Everyone in America will not be driving a sport-utility vehicle after all, though a growing number of buyers will choose cars that look like SUVs.
Sales of truck-based sport-utility vehicles have been at a gallop throughout the decade, rising to 2.8 million units last year from 935,000 in 1990, but that phenomenonal run appears to be running out of gas.
Auto-industry forecasters see sales of traditional sport-utility models flattening out as more buyers embrace car-based hybrid vehicles styled to look like SUVs.
Nextrend, a California-based forecasting firm, projects sales of conventional truck-based SUVs will remain flat at 2.5 million units the next five years, but sales of car-based hybrids will more than double to 700,000 units in 2001 from 330,000 units this year and double again to 1.4 million by 2004. The growth will come from buyers who want the look of an SUV but don’t need the off-road capability of a truck.
“The potential on the hybrid side is tremendous,” Nextrend analyst Wes Brown said. “The biggest growth will be in the small hybrids like the Honda CR-V.”
Demand for the CR-V, a sport-utility on a Civic car chassis, far outstrips supply. Toyota’s RAV4 and Lexus RX300, built on car platforms, also are hits. The RX300 is Lexus’ most-popular model, outselling the ES300 and LS400 sedans combined–46,604 RX300s through August against 44,081 ES300s and LS400s.
As buyers flock to the hybrids, manufacturers are slapping more incentives on conventional SUVs. DaimlerChrysler reduced production of its Jeep Grand Cherokee in the summer and offered cut-rate financing. Ford followed with low-rate financing on the Explorer and Mercury Mountaineer, and General Motors offered end-of-year rebates as high as $2,000 on its 1999 SUVs.
“They’re throwing more and more incentives at (SUVs) to move them,” said Art Spinella of CNW Marketing/Research, a forecasting firm in Oregon, and he sees that continuing.
“With up to $12,000 profit in these vehicles (conventional SUVs), they can put a whole lot of incentives on them and still make money. They will have to give away more of their profit to maintain their volume.”
Manufacturer incentives and dealer discounts have more than doubled in three years, Spinella said. Three years ago, buyers were paying full sticker price for the top-selling SUVs but no more.
“Every market has its saturation point, and we’ve reached that point as far as full-sticker price on conventional SUVs,” he said.
Demand for luxury models, a hot item the last two years, also seems to be cooling. Lincoln dealers are discounting the ritzy Navigator with help from dealer incentives that encourage them to cut their prices, said Spinella. Because SUVs are purchased mainly as fashion-statements, manufacturers have to keep dreaming up new features and models to retain owners.
“You can only put so much leather in them before you have a whole cow in there,” Spinella said, so the next step for Lincoln is to graft a pickup bed onto the Navigator and make it the Blackwood sport-utility truck in 2001.
Spinella is more pessimistic about the SUV market than Brown, saying it will top out at 3.25 million to 3.5 million, though he agrees that most growth will be from the new hybrids.
Subaru created the hybrid market in 1996, when it gave the four-wheel-drive Legacy station wagon SUV styling cues and more ground clearance, dubbed it Outback and launched it as the “first sport-utility wagon.” Subaru has since added the Forester, plunking an SUV-like body on the Impreza wagon chassis.
More hybrids are on the way, though manufacturers are using different labels to describe them. BMW joins the party this year with the X5, a “sports-activity vehicle” built on a car chassis. Ford and Japanese partner Mazda are developing a car-based hybrid due in 2001, and Ford plans another in 2002 derived from its new compact Focus sedan.
General Motors has as many as five in the works for Buick, Pontiac, Chevrolet, Cadillac and Saturn. Porsche is teaming with Volkswagen on a “sport wagon” due in 2002, and Chrysler is expected to introduce one that year. Nobody, it seems, wants to miss this next big market trend.
Not only will large numbers of SUV owners switch to car-based hybrids, others will desert the segment because they are turned off by traditional truck drawbacks–a stiff, noisy ride, poor gas mileage and awkward access to the interior because of high ground clearance for 4WD.
“You had to give up a lot just to look cool,” Brown said of traditional SUVs. “When the kids are gone, you don’t need the room and maybe you don’t need to look cool anymore. You have a lot of aging Baby Boomers thinking maybe they should look at a car.”
Four years ago, 9 percent of SUV owners defected to other kinds of vehicles at trade-in, Spinella said. Now, it is 28 percent.
“They’re getting whatever is new, like four-door pickups, and near luxury cars (such as the Lexus ES300 and BMW 3-Series) are real hot right now,” he said.
A handful of manufacturers, such as Audi, Volkswagen and Volvo, offer 4WD passenger cars, but Brown doesn’t expect a herd of 4X4 sedans and wagons from other companies.
“All-wheel-drive cars have to fit with the image of the brand,” he said. “Some of the European station wagons are a good fit, much better than a high-volume model like the Taurus.”
About 10 percent of trade-ins for 4WD Audi station wagons and 20 percent of trade-ins for 4WD A8 luxury sedans are SUVs.
Despite the shift to hybrids, Brown doesn’t see truck-based SUVs disappearing.
“Is Ford going to give up the Explorer? No, because there’s too much profit in it,” he said. “But there’s also no question that with all the hybrids there’s going to be some cannibalization of sales. Previously, buyers had no choice. Now, they will.
“There will always be some buyers who like the rugged ride and performance of the true SUVs and want the off-road capability. That portion of the market will slowly decrease, though how far down it will go is still open to question.”
Spinella predicts that as hybrids become more popular, the resale value of truck-based SUVs will drop, citing the pickup market as an example of how buyers’ tastes affect value. The arrival of three-door models reduced demand for two-door pickups and now four-door pickups are hurting the three-door versions.
“You can buy a two-door extended cab pickup for a song on the used-car market. Everyone wants a three- or four-door,” Spinella said, warning traditional SUVs will suffer a similar fate.
