Does CUV spell Detroit’s salvation?
In North America there is much talk of a shift in light vehicle market segmentation precipitated by higher gas prices and changing consumers tastes. Some analysts say that demand for relatively large and heavy light trucks will see a decline in favour of smaller and more fuel-efficient vehicles. Crossover Utility Vehicles (CUVs) could be a significant part of that trend and plenty of new product is coming. David Robertson reports.
The problems besetting the North American auto industry are hard to avoid and there is a concern that it is only a matter of time before one of the big manufacturers hits an iceberg.
However, it is not all bad news and the growth in popularity of the crossover utility vehicle (CUV) offers hope, and possibly a life vest, for some troubled companies.
At the recent Los Angeles and Detroit auto shows motor industry executives spent most of their time, when not buried in the appointments section of newspapers, praying that their new models would perform better than 2005's.
Vehicle sales in North America rose just 0.8 per cent to 16.9m last year despite the industry spending a staggering $42bn in incentives, according to Edmunds.com. General Motors and Ford were the hardest hit with sales down 4.2% and 5% respectively.
The GM and Ford drop has been attributed to a spike in gas prices, which pushed a gallon over $3 for the first time. Fuel economy has now become a consumer priority and, as a result, the sports utility vehicles (SUVs) and trucks that have supported the big two in recent years have declined in popularity.
SUV sales were at their lowest level since 1998 and the biggest SUVs like the Lincoln Navigator and Cadillac Escalade saw 10% to 20% drops on the previous year.
Of course, the SUV market isn't dead, but manufacturers have been forced to alter their sales pitch. The new model Chevy Tahoe, for example, is being promoted for its fuel economy - a claim that could only be made by a company that is getting good at denying the obvious.
The dip in SUV popularity corresponded with the first rise in car demand since 1992. The car share of the North American auto market rose to 45.1% compared with 44.3% the year before.
The other big winner in 2005 was the CUV, and even greater things are predicted for this market segment in 2006.
Ford's new president of the Americas, Mark Fields, told journalists in Los Angeles: "Today's fastest-growing vehicle segment in the United States is crossover utility vehicles, or CUVs. CUV growth is now outpacing the remarkable growth SUVs achieved in the 1990s… and they are on pace to exceed traditional SUV sales for the first time ever."
In 2000, about half a million CUVs were sold in North America compared with 2.97m SUVs. In 2005, according to Ford, 2.24m CUVs were sold versus 2.4m SUVs.
2006 will almost certainly be the changeover year when CUVs overtake SUVs.
There are already 41 crossover models on the market (compared with just 14 in 2000) and Ford expects that number to reach 50 by the end of the year - the same number of models that SUVs managed in 2000 when SUV sales peaked.
Merrill Lynch has dubbed the CUV "the new SUV" and Ford is calling these vehicles the "next major evolution in what we drive".
Ford has good reason to shout about the growth of CUVs as it has the best-selling model: the Ford Escape -aptly named as this vehicle may help Ford to dodge the problems it has recently found itself in. Ford saw CUV sales grow by an impressive 42.3 per cent in 2005 and the Escape sold over 160,000 units.
New CUV models featured prominently at the Detroit auto show, including the Acura RDX, Buick Enclave, Ford Edge, Lincoln MKX, Hyundai's second generation Santa Fe and Kia's Soul (which must be a poorly spelled attempt at national pride).
Even Jeep has produced the Compass, the division's first car-based vehicle and the first that isn't designed for off-road - although it's hard to imagine that the average SUV or Jeep driver will notice the difference.
Crossovers were born in the mid-1990s when foreign automakers rushed to grab a slice of the SUV market. Detroit manufacturers were able to use existing truck and pickup architecture to build these new family vehicles but foreign auto companies had no truck models and were caught out when SUVs took off.
Instead, foreign manufacturers used car platforms and loaded them with super-sized bodies. Fortunately the designs have improved since the early days and CUVs are less likely to roll over going around a corner than they used to be.
However, to European eyes, the new generation of CUVs still look as though they've been given an injection of steroids (they are about the same dimensions as a 1990s minivan) but in North America CUVs are a happy compromise between the need for size and the need for fuel efficiency.
As Mark Fields of Ford explained: "Two distinct market trends have helped fuel this explosive growth. Car buyers are seeking more spacious and flexible interiors, along with the security of all-wheel drive. And many traditional SUV buyers are seeking more maneuverable and fuel efficient vehicles that still make it possible to have an active lifestyle."
Jeff Beddow, spokesman for the National Automobile Dealers' Association, said: "Sales have been very strong in this sector and it has been the fastest growing part of the auto industry. Our economists are predicting that crossovers will continue to be a big growth area. Part of the reason for this is fuel efficiency and also because people like the way they drive and park. They like being higher up but don't want a vehicle that is quite as big as the SUVs are now getting."
The current top five CUVs are the Escape, the Honda CR-V, Toyota Highlander, Honda Pilot and Chevrolet Equinox (at this rate GM and Ford will soon run out of Es to name their vehicles: Escalade, Escape, Edge, Enclave, Equinox…)
The big news for the Detroit manufacturers is that they have two models on this top-five list, which, considering CUVs were developed by foreign automakers, represents significant progress. Detroit now has 47.6 per cent of the CUV market, up from 42 per cent in 2004, and the American companies are reporting growth rates that are much higher than their rivals.
One of the reasons for this is that the American manufacturers are producing crossover models that are larger than the imported brands - and this continues to appeal to many consumers.
Michael Albano, director of communications for Chevrolet, said: "From a size point of view we've hit the sweet spot with our Equinox and HHR models. They are a little bit bigger than some of our competitors and that, along with our styling and the flexibility of our interiors, is attracting customers."
The problem with CUVs is that their sticker prices are much lower than those for SUVs - and as a result profitability is also lower. SUVs are thought to generate a fantastic $10,000 to $15,000 profit per vehicle while CUVs have an estimated profit margin of $6,500 to $8,000.
General Motors insists growing crossover sales are not coming at the expense of SUVs and the profitability issue is, therefore, irrelevant.
Michael Albano said: "Our crossover models are plugging holes in our range. They are adding volume and we don't see a direct correlation between crossover growth and SUV decline."
This might be wishful thinking but for desperate automakers in need of a good start to 2006, any sort of sales growth is welcome. Let's just hope that the success of these crossover models isn't the jaunty tune being played by a Detroit band while the ship goes down.