SUVs Meet the New Fuel Crunch

Automakers are downsizing sport-utility vehicles—and facing the oil crunch—with crossover rides that have drivers wondering, "Do I really need a truck?"

Paul A. Eisenstein
From the Print Edition:
Antonio Banderas, Nov/Dec 2005

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Detroit's Dilemma
The end of the SUV boom would prove particularly bad news for Detroit's Big Three automakers. They've dominated the light truck segment since the late 1980s, and light trucks have dominated their production plans. Take the Chrysler side of DaimlerChrysler AG, where vehicles such as the Durango SUV, Ram pickup and Caravan minivan account for nearly two-thirds of all sales. This tectonic shift from Escorts to Explorers has generated the vast majority of Detroit's earnings for the past two decades, shoring up a balance sheet otherwise decimated by the increasing import domination of the passenger car market.

That's not to say European and Asian automakers have ignored the growing and profitable sport-utility vehicle market. Mercedes-Benz created an entirely new market segment when it launched its luxury sport-ute, the M-Class. Because consumers couldn't get enough, the German maker repeatedly expanded its "transplant" assembly plant near Tuscaloosa, Alabama.

Japanese makers have had some tough times cracking the code of the light-truck market, but they're beginning to have success with products like the compact Toyota Tacoma pickup, the Nissan Xterra and the Honda Odyssey minivan. While Toyota may be painting a green picture of itself by emphasizing the high mileage and low emissions of its little Prius sedan, the hybrid-electric vehicle barely registers on the sales charts. Truck products like the Land Cruiser and Highlander SUVs, however, now make up nearly half of the automaker's U.S. volume. Give credit to two SUV models, the RX330 and LX450/LX470, for making Toyota's Lexus division the number-one luxury brand in America. The Japanese automaker is rapidly expanding its North American production capacity to meet this demand, as are other importers. So the Asians could be as much at risk as Detroit should the golden SUV goose stop delivering.

What's Next?
"We still believe [in] the truck side," asserts GM's director of market analysis, Paul Ballew. Perhaps, but the giant automaker is lifting a page out of the import playbook by putting increasing emphasis on a new generation of products neither fish nor fowl. Or, if you prefer, neither car nor truck.

How much SUV sales have slumped so far this year depends on how you tally up the numbers. Do you include products like the Highlander, or Honda's CR-V? They might appear to be conventional, truck-like SUVs, but under the skin, those rugged-looking bodies are based on lighter, more nimble—and usually far more fuel-efficient—passenger car platforms.

Sure, there is a trade-off. Crossovers tend to be less rugged and agile off-road—but then less than 10 percent of SUV owners ever experience anything rougher than a gravel road. Most crossovers still offer all-wheel drive—at least as an option. They're usually a lot more nimble and pleasant to drive on-road than truck-based utes. Perhaps best of all, considering the new reality at the gas pump, they generally yield far better mileage than what some industry analysts like to call "truck-trucks," such as the Explorer.

Japanese makers were quick off the line with crossover vehicles such as the Lexus RX330. Early examples tended to look a lot like conventional utes, though newer models are finding their own shape and form, defining a variety of new segments. American manufacturers are racing to catch up. Ford's Five Hundred sedan shares a platform with the car-based Freestyle ute. Chevrolet's Equinox will spawn Pontiac's Torrent later this year, and one of the most successful products in the Saturn stable is the quirky Vue crossover. Even Jeep, a brand that prides itself on its benchmark off-road capabilities, is getting ready to deliver a "soft-roader."

As for imports, BMW's original wagon/ute melding, the X5, has been one of the stars of the automaker's lineup. It was joined last year by the X3, and other crossovers are coming. Mercedes recently launched its new R-Class, a vehicle that aims to blend the best of a minivan and SUV, with a dash of station wagon thrown in. In one of the more novel moves in today's fast-changing market, the automaker's second-generation M-Class has evolved from a truck-based SUV to a car-based crossover, and industry sources expect other products could take the same path in the coming years.

Will the classic truck-based SUV die off? Not likely, says J.D. Power and Associates chief economist Bob Schnorbus. "The SUV market is not going to disappear as a result of high gasoline prices." But the days when the ute could climb every obstacle on the sales charts have likely come to an end, observers generally agree. Sales of the largest utes seem unlikely to recover much, especially if fuel prices remain high. And smaller models seem destined to hold their own, at best, and more likely start to slide in favor of new alternatives. Consumers are leading the push to car-based crossovers, and manufacturers are ready to follow. Some vehicles will look like the utes we've known and loved, while others will blaze entirely new trails.

Paul A. Eisenstein publishes an automobile magazine on the Internet at www.TheCarConnection.com.

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