San Francisco — June 19, 2018 — The ever-shrinking sedan segment might just have some life left in it after all.
Consumer interest in sedans could rebound in the wake of rising interest rates by the Federal Reserve, according to a recent study by Autolist. The study found that the upward trend in gas prices could also boost sedan sales, echoing a similar trend that was seen during the 2008 recession.
Sedans could use all the help they can get. Sales have steadily declined in recent years, as crossovers, SUVs and trucks have surged in popularity. Thanks to a combination of light trucks’ improving fuel economy and a greater number of models available —plus cheap gas and easy borrowing—sedan sales have dropped in the U.S. every year since 2014.
This has led brands like Ford, General Motors (including its Cadillac division), and FCA to announce plans to cut their sedan offerings significantly in the near future, as they bolster their light truck offerings with new models and expand the reach of existing nameplates.
But that trend towards light trucks could hit a roadblock in the form of higher financing costs.
Last Wednesday the Fed raised its benchmark interest rate, a move widely expected to push interest rates higher on auto loans, mortgages and credit card debt. The Fed also indicated it could raise rates two more times in 2018.
Such a move could have a direct impact on the type of vehicles consumers prefer, according to Autolist’s data.
Forty-five percent of consumers said they would be more likely to choose a sedan over an SUV or crossover if financing costs rose. Twenty-five percent said they would still buy the type of light truck they’re considering, 16% said they wouldn’t buy either a sedan or a light truck and 14% said they would still buy a light truck but would opt for one smaller than what they’re currently considering.
Meanwhile, the steady climb in gas prices over the past year could also prop up the sedan market. Currently, the U.S. average for a gallon of gas is $2.91, according to AAA, a 30% increase from this time last year. In California—the nation’s largest auto market—an average gallon of gas costs $3.72.
The last time sedans enjoyed a resurgence was in 2008, thanks to the global financial crisis and a jump in gas prices.
Autolist’s survey found that history could repeat itself.
Forty-nine percent of respondents said that they would choose a sedan, rather than an SUV, if gas topped $4 a gallon. Twenty-three percent said they would still buy the light truck they’re considering, 14% said they would still buy a light truck—but one smaller than what they’re currently considering and 13% said they wouldn’t buy a sedan or a light truck.
Despite the positive impact that gas prices and interest rates could have on sedan sales, Autolist’s survey also found that the number one reason current sedan owners choose that vehicle type was cost, over size, practicality, fuel efficiency, safety, style and fun-to-drive factor.
This is a bad sign for the sedan market, because the price delta between sedans and the light truck market is shrinking as SUVs and CUVs become available at more price points. The more the price difference shrinks, the less sedans can rely on their key element of appeal.
Autolist polled 1,192 current car shoppers in late May to gauge the health of the sedan market.
Chase Disher, Autolist Analytics Team, 415-496-5998, Autolist.com0
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