Originally created 09/10/04

Research firm says SUVs lose traction in the market



DETROIT - Sport utility vehicles, which have been berated in recent years as rollover-prone gas hogs, are losing appeal, a respected automotive research firm said recently.

Demand for sport utility vehicles, such as the Ford Expedition, Jeep Grand Cherokee and Chevrolet Suburban, is softening, the Power Information Network LLC said in a report that quickly became controversial in Detroit. The research firm is an affiliate of J.D. Power and Associates of Westlake Village, Calif., which is known for its consumer quality surveys and sells its research within the auto industry.

The big vehicles are now sitting on dealer lots longer than they used to, automakers are having to increase incentives as much as $5,000 to move them off showroom floors and consequently, their prices are dropping as demand wanes, Power Information found.

"What we're seeing here is three measures all showing the same theme, and that theme is a weakening in that sector," said Tom Libby, senior director of industry analysis at Power Information.

IF THE REPORT'S FINDINGS hold true, that could take a bite out of one of automakers' most profitable vehicle segments and one of the few in which domestic manufacturers have had an advantage over foreign competitors in the marketplace.

But automakers and SUV supporters scoffed at Power Information's contention that demand for SUVs is waning.

Even if SUV sales are slowing, they noted, sales of the vehicles are still up 7 percent for the year - nearly three times the increase in the automotive market, which is up 2.4 percent for the year.

In fact, sales of sport utility vehicles have been growing for more than a decade, growing from about 900,000 a year in sales in the early 1990s to about 4.5 million in sales last year. And automakers don't see demand cresting yet.

"I'm just laughing," said Paul Ballew, the executive director of global market and industry analysis at General Motors Corp., of the findings. "The fastest-growing category is the sport utility category. Car sales are still declining this year. ... We, who live with the data each and every day, do not see this happening."

George Pipas, the top sales analyst at Ford Motor Co., said he was "not at all" concerned about the report's findings and believes the segment will remain strong.

Still, there are some signs that while SUVs might remain popular, they are losing momentum.

Power Information Network reported that the number of days SUVs sit on dealer lots before being sold increased to 73 days in July - a 22 percent increase from a year ago. By comparison, cars and trucks sat on dealer lots an average of 71 days - a 9 percent increase from a year ago.

Incentives on SUVs, meanwhile, grew 4.7 percent since last year to an average of $3,440, Power Information reported. Across the industry, though, incentives during the same period fell 3.9 percent to about $2,867 per vehicle.

Consequently, the average SUV transaction price dropped 2 percent, or $620, in July vs. a year ago, while overall new-vehicle prices rose slightly.

Both Ford and GM challenged those signs as an indication of demand, saying they might have overproduced SUVs in recent months, which would drive up inventories and the need for incentives.

While it seems as though any consumer movement away from SUVs would be bad news for Detroit automakers, the companies have been preparing for years for a shift away from traditional truck-based SUVs, which were originally built on pickup truck platforms, to "crossovers," or car-based vehicles that closely resemble SUVs.

"We've been waiting for it. We're planning for it. It's been part of our business plan for many years," Mr. Pipas said. "Crossovers will propel the growth of this entire segment over the decade."

For instance, Ford is bringing out a crossover for 2005 call the Freestyle. It looks more like a station wagon than an SUV, and its offers of high seating position and cargo space are expected to appeal to SUV lovers.

Freestyle will be available in both front-wheel-drive and all-wheel-drive versions.

CROSSOVERS ARE EXPECTED to continue to gain in popularity because they offer some benefits beyond traditional SUVs, especially improved handling and a lower center of gravity that might reduce rollovers and therefore be safer for drivers and their passengers.

There is also a gas mileage benefit, although it might be slight or nonexistent depending on the vehicles being compared.

Most often, reports on SUVs combine both the traditional truck-based SUVs and the car-based crossovers, because they have similar body types, offer the same type of utility and are virtually indistinguishable in the eyes of most consumers.

When analysts separate those types of vehicles, though, a definite movement away from SUVs to crossovers can be seen.

Mr. Libby attributed the softening demand for SUVs to several factors, especially higher gasoline prices and renewed focus on interesting new cars, such as the Chrysler 300.

Other factors may also play a role, however, such as the SUV segment's safety record and years of public relations battles that might have taken a toll on their image.

Sport utility vehicles have been under attack for years - in books, controversial ads and news debate programs.