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Gaining Ground

Truck Sales Accelerate Due to Several Driving Forces

Jeff Sarat

Jeff Sarat says businesses that held onto their trucks during the recession are now upgrading their fleets.

Jeff Sarat predicts Sarat Ford Lincoln in Agawam will sell more trucks in 2015 than in any year since it opened in 1929.

That’s a bold statement, but he’s more than prepared to make it.

“Normally our busiest time of the year is October to December because companies make year-end purchases. It drops off to nothing from January to March, but this year there was no lull; we slowed a little, but sales are so high, we have doubled our inventory of super-duty trucks,” said the general sales manager, noting that a high percentage of buyers are businesses that put money into maintenance during the recession rather than replacing their fleets. But the combination of reduced gas prices and an upswing in the economy has changed that trend, and business owners and managers are finally trading in vehicles and buying new ones.

But they’re not the only ones creating this historic run on trucks.

Bill Peffer says most people want to own the largest and most expensive vehicle they can afford, and in today’s world, that translates to a truck.

“I can’t think of a better time in the past 10 years to buy one,” said the president and COO of Balise Motor Sales, as he listed interest rates, incentives, and lease options. “The industry has certainly returned to the level of pre-recession sales, the market is robust because the economy is getting healthier, interest rates are low, there is easy access to credit, and the option of leasing at an affordable cost have combined to drive truck sales.

“Passenger cars have limitations,” he added. “And part of the fabric of America is to utilize a vehicle in a way that fits your lifestyle.”

National reports show truck sales began climbing about two years ago and quickly gained traction. Manufacturers have introduced new models that are fuel-efficient, quiet, comfortable, and have room for a family, yet offer the versatility and utility that a truck with a towing package can provide.

“Trucks have come a long way, and the new ones ride like a Rolls-Royce — some models will even parallel-park themselves with a push of a button,” Sarat said, adding that industry forecasts predict more than 16 million new vehicles will be sold this year, and a significant percentage will be trucks.

Brett Starbard, sales manager for Metro Chrysler Dodge Jeep Ram in Chicopee, said the new, redesigned Ram 1500 was named Motor Trend’s Truck of the Year in 2014, and better technology and design have fueled demand.

Bill Peffer

Bill Peffer says the rise in truck sales has led to a highly competitive market, which translates into good deals for buyers.

“Our truck sales have gone up by 50% since we started carrying Chrysler Rams a few years ago,” he noted. “We’re seeing an increase in people who want a truck, but don’t necessarily need one. Gas prices are down, and people live on a budget; if they are spending $50 less a month on fuel, they can afford $50 more on a new car payment.”

Ed O’Grady, sales manager for Central Chevrolet in West Springfield, said 60% of the dealership’s new truck business can be attributed to the fact that they are a bargain. Used trucks are retaining their value, and the manufacturer is offering $3,600 discounts that, in the past, were available only to employees who worked for suppliers, such as US Tsubaki in Holyoke, which sells timing chains. “Another $6,250 in incentives and rebates brings the savings on new trucks to $10,000,” he noted.

In addition, the cost of leasing has come down. “We have 2015 Silverado double cabs with four-wheel drive that are leasing for as low as $259 a month,” O’Grady said. “Leasing protects the consumer from depreciation; if the value goes down in three years, they can drop the vehicle off without taking a loss. But if a person does choose to purchase a truck, they can get a better price on a new one than on a two-year-old model due to all of the incentives.”

Starbard says Metro leases the majority of its new trucks. “Our average MSRP is $40,000 to $45,000, so the payments on a five-year loan would be $600 to $700 monthly. A lease is about half of that because the residual [remaining value] when the lease ends is as high as 60 to 70%, which means the person who leases only has to pay 30% over the term. Plus, there is no cost for maintenance,” he explained, noting that trucks have retained their value as sales were slow throughout the recession, so there are fewer used trucks on dealer’s lots, which leads to higher demand.

Body of Evidence

Although most businesses kept their trucks when gas prices reached $4 in the summer of 2008, Sarat said, many of his customers who didn’t need them took them off the road and purchased vehicles that get good gas mileage, such as a Ford Focus, which averages 40 miles per gallon.

However, other dealers report that many people took real losses by trading in their trucks for fuel-efficient cars. “People were very concerned with operating costs and some made irrational decisions as they traded in trucks for something that was far more fuel-efficient,” Peffer said.

Ed O’Grady

Ed O’Grady says it often costs less to lease a new truck than to purchase a used one.

Starbard recalls contractors who begged him to take their truck on a trade-in. “It wasn’t a smart thing to do, and they took huge losses, but if they had a job 100 miles away and were getting 10 miles a gallon, they were spending more on gas than they were making,” he told BusinessWest. “Gas prices are cyclical, like stocks, and I advised people not to sell when prices got high, but many of my customers didn’t feel they had an alternative when gas went over $4 a gallon.”

