The drastic plummet in the price of oil may not be good for Canada’s tar sands economy but, with gasoline at prices not seen for years, it puts hundreds, sometimes thousands, of dollars in fuel savings back into the pockets of car owners.
Where is that extra money going? As the price at the pumps began to drop in August last year, the popularity of light trucks (which includes pickups and SUVs) shot up. In October, light truck sales were up 10.7 per cent over the same month in 2013 and up 10.4 per cent for the year to date, according to DesRosiers Automotive Consultants. Passenger car sales were up just 1.2 per cent for October and were down on the year by 0.4 per cent.
On the surface, it looks like consumers are up to their old ways: low gas prices means buying bigger, less fuel-efficient vehicles. But dig deeper and you’ll find fuel isn’t the only culprit in this buying swing.
Michael Hatch, chief economist with the Canadian Automobile Dealers Association (CADA), says this trend for larger vehicles began well before the drop in fuel prices.
“[The popularity of trucks] is not just a trend that popped up overnight in 2014,” he says. “For the past couple of years, we set records across the country in new-car sales. Most of that growth has come from the truck segment; SUVs, crossovers, pickups, minivans, things like that.
“That broad segment grew by more than 11 per cent last year and provided all of the overall sales growth that took place … Much of that predates this dramatic drop in fuel prices.”
In fact, low interest rates and longer-term car loans have also helped make what DesRosiers calls “the year of the light truck” in a recent analysis of car sales. The top three sellers in Canada were light pickups; Ford sold 126,277 of its F-150, not only making it the bestselling vehicle in Canada but also beating the bestselling passenger car, the Honda Civic, by nearly double. Sales of large SUVs were up 61.8 per cent in December, triple their growth rate over earlier in the year.
Of course, there is anecdotal evidence to suggest that the price of fuel is a determining factor in what people buy. In Britain, where gasoline was $2.64 a litre recently and has traditionally had high fuel costs, people generally drive small, compact cars. The Middle East, which has fuel prices a third of what we pay here, sees people driving larger cars and giant SUVs.
In Canada, while passenger car sales were up 10.7 per cent in December over the same month in 2013, the light truck segment nearly doubled that feat at 19.5 per cent. And compact crossovers are set to pass compact passenger cars as the most popular segment in Canada.
But with advancements in powertrain technologies and the fact that crossovers are car-based, the differences in fuel efficiencies are shrinking. A Ford Focus compact passenger car, for example, is rated at 7.84 litres/100 km combined, while the Ford Escape compact SUV is rated at 9.05 litres/100 km. That could be close enough for people to buy larger vehicles with slightly higher fuel consumption numbers.
Andrew Tai, co-founder of the online car sales website unhaggle.com, has also seen the trend toward light trucks. He says fuel prices are just part of the story that sees Canadians purchasing not only larger vehicles, but also more luxurious ones.
“If oil prices stay at these lower levels, customers will gravitate back towards these larger vehicles,” Tai says. “But I’d be surprised if you saw a radical shift in [sales] numbers within weeks. I think this is something that’s been building for the past year or more.”
Tai says the economy as a whole plays a large part in the public’s purchasing decisions. “Auto makers have been very smart over the last year or two in how they position incentives; the cash rebates that are available seem to get larger and larger.
“Also, the push for longer-term financing. You’re seeing more and more vehicles being financed on 72- and 84-month finance terms,” he says. “And the comeback of leasing; after the financial crisis [in 2008], leasing went away for a lot of the major brands, just due to capital constraints. So these things bring down the monthly payment, and it makes bigger trucks and SUVs more affordable. That and a sustained environment of low interest rates, the monthly payments has made it possible for many consumers to reconsider some of these larger vehicles.”
Hatch is optimistic about the sensibilities of Canadian buyers when it comes to what they can afford.
“Consumers realize a new-car purchase is a long-term proposition, it’s not like buying groceries,” he says. “It’s a purchase that may last nine, 10, 12 years or more. And people appreciate that, yes, energy prices are low today, but they probably won’t be that way for the life of the vehicle.”
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