Forget the government shutdown, Obamacare angst and political gridlock.
Gas prices are down to almost $3 per gallon on average and Americans are buying big pickups and SUVs at a pace the industry hasn’t seen since before the recession.
That’s great news for the Detroit Three and their shareholders. American automakers make bigger profit margins on pickups and large SUVs than on smaller cars and the trend is expected to continue with auto sales on track to top 15.6 million for 2013, which would be the strongest tally since 2007.
Last Friday, the national average price of a gallon of gas was $3.28, down 23 cents from a year ago.
Just a few years ago, Americans were ditching pickups and SUVs for smaller cars. Fuel economy is still important, but across-the-board improvements in fuel economy and lower gas prices make it less of a factor.
“It is no longer a deterrent in terms of a purchase decision,” said Mustafa Mohatarem, General Motors’ chief economist. “We have been seeing that for virtually the whole year.”
In October, sales of light trucks rose 15% compared with a 6.6% increase for cars, according to Autodata.
Sales increased 18% for Ram, 13% for Ford F-Series, 13% for GMC Sierra and 10% for Chevrolet Silverado.
The 2014 Dodge Durango posted a 58.5% sales surge as commercials with fictional “Anchorman” Ron Burgundy, portrayed by Will Ferrell, began saturating the airways during Major League Baseball’s playoffs and World Series.
To be sure, other factors also are driving the surge in pickup and SUV sales.
The average pickup on the road in the U.S. today is still about 12 years old. Most of the buyers replacing those aged rigs need a new truck. Historically, pickup sales always surge at the end of the year.
“It is almost a perfect storm right now for truck sales to be strong,” said Jessica Caldwell of Edmunds.com. “There is pent-up demand in that market as well.”
This is not yet a replay of last decade’s housing bubble, which drove many construction workers to buy new trucks they later could not afford. Neither has the industry experienced the phenomenon of affluent suburban women buying pickups.
Trucks are now luxury vehicles, with every automaker pushing their largest, most heavily equipped crew cab trucks. There are ample numbers of consumers who can afford them.
Most analysts say it’s too early to tell whether the latest truck boom will lead to a weakness among the Detroit Three in the passenger car market. The domestic offerings in most car segments are stronger than a decade ago.
Sales of the Chevrolet Cruze fell 16% in October, but General Motors’ U.S. sales chief Kurt McNeil said that reflected declining sales to rental fleets.
“You look at just our retail business, and Cruze was up 8%, Malibu was up 58%, Sonic was up 32% and Spark was up 15%,” McNeil said. “We feel pretty darn good about that performance.”
In the midsize segment, sales of the Ford Fusion increased 71% to 21,740 and sales of the Chevrolet Malibu increased 63.5%, but they still trail segment leaders Toyota Camry (29,926) and Honda Accord (25,162).
“I think you have enough quality products from the top to the bottom … that the domestic automakers are no longer dependent on high-profit, big-truck based vehicles,” said Karl Brauer, senior analyst at Kelley Blue Book.
For now, the tail wind of falling gas prices is blowing strong. Customers want bigger. They can afford it, and that’s where profits are most robust.