Truck Sales: Past the Tipping Point?

Nobody could be surprised that consumers have turned away from big, gas-guzzling pickups and SUVs and toward more fuel efficient cars and crossovers. But industry analysts are slack-jawed at the speed at which demand for trucks has gone from merely eroding to downright collapsing.

Not surprisingly, the catalyst appears to be gas prices. The American Automobile Association reported the national average price for regular gas hit $3.96 on May 30, versus $3.19 a year ago.

Meanwhile, U.S. sales of large pickups have quickly gone from bad to worse. Large pickups fell only 3.2 percent to about 2.1 million for all of 2007, versus about 2.2 million in 2006.  But in January 2008, large pickups fell five percent from the year-ago month; in February, down 9.9 percent; and in March, down 14.9 percent, according to AutoData Corp., Woodcliff Lake, N.J.

“While this trend has been going on for a few years, there has been a dramatic acceleration over the past few weeks,” said Lehman Brothers auto analyst Brian Johnson, in a May 29 newsletter to shareholders.

Truck sales have been eroding, and the ingredients for this change have been accumulating, since at least 2004. That’s when gas prices began to take off.

More recent developments include the subprime credit crunch, the bust in housing construction, and the strategic decision among the U.S. domestic brands to try and keep a lid on incentives, sacrificing sales volume in hopes of regaining profitability.

Earlier this week, Johnson cut his full-year 2008 U.S. sales forecast to 14.9 million units, and took 600,000 units out of his North American production forecast, to about 13.7 million.

Ford Motor cut its second-quarter production schedule on May 22, and warned of cuts in the third and fourth quarter, Johnson said. Following the announcement, Ford President and CEO Alan Mulally was widely quoted saying that gas prices seem to have reached a “tipping point” where shoppers are changing their behavior. Even wealthy households have increasingly begun taking gas mileage into account when choosing a vehicle, according to CNW Marketing Research.

Johnson said in his May 29 note he thinks Ford will have to cut back its production even more. In addition, he said truck inventories are also too high at General Motors, even after a strike that cut sharply into truck production.

“While we were pleased with Ford management’s rapid response to the deteriorating demand, we believe that the actions signaled so far may not be enough,” he said. Johnson said Ford production will probably be down 13 percent this year, including a 17 percent cut in truck production.

As previously noted, all this creates an ominous environment for launching the redesigned Ford F-150 pickup this fall. Ford is counting on the truck to keep its U.S. sales crown. But then, nobody thought the market would change so fast.

Photo by Flickr user Bombardier, CC 2.0