Gas Prices Are Going Up. What Will This Do to Light Truck Sales?

The only things that ever seems to slow SUV and pickup sales are the economy and the price of gas.

Exactly a year ago, the President of the USA was celebrating on Twitter, taking credit for cheap gas prices.

According to VOX, he told a cabinet meeting that he just got on the phone. “I called up certain people and said, ‘Let that damn oil and gasoline, you let it flow, the oil,’” Trump said. Had he not intervened, he added, there would have been a “recession, depression, like you’ve had in the past.”

But now, the President is mad at the Iraq government for threatening to expel American troops. According to CNN,

Trump vowed Sunday to hit Iraq with penalties "like they've never seen before" if American troops are forced out on an unfriendly basis. "It'll make Iranian sanctions look somewhat tame," the president told reporters aboard Air Force One.

Iraq is the second biggest exporter in the Middle East, behind Saudi Arabia, and the fourth largest supplier of foreign oil to the USA, after Canada, Mexico and Saudi Arabia. And even if there is no blocking of Iraqi oil, the price is already rising due to increasing tensions with Iran. According to Global News,

The global benchmark for crude oil rose above US$70 a barrel on Monday for the first time in over three months, with jitters rising over the escalating military tensions between Iran and the United States. The Brent contract for oil touched a high of $70.74 a barrel, the highest since mid-September, when it briefly spiked over an attack on Saudi crude processing facilities. Stock markets were down as well amid fears of how Iran would fulfil a vow of “harsh retaliation.”

© Calculated Risk

When you look at the sales of passenger cars vs light trucks (SUVs and pickups), the light truck sales have been generally increasing except when gas prices spike or the economy crashes. On finance and economics site Calculated Risk, they write:

Note that the big dips in sales are related to economic recessions (early '80s, early '90s, and the Great Recession of 2007 through mid-2009). Over time the mix has changed toward more and more light trucks and SUVs. Only when oil prices are high, does the trend slow or reverse. Recently oil prices have been somewhat steady, and the percent of light trucks and SUVs is up to 73%.

Last year, oil prices were US$45 a barrel. Right now they are over $70. Who knows where they could go? According to Associated Press,

“The market is concerned about the potential for retaliation, and specifically on energy and oil infrastructure in the region,” said Antoine Halff, a Columbia University researcher and former chief oil analyst for the International Energy Agency. “If Iran chose to incapacitate a major facility in the region, it has the technical capacity to do so.”

There are many good reasons not to buy a light truck, but the only ones that has ever moved the needle are the price of gas or the state of the economy. Both seem like something to worry about right now.