Americans, who have long lived by the motto “bigger is better,” are driving record demand for the biggest rides on the road.
Pickup trucks, SUVs and crossovers continued their red-hot selling streak in November, as consumers cashed in on the powerful combination of low gas prices and cheap financing.
“People are really starting to accept that gas prices are going to be lower for longer, and people are then taking that into their spending habits,” said Mark Wakefield of the consulting firm AlixPartners.
With the national average for a gallon of gas just above $2 a gallon, it’s not surprising that Jeep sales in November jumped 20 percent, making it the brand’s 26th-consecutive month of year-over-year sales gains.
Nissan, meanwhile, set a November record for sales of crossovers, trucks and SUVs, with a 15 percent increase. At General Motors, truck and SUV sales were up 4 percent and Ford truck sales climbed 18.3 percent.
“We had a very strong month in November,” said Joe Hinrichs, president of Ford of the Americas. Hinrichs spoke with CNBC from the end of the F-Series Super Duty assembly line at Ford’s plant in Louisville, Kentucky, where the automaker is investing $1.3 billion and adding 2,000 jobs to expand truck production.
“We are predicting increased sales over the next couple of years as the housing market continues a steady pace of growth, and of course we still have [a] strong oil industry here and construction is picking up,” he said.
While cheap gas is one factor driving the greater demand for trucks and SUVs, another is low interest rates. Low financing costs means auto buyers can borrow more money to pay for a more expensive utility vehicle.
The combination of these two factors is creating one of those rare times in America when auto buyers don’t have to worry as much about making monthly payments or paying to fuel their vehicles.
But what happens when gas prices start to climb or if the Fed starts to raise interest rates?
UBS analyst Colin Langan said those moves would dampen demand for larger, more expensive vehicles. Still, he said rising rates won’t kill America’s truck boom.
“It’s definitely not good news if interest rates rise,” Langan told CNBC. “But if we look back historically since 1980 and the five periods of rising interest rates, you see auto sales rose. That really indicates that the economy was improving in that period. So if we have a strong economy and interest rates tend to rise, auto sales would rise along with it.”
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