SUVs and Detroit

Discussion in 'Economics' started by ShoeshineBoy, Sep 12, 2005.

  1. How big of an impact will this have on Detroit? Haven't they gambled everything on the big vehicles?

    DETROIT, United States (AFP) - Even before Hurricane Katrina tore through the southern United States, hampering a big chunk of the US oil industry, consumers were having second thoughts about gas-guzzling sport utility vehicles.


    Katrina could now hasten the demise of the SUV, at least in its current guise, after years in which it has ruled the roost over the world's biggest auto market, analysts believe.

    With gasoline prices surpassing three dollars a gallon (3.78 liters), it now costs 100 dollars to fill up the tanks of large SUVs such as the Chevrolet Suburban used by President George W. Bush's Secret Service escort.

    "Potentially, Katrina could signal the death knell of the SUV in as much as consumers are going to find themselves once burned, twice shy to buy such vehicles," Wachovia economist Jason Schenker said.

    "High gas prices and the perceived fragility of the US energy sector are all likely to weigh on consumers' choices for years," he said.

    Sales of big SUVs dropped dramatically in August, hurting both American and Japanese manufacturers, which have been trying to edge into the segment over the past five years.

    The decrease came despite a fierce price war among the Detroit Big Three -- General Motors, Ford and Chrysler -- which have offered customers the same price on autos that their own employees pay.

    "Hurricane Katrina was definitely a catalyst for gas prices but even before that we were facing an upward trend in prices," said Mike Chung, market analyst at auto website

    "In response to that, consumers were beginning to look at other vehicles outside of large SUVs. The SUV boom has definitely changed. The whole segment has thinned out into several different segments," he said.

    GM reported that despite its elite credentials, the Chevrolet Suburban saw sales drop 28 percent during August. Ford said sales of the full-size Ford Expedition plunged 40 percent.

    Toyota Motor said sales of its heavily promoted Sequoia dropped 32 percent in August. Nissan reported sales of the Armada, which is built in a portion of Mississippi spared by Hurricane Katrina, fell seven percent.

    Reviewing the August sales figures, analysts at Merrill Lynch said that Katrina could accelerate "consumers' natural migration away from large SUVs".

    The big auto makers can see the writing on the wall. Ford plans to halt production of the giant Ford Excursion at the end of September.

    "There is no question that the demand for traditional sport utility vehicles has been affected by rising gas prices," Steve Lyons, group vice president in charge of Ford sales and marketing in North America, said recently.

    Consumers instead are now moving to both smaller SUVs and lighter, "crossover" vehicles that put the body of an SUV on to the more fuel-efficient chassis of a passenger car.

    Paul Ballew, GM executive director of global market and industry analysis, said demand for big SUVs has leveled off as more consumers look for alternatives that get better mileage.

    Government fuel efficiency and emissions standards are set to get tougher in the coming years, which could contribute to the drift away from SUVs.

    Chung said: "You're seeing more consumer interest in alternative fuels like natural gas and diesel. In Europe it's already gained a lot of traction. And a lot of automakers are jumping on the hybrid bandwagon."

    Some believe that hybrid cars, which are powered by a combination of gasoline and battery-generated electricity, could be the next big thing after the SUV craze.

    "But hybrids are more likely to be a stop-gap for something further down the road like fuel-cell technology, which is at least 10 years away," Chung said.