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S.U.V. vs. Sedan, and Detroit vs. the World, in a Fight for the Future

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The humble family sedan was once inseparable from American culture, the prime mover of suburban commutes and summer road trips. But most Detroit automakers are ridding their lineups of sedans and diverting investment to S.U.V.s and crossovers, not to mention electric vehicles and self-driving tech.

Detroit’s Asian and European rivals see things differently. They’re continuing to invest in smaller cars, in part as a hedge against changing consumer tastes or soaring fuel prices. The outcome of these bets could help determine the competitive fates of automakers in America.

For Detroit companies especially, the PowerPoint is on the wall: For years, their car lineups have consistently lost money, with sport utility vehicles and pickups delivering virtually all their profits.

That situation was already bad in the recessionary depths of 2009, when cars outsold so-called light trucks — S.U.V.s, pickups and minivans — for the last time. Since then, Americans have gone even more crazy for S.U.V.s and pickups.

In 2019, S.U.V.s and pickups are grabbing a record 70 percent of the market, with 5.9 million sales through June versus 2.5 million for cars. Sales of midsize sedans have nose-dived, from 3 million in 2012 to 1.9 million last year. One of every five cars sold was a midsize sedan in 2012; today it’s barely one in 10.

As a result, Ford and Fiat Chrysler have decided to stop making conventional family sedans and compact cars almost entirely. Exceptions are made for enduringly popular muscle cars like the Ford Mustang and Dodge Challenger. General Motors hasn’t said it will abandon the car market, but it is killing off several money-losing sedans and hatchbacks, including the plug-in hybrid Chevrolet Volt.

Kumar Galhotra, Ford’s president for North America, said that in this brutally capital-intensive business, it was time to make hard choices: to invest where Ford sees growth and competitive strength, and to shed shrinking or money-losing segments.

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CreditJustin Lane/EPA, via Shutterstock

“There are still people buying sedans,” Mr. Galhotra said. “But it goes back to ‘Where do we allocate capital?’”

Ford’s lineup casualties include the Fusion, once among the nation’s most popular family sedans, and the Focus, the compact sedan and hatchback that helped prove Detroit could compete against Japanese blue-chippers like Honda’s Civic and Toyota’s Corolla.

Instead, Ford will expand its S.U.V. and pickup portfolio, and pour $11 billion into 40 electrified models by 2022. Those include an electric version of its F-Series pickup, America’s perennially best-selling vehicle, and a “Mustang-inspired” electric vehicle — in fact, another crossover S.U.V. — that’s expected in 2020. Ford is also investing heavily in self-driving technology, through its Argo AI unit.

Those are “all better businesses than traditional sedans,” Mr. Galhotra said. “We’re providing the vehicles that consumers want, and playing to the strength of the company.”

Mr. Galholtra, like many analysts and industry executives, said the shift to S.U.V.s appeared to be permanent. He gave familiar reasons for this: the tall stance and “command seating,” which afford better views, make climbing in or out a breeze and make owners feel safer, and the yawning liftgates and cargo holds, which no sedan trunk can match.

Even the world’s leading luxury marques, which once scoffed at S.U.V.s, have learned that resistance is futile: Porsche, Rolls-Royce, Bentley, Lamborghini and Maserati all offer S.U.V.s, which reliably become their best-selling models in America and globally, with Ferrari and Aston Martin to follow.

Yet every mainstream foreign automaker, including Toyota, Honda, Hyundai, Nissan, Subaru and Volkswagen, continues to send new cars to showrooms, despite flagging sales. Brian Smith, chief operating officer of Hyundai Motor America, feels that Ford and Fiat Chrysler’s strategies are shortsighted.

“I can’t answer why some people would walk away from cars,” Mr. Smith said. “Because I don’t get it.”

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CreditBrendan Mcdermid/Reuters

He said the trick was not to stop building sedans but to make them more distinctive, versatile and exciting. “Ten years ago, vanilla was O.K., but it’s not anymore,” he added.

