Dec 28, 2008

Plunging Gas Prices Fuel Sharp Rise in Truck, SUV Sales

Decline in hybrid and small car sales bad news for foreign, domestic automakers alike

Have a taste for big trucks or SUVs?  You're not alone. A new study indicates a reverse in a trend of declining SUV and truck sales.  Automotive website is reporting that truck and SUV sales will surpass car sales in December.  That's something that hasn't happened since February 2008.

Additionally, hybrid sales are expected to dramatically plunge for December.

Three factors are driving the return to big vehicles, say experts.  The first is the bad winter weather, the second is hot deals thanks to a trouble the economy, and the third, and perhaps most significant, is the much lower gas prices.  Michelle Krebs, Senior Editor of Edmunds' describes, "Despite all the public discussion of fuel efficiency, SUVs and trucks are the industry's biggest sellers right now as a remarkable number of buyers seem to be compelled by three factors: great deals, low gas prices and winter weather."

While the report that 51 percent of vehicle sales in December will be SUVs or trucks certainly indicates that sales are up, they have a ways to go to reach their former peaks, which were even higher, according to market observers.  Reports Ms. Toprak, "We don't claim they're back to what they used to be, but it's a reversal of the trend."

The falling sales of trucks and SUVs were a major factor in the fiscal crisis at Chrysler, GM, and Ford.  After focusing on big vehicles for decades, the automakers were blasted by some in the government and the public for failing to follow what the public demands -- small cars.  Those same individuals noted that the domestic automakers foreign competitors like Honda and Toyota posted stronger sales thanks to the increasing demand for small, fuel-efficient cars.

Eventually the automakers secured a $13.4B USD loan, but it was only have government officials sharp scolded the domestic automakers.

While the impact of decreases in home construction and contracting is still pushing sales down, a combination of other factors is making large vehicles irresistible for some, according to researchers. reports that on average, trucks this month are coming with $5,200 USD in incentives, making them a hard offer to refuse.  And that's not even including at-dealership price cuts that most buyers negotiate.  States Ms. Toprak, "I can get about $10,000 off a large SUV, there's probably not going to be a better time."

Next year, however, incentives are expected to decline as the domestic automakers tighten up, and supply of big vehicles coming to market falls.

The rise in large vehicle sales could spell trouble in the long run for foreign and domestic automakers, alike.  Companies like Toyota, whose Prius is a best-seller, are expected to post lower hybrid sales for the month.  The Prius is considered by many as the barometer for public reception of hybrids, as it is by far the best selling hybrid in the country.  Now with gas prices falling from a summer peak of $4/gallon to around $1.67/gallon, Prius' are looking less attractive, and sales are expected to sharply drop off.

In previous months this year, there was a waiting list for the Prius.  In November alone, falling gas prices caused a 48 percent drop in sales, and this is expected to continue into December.  All this spells trouble for the hybrid heavy Toyota and Honda.

It also may spell trouble for domestic automakers.  After decades of going their own way, American automakers are now following their foreign competitors, focusing on small fuel efficient cars and hybrids.  With sales down, the domestic automakers may be back to where they started, with the majority of their production geared toward a product the public is not necessarily demanding.

This is evidenced by's prediction that despite the rise in demand for trucks, GM, Ford, and Chrysler's combined market share is actually expected to fall one point to 51 percent.  Sales overall are likewise expected to be dismal both for the domestics and their foreign competitors.