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Predicted Economic Headwinds Could Portend Boom for Car Sales, Bust for Truck and SUV Sales

Predicted Economic Headwinds Could Portend Boom for Car Sales, Bust for Truck and SUV Sales

By Christian Wardlaw, January 18, 2017
Scanning through my Medium feed, I came upon an article asserting that in 2018 the world could plunge into an economic recession fed by an oil crisis. The article is based on the findings of an HSBC Global Research report from September 2016, titled “Global Oil Supply.” This report summarizes that “risks of supply constraints will resurface long before risks of global demand peaking,” and that there will be “a steady tightening in the supply/demand balance post-2017.”

Given that the average gallon of gas is priced between two and three bucks per gallon in every state except for Hawaii, and has been for several years, it’s hard to fathom that within a year or two we could see a big spike in what we pay at the pump. But if global oil demand continues to increase, global oil production continues to decrease, and discovery of new oil fields continues at 2015’s record low success rate, well, that’s a problem.

Is the SUV boom about to go bust?
These trends signal that perhaps the love affair people currently enjoy with trucks and SUVs could soon sour, which means that Toyota’s introduction of a redesigned 2018 Camry at the 2017 North American International Auto Show in Detroit might prove to be one of the best-timed redesigns of the decade. This is especially possible given that the new Camry Hybrid is expected to get the same incredible gas mileage as the iconic Prius.

Pundits might not agree, wondering why Toyota might bother with an all-new sedan in a world gone crazy for SUVs. After all, the midsize family sedan was, until this past year, the best-selling type of vehicle in the United States. However, it has slipped significantly in terms of popularity as people increasingly turn to SUVs. Now, America’s favorite ride is the compact crossover. Think Toyota RAV4, not Toyota Camry.

It is easy to understand why people like crossovers. They stand tall off the ground, making them easier to get into and out of while they also position the driver higher for a better view ahead. They also offer all-wheel drive (AWD) for better traction in rain, snow, and mud. Cargo space is a big plus, too, easily beating the volume and utility provided by a sedan.

Crossover SUVs, then, are basically station wagons with rugged styling cues and taller seating positions. But don’t tell their “active lifestyle” owners that.

Can a car compete with a crossover?
Usually, crossover SUV models share their platforms and engines with cars. For example, the Honda CR-V is the most popular SUV in America. Redesigned for 2017, it sits on the same platform as the Honda Civic, and in addition to increased utility, a taller ride height, and available AWD, it is also more expensive to buy and to own than the Civic.

The 2017 Civic is available in a 5-door hatchback configuration, which adds a significant amount of practicality and flexibility to the car, and it costs $20,500 in LX trim with a continuously variable transmission (CVT). The Civic hatchback holds 25.7 cu. ft. of cargo with the rear seat in use, and 46.2 cu. ft. of cargo with the rear seat folded down. It is EPA-rated to get 34 mpg in combined driving.

A 2017 CR-V LX costs $24,015 with a CVT and front-wheel drive (FWD). It holds 39.2 cu. ft. of cargo behind the rear seat and 75.8 cu. ft. of cargo with the rear seat folded down. This version, equipped with a 2.4-liter 4-cylinder engine, gets 28 mpg in combined driving. Paying more for a higher trim level installs the same turbocharged, 1.5-liter 4-cylinder engine found in the Civic, and results in an EPA rating of 30 mpg.

What conclusions can be drawn here? You’re paying a minimum of $3,515 extra for the CR-V (before factoring in greater fuel consumption), in order to sit up higher and to carry extra junk in your trunk.

Wait! What about the Honda HR-V? It’s less expensive than the Civic, at $20,265 with a CVT and FWD, and it holds about the same amount of stuff, at 24.3 cu. ft. and 58.8 cu. ft., respectively.

Yes, that is true, but the HR-V is based on the Honda Fit, a less sophisticated vehicle than the Civic. Furthermore, it gets just 31 mpg in combined driving, and it weighs more than the Civic while making significantly less power than the Civic. So don’t go thinking that you’re getting more for less. The only bright spot with the HR-V is its optional AWD system.

A reckoning could be looming just over the horizon
Cars aren’t dead yet. People might be paying extra for crossovers right now, but if oil and gas prices rise as predicted, and they negatively impact inflation and economic growth as they have historically, consumers are less likely to choose them instead of a traditional car.

Since 1960, American recessions have occurred once every 5 years and 11 months, on average, and each has lasted a year, according to data sourced from the National Bureau of Economic Research. The longest period of time America has experienced between recessions since Kennedy took the White House is 10 years—March 1991 to March 2001.

At this point, our last recession, the Great Recession, ended more than 7.5 years ago in June 2009, after a long 18-month wait. Another one is inevitable, and sooner than later given official statistics.

Automakers selling affordable and efficient cars—especially models with the extra practicality of the Honda Civic Hatchback, or the AWD that comes standard in the redesigned 2017 Subaru Impreza—could find that their continued investment in vehicles other than crossovers, SUVs, and trucks could prove quite beneficial.

Additional Research:

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