US petrol prices force SUV slowdown
Is the Yanks' 4x4 love affair coming to an end?
Over the past 20 years, light trucks have come to dominate the US car market, SUVs making up the segment's largest and fastest-growing niche. That's left some industry observers to wonder whether the mass migration would end before sales of saloons and coupés vanished almost entirely.
Suddenly, though, that's changed. Over the last several months, SUV sales in the US have started to stagger. In August alone, the segment's volume plunged nearly 14 per cent, from 450,044 to 388,689 compared to the same month the year before.
The downturn appears to be selective, geographically. In some markets, it's business as usual. "Sales of SUVs seem to be up for us. Our market with SUVs continues to grow," insisted David Butler, general manager of the Suburban Collection, a Michigan dealer group that operates 18 showrooms representing 21 different vehicle brands.
Yet according to research by California's J.D. Power and Associates, the number of days the typical SUV sat on a dealer's lot -- in trade terms, the "days to turn" -- increased 22 per cent, from 60 days in July 2003 to 73 days in July 2004. The picture was a bit more upbeat in the luxury SUV segment, but even there it took 50 days to turn a SUV like the big Infiniti QX56, versus 35 days in July 2003.
Even the upbeat Butler admits the market has become, in his carefully chosen words, "more competitive." That translates into increasingly hefty discounting and costly incentives.
Life without rebates rare
Not all that long ago, rebates were a rarity, at least among the top tier of SUVs. Now it's hard to find any model, domestic or import, without at least a little cash sweetener. Power reports that incentives have increased more on sport-utility vehicles than they have on any other class of vehicle. From just June to July, the average giveback rose 12 per cent, to $3,440 (about £1,900), and the trend is continuing through September, industry sources report.
"The data clearly suggest the SUV segment is under exceptional pressure," said Tom Libby, senior director of industry analysis at the Power Information Network. "Higher gas prices and a renewed emphasis on cars by some of the OEMs have both likely played a role in this trend."
Short-term sales trends can be fickle, and notoriously misleading, counters Gary Cowger, president of General Motors' North American operations. Indeed, overall US motor vehicle sales have been sliding as the US economy stutters - a situation only worsened by massive storms, such as Hurricanes Charley, Francis, and Ivan, which have shuttered showrooms in Florida, one of the nation's largest automotive markets.
But what worries industry insiders most is whether the gasoline crunch is finally beginning to take its toll on SUVs, some of the least fuel-efficient vehicles on American highways. In markets like Los Angeles, gasoline at $2.50 (£1.40) a gallon can add $1,000 (about £560) or more to a commuter's annual fuel bill.
For his part, Cowger insists that Americans may be complaining, but they'll quickly adapt to higher fuel prices. The GM executive says that according to company research, "People are more likely to change their driving patterns than change what they drive."
Change all around
Yet there's no question that Detroit carmakers are worried and ready to prop up the market to keep momentum strong. Ironically, the Big Three may be causing some of their own problems by shifting attention to an array of new saloons, coupés and estate cars. Ford, for example, has dubbed this "The Year of the Car," and is backing that up with products such as the new Mustang sports coupe and Five Hundred sedan.
But the strategy could prove problematic. While Detroit's automakers desperately need to start making more money on the car side of their business, they cannot afford to see vanish the hefty light-truck margins that kept them afloat during much of the past two decades.
Should the SUV segment continue to slip, it would also prove troublesome for Asian manufacturers. Japanese brands were notably late to the light truck party. So while the Toyota Camry and Honda Accord were taking control of the mid-size sedan market, Detroit was long able to maintain dominance of most SUV segments. Of the 20 best-selling vehicles in the US in August, five were still SUVs, all of them built by the Big Three.
Yet imports overall, and Japanese makers in particular, have begun to gain ground. And Japanese carmakers are betting they can grow their share even more by borrowing from the successful Camry and Accord playbooks. They're designing unique products, or at least specifically tailoring, versions for the US buyer, and then building the vehicles in the States. Two of the five models at Nissan's new, $1.4 billion assembly plant in Canton, Mississippi, are SUVs -- the Nissan Armada and Infiniti QX56. Both those full-size SUVs got off to a sluggish start, underscoring the risk faced should the SUV segment slow down.
There are plenty of reasons to remain optimistic about trucks, insists GM's Cowger. Studies show that buyers love the high "command seating" of SUVs, and all-wheel drive is especially popular in America's snow belt. And SUVs have just simply become fashionable. But fashion trends can turn overnight. And there are plenty of folks who'd like to see that happen to the ute, especially in the environmental community.
Analyst and author Warren Brown is convinced things may change out of simple necessity. The typical SUV buyer pays a premium in weight, cost, and fuel economy to own a vehicle designed to go off-roading, stresses Brown. Yet according to industry studies, well under ten per cent of SUV owners will ever experience anything rougher than a gravel road.
But other analysts suggest that buyers looking for more car-like mileage and handling will simply migrate to car-based crossovers, rather than return to traditional sedans and coupes. These "soft-roaders" are expected to account for perhaps ten per cent or more of overall SUV sales this coming year.
For those anticipating the SUV's imminent demise, "there's a lot less happening than meets the eye," insists analyst David Healy, of Burnham Securities. Not everyone is so optimistic, however. There are plenty of reasons why sales could rebound, but continuing problems in the oil market would almost certainly pose problems.
The re-introduction of fast, powerful and roomy cars has done it's share too. Even STATION WAGONS (flying brakes) have been introduced, although Dodge is lothe to call it's Magnum a station wagon.
Anyway, folks realize that SUVs are horrible to drive, park, and maintain. But untill recently there weren't any alternatives to SUVs if you wanted a roomy, rwd, V8 with decent luggage space.
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