A House, a Truck and the Economy (Craig Douglass On Consumers)

Dear Business Reader:

Did you read last month’s column? If so, you learned about the growing confidence among consumers, spurred by an improving housing market. You no doubt recall we strained a train metaphor suggesting it was time for consumers to “get on board” because housing was “back on track.”

It went on like that for a painful five sentences, attempting a figure of speech in which our train-related phrases applied to housing, which is not literally applicable. Oh, well. The point is housing and its pervasively positive impact on the overall economy, and on consumer confidence resulting in increased consumer spending, is again advancing.

Keep on Truckin’

Relax. We’re not going to analogize housing and trucking. However, it is appropriate to point out increased housing starts and improved housing values directly relate to an increase in the sale of pickup trucks nationwide.

“Truck sales have moved in lock-step with the housing market,” said Kurt McNeil, head of U.S. sales for General Motors. After March sales figures were released, Reuters, quoting McNeil, further reported that not only had overall auto sales reached levels not seen in six years, but that light trucks and SUVs led the sales trends due primarily to an increase in housing construction.

GM vs. Ford

The perennial battle of the No. 1 and 2 automakers, GM and Ford respectively, continued in March. But both enjoyed increases. And the sales of their industry-leading pickups — Ford’s F-Series and GM’s Chevrolet Silverado — were strong, with Silverado sales increasing 8 percent while the F-Series posted a 16 percent gain, making it the best-selling vehicle in the country. In fact, the F-150 has been the best-selling truck for 36 years, and the best-selling vehicle of any kind for 31 years.

So following its sales, tying that to increases in construction and viewing construction as a mirror of economic growth should give us a foundation for understanding the trends in the economy.

Connecting the Dots

The relationship between housing starts and pickups makes perfect sense. Last month, we noted the industries participating in supplying the needs of the housing market. Looking at those businesses, many of them small businesses, one finds the workhorse is the pickup. And there is another dot to connect: The average age of vehicles on the road today is 11 years. Consequently, there appears to be a pent-up demand for new vehicles, a demand that is sated by new-found or newly perceived wealth due to the economic upturn.

Consumers Act

Rising home values are also contributing to the increase in car and truck sales. As reported, consumers are feeling more confident, and that confidence translates not only to the purchase of a new home, but a new vehicle as well. We look again to Reuters, which reported that home prices in 20 metropolitan markets rose more than 8 percent in January from a year earlier. This is the largest yearly increase since June 2006. And new vehicle sales have paralleled this progress since GM and Chrysler went into bankruptcy in 2009.

As consumers act, the auto industry realizes a position right along with housing as leaders in the economic recovery. What is particularly telling is the fact that these increases have come in the first quarter of the year, a time that historically lags the rest of the year in home and auto sales due to poor weather. Who knows? The next three quarters may be gangbusters. We’ll wait and see.

Local Dealerships

The consulting firm Urban Science said in a February email to auto industry leaders that annual sales per auto dealer should reach an estimated 839 vehicles. That would best last year’s record by 27. A survey of local dealerships would have to confirm this estimate, as sales differ from market to market based on population and demographics. However, there is no doubt that vehicle sales, particularly the venerated pickup, are enjoying a surge based on housing and other construction activity. A welcome sign as we move into spring. Stay tuned. n

Craig Douglass is president of Craig Douglass Communications Inc. of Little Rock and a marketing and research consultant.