overview
(387,179) and Fiat Chrysler’s Ram pickup truck (294,045). Industry revenue, meanwhile, is expected to grow robustly for a third straight year, rising an estimated 6.7% during 2015. Low fuel prices, more than anything else, have driven the rise in demand for SUVs and light trucks. After rising sharply in 2010 and 2011, the world price of crude oil has declined sharply. With crude oil prices projected to plummet 46.3% this year, the price of oil is expected to settle at just $51.7 per barrel at the end of the year, marking a 10-year low. The decline in oil prices has made larger vehicles, which are comparatively ineffi cient, more affordable for consumers. Consumers have increasingly shifted from hybrid and electric vehicles to gasoline-powered cars, and traded compact cars for larger vehicles, translating to the strongest sales of SUVs and light trucks since before the Great Recession.
Economic Growth, Low Interest Rates Fuel Demand While rock-bottom fuel prices have been the primary driver behind the rise in SUV and light truck sales, improving economic conditions have been integral to growing demand for the larger vehicles of years’ past. During the recession, consumers struggled to pay for SUVs and light trucks with high price tags and poor fuel economy, and overall spending on vehicles tanked at the height of the downturn. In 2008 and 2009, the SUV and Light Truck Manufacturing industry had revenue plummet 31.4% and 25.9%, respectively. However, with the economy on the mend, consumers have been more willing and able to pay for the industry’s more expensive vehicles. In 2010 and 2011, as most indus- tries slowly emerged from the recession, the automotive sec- tor took off at full speed as industry revenue grew 38.0% and 6.2%, respectively. Disposable income, which determines consumers’ ability to purchase more expensive vehicles, has risen steadily through the past fi ve years, with consumer con- fi dence refl ecting this trend. The Consumer Confi dence Index has risen in consecutive years since 2010, making consum- ers considerably more positive about future prospects and, thus, amiable to large purchases. Perhaps most importantly, consumers’ purchasing power has been amplifi ed by historically low interest rates. In
response to the recessionary downturn, the Federal Re- serve lowered rates to near-zero levels, encouraging greater consumer investment. While the economy has rebounded in the years since, infl ation growth has remained well below historic levels, encouraging the Fed to maintain prevailing rates. Automakers have benefi ted from the continuation of low rates. According to the Federal Reserve Bank of New York, auto loan originations reached a 10-year high in the second quarter of 2015 at $119.0 billion, with the aggregate auto loan balance surpassing $1.0 trillion for the fi rst time. In- dustry revenue rose substantially over this period, increasing
CUVs, car-based SUVs, account for nearly half of all SUV and light truck sales.
more than 8% over the previous quarter alone. With the Fed’s decision to hold interest rates steady in September, SUV and light truck sales are expected to trend upward as consumers look to take advantage of inexpensive auto loans before the anticipated rise in interest rates later this year.
Changing Preferences Shift Manufacturing Trends The automotive marketplace has been defi ned by rapidly changing product platforms in the wake of Detroit’s near collapse. Nowhere has this been more evident than in the SUV and Light Truck Manufacturing industry, which has been propelled by the ascent of the crossover utility vehicle (CUV). During the fi nancial crisis, consumers struggled to pay the
premium prices commanded by SUVs and light trucks. Con- currently, the volatile growth of fuel prices from 2005 through 2012, which saw the per barrel price of crude oil reach a high
14 — Motorized Vehicle Manufacturing 2015
Photo courtesy of American Honda Motor Co.
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