Supply and Demand Factors are Altering the SUV vs. Sedan Market

April 24, 2019 by Trucks.com, @trucksdotcom

By Ben Bartosch

Editor’s note: Written by Ben Bartosch, manager of forecast analytics at J.D. Power. This is one in a series of periodic guest columns by industry thought leaders.

Ben Bartosch, J.D. Power

Ben Bartosch

The dramatic embrace of sport utility vehicles by U.S. consumers is having a seismic effect on the production strategies of automakers.

Although passenger cars historically have dominated American car buyers’ preferences, in just five years, SUVs have supplanted the traditional family car.

Today, 70 percent of new-vehicle transactions are trucks, SUVs and crossovers. Just 30 percent are cars. In the used market, the situation is more evenly split. But that is likely to change as the majority of vehicles entering the aftermarket skew toward the larger size that consumers seem to now prefer. As this trend continues, the bigger profile has translated into a bigger average price tag, which in turn is altering buying behaviors.

While we have seen the overall number of new-vehicle retail sales decline significantly since 2015, the lower volume has corresponded with rising revenues for automakers. It is a dynamic that has been supported with major original equipment makers and dealer incentives, but even as these efforts are leveling off, the overall trajectory of transaction volume and price levels has remained relatively constant. This reflects the strides that many in the industry have made in effectively managing their inventories and better understanding what their customers want to buy. One of the best metrics tracked by J.D. Power to support this observation is the decrease in the number of days-to-term. Vehicles are essentially on lots for fewer days.

COMPACT SUVs – A MARKET SWEET SPOT

The stability of the market also validates the U.S. industry’s strategy for reducing the number of models offered on the sedan side while triggering an explosion of new SUV and truck models. Nowhere has this been more evident than in the compact SUV segment. Since 2004, the number of compact crossover options for consumers has doubled to 32 models. By 2022, we expect that total to reach 36 models, as the industry builds on the success of the Honda HR-V, Toyota C-HR, the Ford EcoSport, the Nissan Rogue and others.

2019 Nissan Rogue (Photo: Garrett King/Trucks.com)

Compact SUVs like the Nissan Rogue have shown great success. J.D. Power expects the number to grow from 32 models today to 36 by 2022. King/Trucks.com)

 

The midsize SUV segment is also experiencing a bit of a rebound. After posting a 44 percent decline in variety from a high of 34 models down to 19 models in 2016, this segment is in the midst of a renaissance. There are now 23 models in this category – representing a 21 percent uptick – and by 2022, we expect that segment to increase further.

On the truck side of the equation, midsize pickups are expected to show a significant increase. Approaching the beginning of the new decade, 11 strong models will emerge in this category, up from three in 2013. The Ford Ranger, for instance, is making a comeback this year, and we will see new midsize pickup entries introduced by Jeep, including its new Gladiator, which just made its debut. All of this activity illustrates the industry’s growing recognition that consumers continue to demand vehicles that offer robust utility functions.

EXPANDING ROLE OF ELECTRIC VEHICLES IN SUV AND TRUCK SEGMENTS

This may be the year that electric vehicles become mainstream offerings in the SUV and truck segments of the market. If this happens, it will be remarkable. Until recently, the industry consensus was that EVs don’t offer high-volume opportunities, and the principal point of market entry would be through sedan models. The logic revolves around the fact that conventional cars are less expensive to manufacture, and a majority of consumers are generally hesitant to spend money on new technology like EVs that may not be fully proven.

However, given recent announcements by upscale SUV manufacturers, the calculus has changed dramatically. New brand Rivian, for instance, recently debuted a concept truck and SUV that may best represent this evolution. Porsche’s compact SUV, Macan, will only be offered as an EV starting with its next redesign cycle. Meanwhile, Audi’s e-tron nameplate – which debuted in 2014 on the A3 Sportback – is being relaunched as a compact SUV. Jaguar’s first electric vehicle, the I-Pace, also came to market as an electric SUV-type vehicle. Other new EV brands like Polestar, Volvo’s EV spinoff, will continue this trend with the introduction of a car and small SUV in the coming years.

It turns out that the key influencer of this trend is driving performance. The overall EV experience is rapidly evolving to be significantly better than that of a normal combustion engine vehicle. Automakers are consequently shifting their efforts to develop EVs into a higher gear and are even developing bridging strategies by making hybrid vehicles available in these segments to help lure consumers away from traditional SUVs and trucks.

2019 Jaguar I-Pace

Electric vehicles like Jaguar’s I-Pace are another expanding market segment. (Photo: Jaguar)

PROS AND CONS OF U.S. OEM FOCUS ON SUVs AND TRUCKS

U.S. automaker confidence in the SUV and truck segments continues to grow and is subsequently getting much more strategic attention. A clear comparative advantage for American manufacturers is demonstrated by the fact that the top-selling vehicles in the U.S. continue to be:

  • Ford F-150
  • Chevrolet Silverado/GMC Sierra 1500
  • RAM 1500

While the strategic focus on SUVs and trucks for U.S. automakers has merits, it also carries some risk. For instance, the F-150 is the No. 1-selling vehicle in America. However, based on evaluations done by my team at J.D. Power, our research shows that the F-150 does not hold its value over time as well as some of its non-domestic competitors. The data show that the Toyota Tundra actually has the best vehicle-retention ranking in the segment, even though it is not in the top three slots of best-selling trucks.

My team at J.D. Power will continue to track the implications of this shift and evaluate changes in used-vehicle market dynamics. If the only American products entering the used-vehicle marketplace are trucks and SUVs, there could be a glut that will both lower resale values and provide plenty of great options for consumers.

Editor’s note: Ben Bartosch is manager of forecast analytics at J.D. Power. Previously he was an analyst, Public Sector Consulting, for IHS Markit.

Trucks.com welcomes divergent thoughts and opinions on transport technology and trucking-industry issues. Use the comments section to cite yours. Qualified opinion leaders are welcome to offer suggestions for opinion columns. Contact info@trucks.com

Ryan ZumMallen February 4, 2019
Updates of several of the most popular trucks in the U.S. market, including the Ford Super Duty and Toyota Tacoma, will make public debuts at the Chicago Auto Show.

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