The Value – Issue #21: Keep On Full-Size Trucking

September 17 2019
Michele Fariello

Welcome to Canadian Black Book's - The Value. Our goal is to provide our clients and partners with news, event updates, new initiatives and opinions from Canada’s trusted source for vehicle values and automotive insights. In this edition we cover:

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By: Brian Murphy

Have you been seeing more trucks and SUVs on the road lately?  At the risk of sounding obvious, it is not your wild imagination at all.  They are everywhere and seemingly in every driveway.

Brian Murphy, VP Research & Analytics, Canadian Black Book

Currently the trend in new car retail in Canada this year is 26% car and 74% truck/SUV/CUV.  We could have a long dinnertime discussion over what constitutes a truck or SUV, however, in the final analysis there is no denying that Canadian consumers have been voting with their wallets for quite some time on this subject.  My own expectation for a few years now has been that we are heading to 20% car and 80% truck/SUV/CUV and we are almost there.

If you examine the end of the year sales for last year, it is very clear how popular actual “real” pick-up trucks (as opposed to CUVs and SUVs) are.  Furthermore, to be fair to General Motors, if you were to add Chevrolet Silverado and GMC Sierra to 111,343 units, that product line would be the new number two in all of Canada.  To put all this in perspective, the top selling car - the Honda Civic - sold 69,005 units.  We are clearly a nation of full-size truckers at heart!

2018 Top Selling Full Size Trucks in Canada*

Ford F-Series:                    145,694

RAM:                                     84,854

GMC Sierra:                        56,246

Chevrolet Silverado:       55,097

As many of you well know, new car sales are down this year by 4.1% (Source: DesRosiers Automotive Consultants).  That said, when you dig a bit below the surface you see that Light Trucks, which would include pickups, SUVs and CUV’s are only down 0.8% in sales, yet Cars are down by 15.7%.  It looks like we have found the proverbial “weakest link” in Canada’s auto business.

The rise of full-size pick-up trucks is not surprising.  One of the main reasons is that they are just so good, they are so much easier to live with than they once were. Consumers love them.  I clearly recall driving the eleventh generation (2004-2008) of the Ford F150 for the first time.  It was an eye-opening experience.  It was such a liveable vehicle.  For the interior I recall they benchmarked a European premium car.  They have all the latest bells and whistles, great audio systems, modern comforts and can make an excellent family vehicle.  Lone gone are the days of a barely tolerable ride and not many creature comforts.  If you have not driven a modern truck lately you are missing out.

Pickups are more fuel efficient than ever before, which historically was one of the main negatives.  Given their mass and physical size, they still do burn more fuel than many of the smaller options on the market, but it is better than it was.  The year 2019 has been a volatile year for gas prices, and it is not over yet.  Gas prices started the year at the phenomenally low $1.00/litre only to promptly soar  to $1.30 in May, followed by a merciful decline to about 1.14/Liter today.  A 30% swing.

As I write this article a refinery is burning in Saudi Arabia with the perpetrators still officially unknown.  A middle eastern conflict with a loss of crude production will certainly be a compelling reason to see gas prices rise once again.  Higher fuel prices, especially if they appear to be here for the long term could contribute to consumers switching away from trucks on both the new and used markets.

Each year Canadian Black Book conducts a poll with IPSOS of Canadian vehicle consumers.  We asked about the consumer’s reaction to a $0.25 increase in gas prices.  The study indicates that 28% of Canadians would consider buying a smaller vehicle and/or switching the type of vehicle they buy.  This, in my mind does show that consumers are prepared to be flexible if the gas price environment changes. At the same time, we should note that 27% of consumers said they would not make a change in their purchase decision.

When referencing the CBB Used Vehicle Value Index we see the full-size pick-up segment, unlike the industry wide price index, are not currently at an all time high for retained value of 2 to 6-year-old vehicles.  They hit their all time high of 108.6 two years ago in August 2016.  Since then values have fallen by approximately 4%.  This is only a small decline, but prices have adjusted downward, which I surmise is due to rising supply in both U.S. and Canada.

It is important to note that pick-ups are even more sensitive to economic factors than other trucks/SUVs.  As you might imagine, if the Canadian economy slows, trucks are not needed to deliver goods and services to customers, or fleet operators may try to run existing trucks a bit longer to save money.  During the full economic barn fire going on in 2009, truck prices were more than 40% lower than today.  We consider inflation and model year change overs in this analysis, making that 40% as dramatic as it sounds.

From a value standpoint trucks are a bit like a snowball rolling downhill.  Because they are more desirable, wholesale values increase, which supports higher residual values, in turn making trucks very affordable to lease, driving more volume.

Another important factor that helps prices of used trucks remain high and sales volume of new trucks to stay strong is the business of exporting used Canadian vehicles to the U.S..  It is still quite possible to export a nearly new high trim pickup truck and turn a $10,000 profit for your troubles.  This export activity has helped keep values high here in Canada.

With all of that in mind, the main concern is that if a few key factors come into play, pick-up trucks will be much more vulnerable to downward price pressure.  In fact, trucks could be affected to a greater degree than cars and smaller SUV/CUV offerings.  Specifically, these factors are higher gasoline prices; an economic slowdown; and a stronger Canadian dollar.  If gasoline prices spike and remain high, it’s reasonable that consumers will reject full size pickups on the used market, causing prices to drop.  Similarly, an economic slowdown would diminish demand.  Finally, if the Canadian dollar were to rise above $0.80 USD, export activity of trucks to the U.S. market would shrink quickly.

These are some factors to consider if you are pondering truck values as you are driving your truck down the road home tonight along with many, many other truckers like you.

*Source: Automotive News Data Center