To that end, Hyundai unveiled a 2020 Sonata sedan whose swoopy styling and dramatic exterior lighting made it a highlight of New York’s spring auto show. The company hopes the all-new Sonata can reverse a perilous slide: Sales fell to 105,000 last year from 230,000 in 2012. It’s a tough world out there, but Mr. Smith notes that nearly five million Americans still bought a conventional car last year.

Michael O’Brien, vice president for product and corporate planning at Hyundai Motor America, referred to his company’s fiercest competitors to underline the point.

“There are more than seven million Honda Accords and Toyota Camrys alone on U.S. roads,” he said. “That’s a lot of people who are pretty happy with their cars.”

For all their pluses, Mr. Smith said, S.U.V.s aren’t for everyone. That includes younger and first-time buyers, drawn to more affordable sedans and hatchbacks. Car holdouts also include people who put a priority on smaller footprints or nimble performance.

“Our Santa Fe is great, but nobody says it’s ‘fast’ or ‘fun.’” he said. “Cars and sedans, done right, can still do that.”

Cars do something else as well, Mr. O’Brien said: They will always beat the fuel economy of comparable S.U.V.s, which are bigger and taller.

Detroit automakers seem particularly sensitive to that fuel-economy argument for cars, in part because of a historical truism they insist no longer holds: Whenever a shortsighted Detroit became overly dependent on trucks, and fuel prices reliably soared and the economy tanked, their sales tanked, too.

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CreditDavid Zalubowski/Associated Press

In 2019, Fiat Chrysler now relies on pickups and S.U.V.s for roughly 90 percent of its United States sales, a historic high for any global automaker. Light trucks account for 84 percent of G.M.’s American sales and 83 percent at Ford, record highs for both companies.

But Detroit executives insist, in virtual lock step, that they don’t see history repeating itself.

First, they say, the days of guzzling, 12-miles-per-gallon Hummers are gone. Modern S.U.V.s — including wildly popular compact models with downsized, often turbocharged four-cylinder engines — have become efficient enough, they say, that consumers barely notice the gap. If they do notice a difference at the pump, affordable gasoline helps them absorb it.

Automakers and most energy analysts also expect gasoline to remain affordable for years, if not decades: The International Energy Agency expects global gasoline demand will peak by the late 2020s, in part owing to the shift to electric vehicles, keeping prices in check.

It’s worth recalling that the S.U.V. boom began in the 1990s, when automakers exploited a loophole in federal Corporate Average Fuel Economy rules that even today allows light trucks to meet lower miles-per-gallon standards than cars. And because S.U.V.s and pickups generate higher per-vehicle profits than cars, automakers have a double incentive — especially when cheap gasoline is flowing — to put Americans in trucks.

In addition to those powerful forces, the Trump administration has handed all automakers, not just Detroit, a pass on fuel economy. After lobbying by every major automaker, the president gave the industry more than it asked for, freezing Environmental Protection Agency fuel economy standards at 37 miles per gallon. The move gutted President Barack Obama’s 2012 fuel-economy rules, one of his signal achievements, which aimed to nearly double the average fuel economy of new cars by 2025, to 51.4 m.p.g.

Should a new, Democratic presidential administration come to power, it seems likely to reverse Mr. Trump and demand that tougher mileage and carbon emissions standards be reinstituted.

Automakers insist they’re investing in a future of cleaner vehicles and electric mobility, regardless of the current climate in Washington. And even in worst-case scenarios for the economy or fuel crises, Mr. Galhotra said, Ford believes that most consumers will simply downsize to a smaller or more affordable S.U.V. rather than go back to cars.

Auto executives and some analysts suggest that, if the market does flock to cars, Motown automakers can shift production and retool factories in kind. The worry is that, if Detroit cedes its remaining car business now, shoppers might give the cold shoulder to any future comeback. As the epic rise of Japanese automakers proved in the 1970s and ’80s, once Detroit loses customers to rivals, it has been vexingly hard to win them back. That possibility isn’t lost on Mr. Smith at Hyundai, when he’s asked about Ford Fusion or Chevrolet Impala drivers.

“We’ll be happy to have them,” he said with a smile.

Source:

NYT > Business


Author: Lawrence Ulrich