Analysts See No Letup in Sales of SUVs
Flying in the face of critics who say the market is overcrowded and may have run its course, sports-utility vehicles will continue to outsell the rest of the automotive market over the next five years, J.D. Power Associates analysts said Wednesday.
SUV fever is being bolstered by a stream of Generation X buyers intent on outdoing the baby boomers, who made off-road work trucks respectable with their acceptance of the Jeep Cherokee in 1984 and the Ford Explorer in 1990.
But the traditional market leaders--domestic products like the Explorer and Cherokee and the larger General Motors Corp. Suburban--have had their day, the Agoura Hills marketing firm says.
The new stars of the show will be the big luxury models like the Mercedes-Benz M-Class and the Lincoln Navigator, and new premium mini-SUVs like Toyota’s RAV4 and the Subaru Forester.
Consumers could benefit from all the new competition as domestic auto makers cut prices in order to defend their market share. Until now, SUVs have often sold for full sticker price and raked in huge profits for auto makers.
Some critics have suggested that consumers are growing tired of SUVs because of their prodigious appetite for gas and because of safety concerns prompted by reports that sport-utilities are dangerous to other vehicles in crashes.
“We think this is a high-risk market segment, although there doesn’t seem to be any end in sight right now,” said David Cole, director of the University of Michigan’s automotive transportation studies office.
“We have forecast continuing growth in the entire light truck market, which includes SUVS,” Cole said. “But face it, sport-utilities are fashion-driven vehicles and they can fall out of fashion very quickly.”
The bubble, he suggests, could be burst by rising gasoline prices or big increases in liability insurance premiums for SUVs--which have been criticized for having rigid frames and high ground clearance that combine to cause severe damage to smaller vehicles, and injuries to their occupants, in collisions.
But Power’s economists believe that safety and gas consumption are non-issues among SUV shoppers. Gas prices are at their lowest level on an inflation-adjusted basis since 1919 and SUVs themselves are not being criticized as unsafe--it is the damage they do to others that has raised concerns. “Those things are just not issues that come up in our consumer surveys,” says Bob Schnorbus, director of economic analysis at Power’s Detroit office and author of the SUV report.
They also don’t seem to faze car builders. Indeed, Cadillac has just introduced a new luxury sport-utility, the Escalade, BMW has announced plans to begin building a “sport-activity vehicle” in the U.S. and Ford Motor Co. is deep into development of a gigantic SUV that will be heavier and nearly half a foot longer than the industry’s present leader, the 2.5-ton, 219.5-inch Suburban.
Schnorbus says he doesn’t expect sport-utility sales to maintain the same blistering pace that has helped SUVs capture 16% of the entire market--2.4 million of them were sold in the U.S. last year. But he does expect market share to hold steady or even increase slightly through 2003.
Contributing to the ongoing health of that market, Schnorbus says, is the emergence of several new kinds of sport-utility vehicles that feature more car-like ride and handling characteristics. Several, including the Mercedes-Benz M-Class and Lexus RX 300 luxury SUVs, have even been designed to absorb more energy in a crash, thus sustaining more damage themselves but causing less to the other vehicle--an effort to diffuse a chief criticism of sport-utilities.
Additionally, Schnorbus says, the sport-utility market has been refreshed by the increasing presence of Gen Xers--buyers in their late 20s and 30s--who “appear to be more willing than baby boomers to stretch their limited incomes in order to purchase SUVs.”
Gen Xers, he says, also are more likely to go straight to intermediate and luxury SUVs when they outgrow smaller cars or traditional mini-SUVs like the Kia Sportage or Suzuki Sidekick, unlike boomers who often go to minivans before large SUVs.
The SUV market segments favored by younger buyers are dominated by Asian and European products with quality, comfort and craftsmanship levels “that have been lacking to some degree among most domestic SUV models throughout much of the 1990s,” the report says.
The domestic auto makers have the lead in the so-called intermediate SUV class, with vehicles like the Dodge Durango, Ford Expedition and GM’s Tahoe and Yukon family, and have a strong presence in the luxury segment with the Lincoln Navigator.
But there are no domestic mini SUVs except the Jeep Wrangler--which exists in a specialized market of its own and doesn’t really compete with the others.
“Sales momentum is gradually shifting away from the domestic auto makers that pioneered and dominated the SUV market in the past,” Schnorbus said.
