s the way business people do it. They pass their expenses on to us, the buyers.
@papajim - It is energy intensive and as such, China does not follow the same environmental protection strategies that we use.
"Most coal liquefaction processes are associated with significant CO2 emissions, resulting either from the gasification process or from generation of heat and electricity that serve as energy inputs to the reactors. High water consumption in water-gas shift or methane steam reforming reactions is another adverse environmental effect."
http://en.wikipedia.org/wiki/Coal_liquefaction
@Highdesertcat - that is true but when will it become an issue?
In 2008 when things crashed, pickups were dumped onto the market. For example - Dealers couldn't give away new 6.2 Chevy's.
Guys who truly need trucks for business will pass the cost onto customers or go broke.
@papajim - you had said that the economy isn't as good as the news outlets are saying, you also mentioned on another thread that it was more of a case of loans. You are correct. I found this pearl on TTAC:
"According to a report issued last week by the U.S. Federal Reserve Bank of New York, car and light truck loan originations have reached a six-year high. For the second quarter of 2013, new loans went up 11% to $91.8 billion, including consumers with all credit ratings. U.S. light vehicle sales were up 9% for the quarter from last year.
The Fed said that the biggest year to year change was in the 621-660 credit score range, just below “prime” rankings. That tranche rose 16% to $12.1 billion. Loans to those with worse credit, a score below 620, were up ~11% from 2012 to $21.2 billion."
http://www.thetruthaboutcars.com/
People are falling into old habits, if you can't afford it...... borrow.
Short memories, short attention spans........... squirrels.........
Looks to me like the trucks qualify for the Luxury Tax.
Well, we've seen it said before that the auto manufacturers cater to the 20% and effectively ignore the 80%. This looks like pretty valid proof.
I, for one, am NOT one of the 20%. I just stood next to a Ram 1500 Longhorn 4x4 yesterday and noticed that I would NEED the bloomin' step-rail just to climb into it and I couldn't even see into the bed from side or back. The rear bumper was so high I'd need a two-step ladder just to climb onto it if I had to access the bed. This thing was in the showroom, not somebody's custom-lifted rig. It was effectively twice the size of the Tacoma SRD "Access Cab" I looked at Friday in almost every dimension.
In other words, the rich are getting richer and when they want a toy to play with they go buy a 70k truck.
PEople are retiring and want a truck to tow their RV and they buy a truck.
But for the people who are still working and still barely hanging on, there isn't anything for us to buy. Just higher prices and nothing has been done about fuel economy. Gas is $4 a gallon here. They got us by the balls.
If they want to increase market share and sell some more friggin trucks, they ought to focus less onthe 1%ers and focus more on the needs and wants of the 99%ers and we want trucks that are more affordable to buy and own and fuel!!!
@Vulpine - a luxury tax was tried in my home province of BC. Pickups under a set GVW and over a set price were considered luxury. Oddly enough, million dollar yachts were exempt. The result was dramatic. People stopped buying 1/2 tons and purchased 3/4 ton trucks instead. The stupid tax was eventually repealed.
TURNS OUT FORD FANS WERE RIGHT! FORD IS #1
The Ford brand has had 92 recalls since 2009, substantially higher than the next highest brands — Chevrolet, at 70, and Toyota, at 68, a search of the National Highway Traffic Safety Administration database reveals. Of course, such a search doesn't take into account the severity of individual recalls or that the Ford nameplate is part of the larger Ford Motor. When recalls in its various divisions are added up, General Motors outpaces Ford on recalls overall.
Canadian Dodge Ram Owner: if it is true, you were driving 150mph on a public road? you deserve being thrown in jail! and have the key thrown away for a while!! and from the sounds of things you have never learned your lesson either! driving is a privilege and not a right in any Country! and idiots like you are the reason insurance is so high for the rest of us good safe drivers! you need to grown up and think about all the others out here on the publics roads!
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