Full-size pickup truck production is hitting its highest levels in years, while average transaction prices continue to climb. This robust market is seeing manufacturers look for additional capacity, but also worries some that perhaps the highly profitable light truck market is close to reaching its saturation point, according to Automotive News. The trade paper quotes a research note from Barclays Capital analyst Brian Johnson, who wrote “We believe capacity [additions] in a flattish demand environment will pose downside risks to large pickup/SUV pricing.”
This in turn has huge implications for companies like Ford and General Motors, two companies that derive between 55 and 67 percent of their North American operating profits from trucks, according to a Citigroup report.
Kelley Blue Book data shows that full-size pickup sales are up 9.7 percent in April over year-ago levels and that these trucks account for 12.9 percent of all new vehicle purchases. So far this year, 702,033 full-size pickups have been sold at an average transaction price of $46,661 or $12,664 more than the average price of all vehicles and a 4.1 percent increase over April 2015’s average of $44,811.
Even as manufacturers are looking for ways to produce more trucks, Citigroup analyst Itay Michaeli observes that total pickup capacity is actually down 15 percent from the pre-recession high in 2007. Michaeli said in a March report that “We think the story continues to revolve around a unique supply/demand imbalance caused by…too aggressive capacity cuts in 2008-09.”
Low gas prices certainly are a contributing factor the truck boom. However, the lower barrel prices are causing a slowdown in the oil industry, which will in turn have an impact on the demand for work trucks. More trucks on the market, with slower demand could result in higher incentives later.
Used vehicle buyers’ market
Rising pickup truck transaction pricing coupled with more used units hitting the market may mark a shift away from new to pre-owned vehicles in the months ahead. While prices remain fairly strong, one organization that tracks residual values sees a quickening in the depreciation of late model trucks due to a high supply of used units and rising incentives on new trucks.
Larry Dixon, an analyst at NADA Used Car Guide predicts a 14-percent increase in the supply of 5-year-old used trucks on the market and a 41-percent increase in 3-year-old units, according to Automotive news. He expects the depreciation rate, which had been running at 5 to 6 percent to increase to the 11-13 percent range. Likewise, he sees pre-owned compact car prices dropping 21 to 23 percent. The anticipated declines in pricing has also gotten the attention of daily rental companies, which according to another report in the trade journal, are downsizing their fleets due to soft demand. These companies are selling their “risk” vehicles, the ones that they are responsible for disposal as opposed to program cars that are returned to the manufacturers for remarketing through their dealer networks.
The fact that these risk vehicles are being sold first is an indication that the rental car companies believe that used car prices are expected to drop in the days ahead. Hertz, which said it plans to reduce its fleet size by 2 to 3 percent this year, after a 2 percent decrease last year, said it sold more than 40 percent of the risk cars it plans to retail this year in just the first quarter.
Inventories grow
Meanwhile, the supply of new vehicles on the ground increased with the industry holding a 70 days’ supply at May 1, a 5-day rise since April 1 and year-earlier levels. Slow selling sedans are blamed for the increase in stock, although the number itself is only marginally higher than the 67-day average for May 1 over the past 24 years, Automotive News reports.
More vehicles on the ground help to set the stage for the end of the month Memorial Day sales events planned by virtually all the manufacturers. Ford actually surpassed Fiat Chrysler Automobiles as the automaker with the highest days’ supply at 87, up from 80 on April 1, while FCA saw its inventory grow marginally from 82 to 84 days. Subaru continues to have the tightest supply in the industry at 20 days.
Slowing sales of luxury vehicles is also pushing up supplies among upscale brands. Jaguar reported a 112-day supply, up from 57 a month earlier, while BMW saw its inventory grow by 12 days’ worth of vehicles to 55. Total industry inventory stands at nearly 3.9 million units, the highest in a decade.
Buick prices LaCrosse
The all-new 2017 Buick LaCrosse will start with a base price of $32,990 including destination when it goes on sale in July. These base models include a 305-horsepower 3.5-liter V6 with auto stop/start, an 8-inch touchscreen with Apple CarPlay and Android Auto, HID headlamps, push button start and Wi-Fi.
Full pricing on all trim levels and packages will be released next month.
Social responsibility as a sales tool
Selling cars with a cause attached does offer some appeal to car buyers, a recent study by Kelley Blue Book found. According to a survey of 1,172 respondents, 62-percent said they are more likely to purchase a vehicle brand if the brand is promoting a social-good campaign. However, the same poll indicated that 60 percent of the participants are unaware of any specific automotive social-good campaign. Of the makes cited by the poll takers as having such efforts, Subaru came out the highest with 61 percent, followed by Honda at 44 percent and Ford with 29 percent.
“It’s clear consumers appreciate automakers that give back to the community through charitable work, and they like to spend their hard-earned money with a company that is making a positive impact in the lives of others,” said Karl Brauer, senior director of automotive industry insights at Kelley Blue Book. “Awareness, however, may be the bigger challenge, with a majority of consumers unaware of any social- good efforts sponsored by automakers.”
The survey also found that 64 percent expect auto manufacturers to carry out social-good campaigns and 56 percent would support those efforts directed at military or veteran organizations, with 42 percent citing children’s charities.
The rundown
GM’s truck division has an all-new and slightly smaller entry in the crossover segment in the form of the 2017 GMC 2017 Acadia. Check out our First Review here.
A facelifted 2017 Ford Fusion is on the scene and we drive it. The revamped mid-size sedan is quieter and offers upgraded powertrains.
The 2017 BMW 230i and M240i are new names for revamped 2 Series models that sport equipment and power in coupe and convertible body styles.
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