Can the U.S. light-truck market get any hotter after eight years of spectacular growth from the depths of the 2008-09 crash? Apparently, yes.
Light trucks' sprint toward capturing 70 percent of the U.S. new-vehicle market took a giant leap in the first quarter, capped by a spectacular March.
U.S. sales of crossovers, SUVs, pickups and vans set a monthly record of 1,116,280 in March, easily topping 1 million units for only the fifth month on record.
Light trucks represented 68 percent of the U.S. new-vehicle market in the first three months — a quarterly high — and up sharply from 45 percent in 2009.
Seven of the top 10 selling vehicles in the U.S. this year are light trucks, vs. six in the top 10 in all of 2017.
It's the tiniest of those vehicles — subcompact crossovers — that are propelling the market, with sales up 61 percent in March and 38 percent year-to-date. The market is also getting a lift from midsize pickups (up 21 percent this year), large crossovers (up 17 percent), compact crossovers (up 13 percent), midsize SUVs (up 21 percent) and premium compact crossovers (up 14 percent). Even minivan sales, up 3 percent, are outpacing the overall market, which is up 2 percent.
U.S. light-truck sales jumped 16 percent last month and rose 9.5 percent in the first quarter, while car demand slumped 8.9 percent in March and is off 11 percent in the first three months. Overall, car sales are on pace to fall for the fifth straight year.
"We expect SUV and light-truck sales to continue to outpace passenger cars," said Jack Hollis, general manager of Toyota division. "The question is where are we going? It looks like the industry continues to be pushing that 70/30 [mix], that 30 percent passenger cars vs. that 70 percent SUV/truck. There's a pretty strong indication we're going to be there."
Spring sizzle
U.S. light-vehicle deliveries — behind higher discounts and fleet shipments, the surge in light-truck demand and an extra weekend of sales — rose 6.4 percent in March, topping expectations as the crucial spring selling season began with some sizzle.
It was the industry's largest year-over-year increase since monthly volume rose 7 percent year over year in February 2016.
The seasonally adjusted, annualized sales rate for March — 17.49 million, well above most forecasts — marked the seventh straight month the pace of sales has topped 17 million units.
"The impact of tax reform may now be kicking in and lifting the market above previous expectations," said Charlie Chesbrough, senior economist for Cox Automotive. Even rising interest rates and new-vehicle loan rates "do not appear to be derailing automotive sales," Chesbrough added.
Though the overall U.S. market is projected to see its second consecutive annual decline in 2018, sales through March are ahead of last year's pace.
"Consumers are keeping the U.S. economy growing and auto sales very healthy," said Mustafa Mohatarem, who retired as GM's chief economist last week. "The job market is strong, consumer confidence is at decade-high levels and we see clear evidence that business owners are taking advantage of tax reform to upgrade their fleets."
Indeed, fleet volume rose 9 percent last month to 303,902 vehicles, according to Cox Automotive data, with commercial-fleet shipments rising 10 percent and daily rental deliveries jumping 12 percent. And like the overall market, light trucks represented 67 percent of fleet volume in March.
But there are major headwinds.
Average new-vehicle transaction prices and interest rates on new-vehicle loans are rising, raising monthly loan payments and squeezing customers with less-than-stellar credit out of the new-vehicle market. And Cox Automotive warns millions of "gently used" off-lease vehicles are providing growing competition for new-car demand.
Market pressures
Overall, U.S. sales are still forecast to drop below 17 million in 2018 for the first time in three years, with most estimates from analysts ranging from 16.7 million to 16.9 million units.
And J.D. Power says the sales environment for pickups, SUVs and crossovers is increasingly tough, with average incentives up $160 per vehicle in March.
"While there are some terrific legacy products in the marketplace, there's also a tremendous amount of new product activity," said Thomas King, head of data at J.D. Power. "It's difficult for everybody to maintain those sales rates that they aspire to."
When automakers can't maintain sales rates they aspire to, King warned, "folks start putting their hands in their pocket to stimulate demand, which takes us, of course, to incentives."
Laurence Iliff and Leslie J. Allen contributed to this report.
