If it looks like a duck, quacks like a duck, is it still a duck? Or in automotive terms, if it looks like a minivan, has features like a minivan, and sells like a minivan, is it a minivan? In today’s market, it just may not be so. So says Michael Robinet, CSM Worldwide’s VP for Global Forecast Services. This minivan article is extracted from ‘CSM Insights’ but at the end we’ve added a short Q&A with Mike on the North American light vehicle sales outlook.
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While minivans have been relegated by many to soccer mom-dom, the OEMs are continuously looking to jazz-up the idea to appeal to a greater breadth of customers. The truth, however, is that while the minivan moniker is dead (lately worn as a scarlet letter, of sorts) the value the vehicle brought to the market is alive and well, just under a myriad of new classifications such as: crossover, multi-activity vehicle, tall wagon, etc.
What many don’t recognize is that the minivan – or the ideas the minivan represents – is more than a vehicle or nameplate. It is a placeholder for a vehicle concept that represents value, function, affordability and flexibility. Pound for pound it is tough to argue against the minivan’s cost benefit equation of comfortably moving seven passengers. It is unrivalled.
The minivan concept was not born when Chrysler debuted its much hailed Caravan/Voyager/Town and Country in 1983. The “minivan” concept has been around for a long time, it just wasn’t always called a minivan. In the 1970s it was called the station wagon; in the 1980s it was called the minivan; in the 1990s it was called the sport utility vehicle; and in the 2000s it will probably be called the crossover vehicle. The name changes but the concept remains the same: practicality. For this decade, that practicality also adds more style, electronics, all-wheel drive and comfort.
This new segment of crossover vehicles (comprised of Crossover Utility Vehicles – CUVs and Multi-activity Vehicles – MAVs) will grow substantially during the next five years. For 2002, the crossover segment accounted for 8.2 percent of North American light vehicle production. By 2007 that figure will grow to 19.4 percent. Total production volume for the segment will reach 3.4 million units by 2007, up from 1.3 million units in 2002. But while minivans will be one of the losers in this market shift, it will not be the only one. Minivans’ sales share in the U.S. market will drop from 7.9 percent in 1999 to 5.5 percent in 2008. But small and midsize cars will also lose share. What won’t change, however, is the market’s desire for features and functions; comfort and drivability.
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By GlobalDataThe crossover segment will become one of the most competitive segments in the market. Offerings from nearly every OEM will crowd the landscape and the successful vehicles will be those that meet consumers’ needs at a competitive price. Sound obvious? Well, easier said than done. Remember the dominant position the Big 3 (specifically Chrysler) had in the minivan market in the 1980s? It all but evaporated in the 1990s with the onslaught of good-looking, feature-rich, quality-built competitors. Recent minivan efforts by Honda, Nissan, Toyota and Hyundai just up the ante.
The new century’s minivan may have found a new form and a new name. But the content and innovation required to make this new segment successful is still alive and kicking. We have seen the beginnings of this with the introduction of rear entertainment systems, foldaway/fold flat seats and innovative sunroof systems. Not to mention that entry into the segment demands a well groomed powerplant churning out more than 220 horsepower. One can argue that feature creep is forcing many consumers to buy more than they really want. General Motors’ Mr. Lutz has been outspoken about his desire to rid vehicles of superfluous content. He may be right that consumers could do without some content, but adding function doesn’t always require adding content. It’s really about delivering a complete package that provides value. That’s just what this segment is set to deliver: Value – just under a different name.
just-auto ‘Q&A quickie’ with Mike Robinet
How do you see the overall US light vehicle market outlook for the rest of this year Mike?
Well, we expect to see market strengthening this year on the back of a post-Iraq war consumer confidence boost and tax cuts. Incentives are also expected to accelerate and that will support the market further. The US light vehicle SAAR (seasonally adjusted annualised running rate) so far this year is around 16.1 million units. The third quarter should see an upturn to 16.4 million and we expect to see 16.5 million by the fourth quarter. For 2003 as a whole we expect to see a 16.4 million-unit light vehicle market in the US and 19.1 million units in North America (adding Canada and Mexico).
You see incentives still playing an important role?
Yes, but they will become modified somewhat and take different forms. Zero percent over 60 months is clearly becoming less effective over time. We’ll see the form that incentives take changing. They’ll become increasingly gimmicky as manufacturers look for new ways to entice customers. Look for things like more no-cost regular vehicle maintenance, free gas for a year and so on. The manufacturers know they have to be increasingly creative with the offers. And there are the other things designed to get potential customers into the cars, like 24-hour test-drives and five dollar a day lease deals on the Ford Mustang and Ranger, for example.
But on the negative side, the Big Three will see bottom line being increasingly affected through negative pricing. GM just cannot take cost out quick enough right now. Ford and Chrysler are also feeling the heat.
And there are also higher costs in some areas for the manufacturers to contend with, such as bigger energy bills, rising healthcare and pensions liabilities.
So how do you see the evolution of Big Three share?
Well, to begin with let’s just take a look at recent history. In my view the Japanese have a head start borne of the Big Three’s policy of reaping huge profits off trucks in the late 1990s. They failed to diversify sufficiently on product then and are now paying the price. The Japanese are hitting them with new products like CUVs and defining new market sub-segments with products that are well attuned to customer needs and wants. The Honda Pilot 3-seat CUV off a unibody platform, engine shared with Accord, is a good example. It hits a market sweet spot and can be produced cheaply through flexible manufacturing methods. A CUV like that has better driveability and lower fuel consumption than a comparable full-frame truck turned out by Ford, GM or Chrysler.
I see Toyota, Nissan and Honda really digging-in in the US marketplace. It will be very hard to reverse their growing market share trend. A lot of production capacity is going in too and the products will hit the Big Three where it hurts.
I also think the Japanese have been adept at acquiring the so-called ‘cream of the crop’ customers – people motivated by more than just the monthly payment bottom line. These are the guys interested in longer-term ownership issues like residuals and they also tend to be more willing to pay a premium for ‘value attributes’. The quality of the consumer is really becoming an issue for the Big Three right now. In a sense, offering more and more incentives reinforces the downward spiral towards the monthly payment mentality. And The Big Three could find themselves squeezed as the Koreans become increasingly important at the lower end of the market.
What’s your forecast for Big Three share in the US light vehicle market 2003 and 2004?
Well, the traditional Big Three share works out at 61% in 2002. We expect 58% share in 2003 and 56% in 2004.
