Going all in on SUVs and trucks got Detroit in trouble at the turn of the century, contributing to the 2009 government-backed bankruptcies of GM and Chrysler. Back then, choosing an SUV over a sedan meant significant compromise on fuel mileage. When gas prices soared above $4 a gallon, Detroit’s short-sighted strategy was exposed and the American auto industry imploded.
These days, pump prices average about $2.50 a gallon. But cheap gas isn’t the only driver of the SUV boom: Today’s models bear little resemblance to the hulks of yore. Built on smooth-riding, lightweight car frames, many crossovers get mileage close to the equivalent cars.
“The fuel economy trade-off is not nearly as much of a trade-off as it used to be,” Raj Nair, head of Ford’s North American operations, said in an interview. “We anticipate SUVs becoming more and more popular, which is why we are focusing a lot of our investment in that segment.”
Ford is moving $7 billion in engineering funding away from cars and into developing SUVs. Nair declined to say whether that will result in the Fusion going away.
Even if gas prices soar—which energy analysts don’t forecast—consumers are more likely now to switch to a smaller, more fuel efficient SUV, than abandon their beloved bigger rigs, Schuster said.
“This market is going SUV and not looking back,” Schuster said.
American auto executives might be happy to see passenger cars go. For decades, they’ve struggled to make money selling sedans while raking in profits from SUVs and trucks. They’re rapidly rewriting business plans to shift production of traditional cars offshore. China, the world’s largest auto market and home to some of the lowest labor rates, is poised to become the place where American sedans are built.
“Car companies will make a business case based on producing and selling cars in China alone,” said Karl Brauer, executive publisher of Cox Automotive. “Then they’ll throw a few our way just for our increasingly dwindling car market.”
Asian automakers that have come to dominate U.S. sedan segments over the last three decades aren’t going anywhere. The Toyota Camry remained the top-selling car in America last year, though it was outsold by the RAV4 crossover for the first time. >Toyota recently revamped the Camry and debuted a redesigned Avalon sedan in Detroit, while >Honda Motor Co. kicked off the show by accepting the North American Car of the Year award for its revamped Accord. Nissan Motor Co. is expected to roll out a refreshed Altima sedan soon.
>“This market is going SUV and not looking back.”
Essentially ceding the car market to Japanese and the Korean brands may have once been heresy for the companies that used to fill American highways with Chevy Bel-Aires, Ford Falcons and Plymouth Furys. But those days have receded into the rearview mirror, and U.S. auto execs learned painful lessons in the last decade about clinging to past glories.
Executives including GM CEO Mary Barra have shown a willingness to part with the past when the long-held approach is no longer working—the automaker exited Europe and India last year. Ford Executive Chairman Bill Ford and his board switched CEOs, firing Mark Fields in May.
Similar bold moves shouldn’t be surprising as those executives determine the fate of their fading car lines.
“You can call 2018 the death of the car,” said Mark Wakefield, head of the auto practice at consultant AlixPartners. “Just look at all the new model launches in crossovers and the dearth of launches in cars. You can see where people are putting their money.”
—With assistance from John Lippert.
Source : https://www.bloomberg.com/news/features/2018-01-16/why-the-american-sedan-is-marked-for-death
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