O’Grady said the government’s Cash for Clunkers program helped fuel trade-ins, and the prospect of getting an additional $4,500 for a vehicle that got poor gas mileage motivated many people to get rid of their trucks between 2008 and 2010.

“But now that fuel prices have dropped, they want their trucks back, and they are buying models that are more fuel-efficient than ever before,” he said, adding that the new Silverado with a V-8 engine gets 18 miles per gallon around town and 21 to 22 miles on the highway.

Sarat concurred. “There is definitely a pent-up demand, and as the economy continues to get better and businesses expand, we expect them to add more trucks,” he said, citing the example of a man who bought a van last year and added another this year as his business is flourishing.

Manufacturers such as Ford are also doing whatever they can to motivate prospective buyers, which includes offering 0% financing or rebates of up to $4,000 for certain vehicles. And although leasing is popular at some dealerships, Sarat said the majority of his customers purchase new trucks.

“They tend to retain their value so well that sometimes people find they can get a new truck for about the same price as a used one,” he noted. “People hold onto their trucks, so it becomes an issue of supply versus demand. Since vehicles get more expensive every year, it makes it easier to sell a new truck when you can offer really good money for a trade-in.”

Trucks have become all-around vehicles, and people today want trucks with four doors and ample interior cabin space to accommodate a family.

“Ten or 15 years ago, most trucks had regular cabs, but you don’t see many of those today; they make up less than 5% of my inventory,” Starbard said. “Today, a gentleman who owned an SUV can replace it with a pickup with full-size doors; plus, the RAM can be purchased now with a six-cylinder diesel engine that is much better in terms of fuel economy.”

Another factor that attracts people to trucks is the fact that they can customized with accessories that range from running boards to side steps, different types of wheels, exhaust systems, bed covers, and cover liners. “The average truck buyer spends $1,000 to $2,000 in accessories after the purchase,” Starbard said.

New Models

Although there are five main competitors in the truck market, which Peffer lists as Ford, Chevy, Ram, Toyota, and Nissan, new products are coming on the market because manufacturers seek to attract new buyers and retain customers looking to upgrade.

“They don’t want to lose market share, so they have become very competitive, which is good for the consumer,” Peffer said. “For some buyers, a truck is a tool of their trade, but for a growing segment, it’s a want more than a need, and luxury features such as leather seats and navigation systems appeal to a wider audience.”

Ford recently introduced a new Econoline cargo van with a choice of three engine options. “You could never stand up in them before, but now they come in two lengths and three heights, and you can stand in the medium and large models,” Sarat said. “They are a phenomenal addition and have been very popular. We have been selling several every week, and demand is starting to pick up, so we are taking in as much inventory as we can get.”

Ford also introduced an all-aluminum F-150 this year that is fuel-efficient, Chevy brought a new Silverado model to market last year, and Nissan will introduce a new Titan in the next few months.

Chevrolet stopped producing small trucks in 2012, but demand is skyrocketing for its new 2015 Colorado, which gets 27 miles per gallon on the highway and was named Motor Trend’s 2015 Truck of the Year.

“It comes with a four- or six-cylinder engine, but can tow 7,000 pounds, and every dealership across the country is taking orders,” said O’Grady. “They sell the day they arrive.”

He noted that the trend is moving from trucks with clamshell doors to four doors, and Chevrolet’s offerings convince buyers to purchase new trucks. They include a five-year, 100,000-mile power-train warranty with two years of free maintenance; wi-fi Internet connectivity that comes in every 2015 Silverado; and Remote Link, a smartphone app that allows people to lock and unlock doors remotely, view tire pressures, and send directions to their truck with their phone, which are announced via OnStar navigation.

“Sales have been on the rise for the last few years, and we believe the numbers are sustainable,” O’Grady went on, explaining that GM used to stockpile vehicles to keep people working, but have stopped that practice and now fill orders.

Still, many dealers say leasing is the best deal available, due to the fact that trucks hold their value. “More vehicles are leased in New England than in any other part of the country,” Peffer said. “There are a lot of advantages, and manufacturers recognize it as an opportunity to grow or maintain market share.”

Revving Up

Sarat Ford’s truck sales continue to grow, and several years ago it expanded its service department to help its commercial truck customers.

“We added six new bays, and as we continue to sell more big trucks, we continue to need more room,” Sarat said. “This year our sales are up by 10% over last year, and the truck business is pushing the increases.”

O’Grady has been in the auto industry for 23 years and says this is “an exciting time for truck sales.” He pointed to a study conducted by Chevy last year with focus groups representing all ages and income brackets. Participants were shown two photos taken in the same location; the only difference was one had a man in front of a truck, and the other had him standing in front of a car. The groups rated the guy in front of the truck as more handsome, rugged, dependable, resourceful, and someone they would want to date their daughter.

Whether that image plays into the increase in sales is unknown, but Peffer says stiff competition makes it a great time to buy a truck.

“We are seeing an acceleration of people trading in all types of vehicles,” he noted. “There is a propensity to shift to a truck, and there have never been more product offerings and choices in the market.”