Shift to Trucks Drives up Prices for Dealers, Consumers

 

Changing consumer tastes are driving up used-vehicle prices as buyers shift to trucks from cars.

The mix in the used-vehicle market today remains pretty much evenly split between cars and trucks. In the new-vehicle market, however, trucks, SUVs and crossovers make up 70 percent of sales.

Many used-vehicle shoppers want to trucks, but there isn’t the supply to meet their demands. That is starting to change as more of these vehicles come off-lease.

Because trucks are more expensive new and hold their value well, they will drive up used-vehicle prices, said Zohaib Rahim, manager of economics and industry insights for Cox Automotive.

For example, a new Toyota Rav4 cost $30,000 in May. A 2014 Rav4 cost $18,000.

That is a lot of money for many used-vehicle buyers.

“You will have to get financing,” Rahim said. “There aren’t going to be cash purchases.”

Of course, as more supply enters the market, used-truck prices will soften somewhat.

Also, the difference between new and used trucks is great enough that there is room for higher prices on the used side.

June was particularly strong for new pickup trucks, as full-size truck prices rose 5 percent on new models and richer trim mixes, Kelley reports.

This could mean more cross-shopping among truck shoppers between new and late-model used, Rahim said.

“Your biggest competitor is yourself from three years ago,” he said.

The biggest challenge to the truck market remains gas prices.

Gas prices have been touching the $3 a gallon mark on a national average and have topped it in states with the highest prices, such as California, which saw gas reach close to $4 over the Memorial Day weekend.

“Demand for gasoline this summer remains very strong week-over-week, driving gas prices higher alongside rising crude prices,” said AAA spokesperson Jeanette Casselano.

The truck market collapsed in 2008 when gas prices last reached this point. But today’s large vehicles are much different than those of a decade ago, Rahim said.

Most trucks, SUVs and crossovers are very fuel efficient for their size. This became evident when Ford announced it would phase out most of its cars.

The crossovers it is counting on for sales get the same or even better miles per gallon.

Rahim said it would take a major supply shock for gas prices to reach a point where consumers would abandon the truck market.

For now, dealers need to prepare for higher inventory costs and increased demand for financing.

 

 

 

Last modified on Friday, 13 July 2018 14:44