4x4S CACHET CHALLENGED

American Demographics, Sept 1, 2004 by Matthew Grimm

Byline: Matthew Grimm

What can you say about the sport utility vehicle phenomenon that hasn't been said? Suburban Panzers, spirits of American rugged independence, security blankets for pathos-ridden moms, etc. SUVs have become a vital cog in the U.S. auto business, so vital that should they ever fall out of vogue, it could pull the rug out from under the industry. Don't look now ....

Domestic automakers' stocks have taken hits in recent months as international events and their connection to oil supplies jacked Americans at the pumps and stirred up strains of discontent with gas-guzzledom. Auto industry execs have downplayed such portents as normal factors in a cyclical business that will fade in importance when gas prices level off. That's a profitable stance, given they make about a 3 percent profit margin on cars versus 15 percent to 20 percent on SUVs, a difference of around $8,500 per unit.

Granted, some people will always want 4x4 power, even need it, and some will always buy on economy, both mileage and sticker. But profit may be blinding some in the business to parallels with the Toyota-Honda-Nissan revolution of 20 years ago - not to mention the present aftershocks of our quagmire in the Middle East. If U.S. automakers are gambling that consumers will adhere to a status quo, it may be a sucker's bet.

Even as they've made PR hay with gas/electric hybrid vehicles in recent years - Ford, after much delay, finally went to retail with its hybrid Escape SUV last month - domestic industry bigwigs seem universally to take the misfortunes of American drivers with a grain of salt. Paul Ballew, GM's market analysis chief, said in March that only when price-per-gallon hit $3 would it conflict with consumers' desires for big, powerful cars. Survey data by industry tracker CNW Marketing Research showed $3.25 as the point where a third of Americans would "eventually" consider a more fuel-efficient vehicle, while only 10 percent said they would do so at $2.25.

"What has to happen to impact sales is consumers have to come to believe [high gas prices] are permanent, not transitory," George Pipas, Ford's manager of sales analysis, told CNN/Money.

But, as violence in Iraq spilled over to oil-targeted terrorism in Saudi Arabia, that very sentiment spread. A double-digit sales drop in June, especially for GM and Ford, prompted analysts to reconsider the standard sanguine stance. Where CNW's March poll saw consumers citing gas prices as No. 46 of 56 buying factors, that jumped to No. 44 in April and No. 39 in May. That's natural, given recent months' gas-gouging, but other data suggests consumers were thinking about car purchases a lot harder, which doesn't bode well for never-wholly-logical SUVs.

Consumers rethinking the model of their next car purchase jumped 10 points in May alone, according to Kelley Blue Book Research and Harris Interactive's monthly AutoVibes report, with 22 percent of car buyers saying they'd already decided on a different vehicle than previously, and 26 percent "strongly considering" alternatives. Further, by measure of purchase requests processed by online retail network Autobytel Inc., it's even more ominous for the big SUV flagships rated at less than 20 mpg. Buyer requests for such vehicles plummeted 20 percent in the first half of 2004, and the overall category, including smaller-platform SUVs, was down 13 percent.

The only vehicles showing gains in the category were the more fuel-efficient Saturn VUE (now being recalled for safety reasons) and Honda CR-V. Further, according to a mid-May Harris Poll, 60 percent of Americans planning to buy a car within two years planned to buy a more fuel-efficient one, and 71 percent think car companies are "not moving as quickly" as they should to develop more fuel-efficient vehicles, versus 11 percent who think the current pace will suffice. Autobytel tracked purchase requests for Toyota's Prius hybrid at a "staggering" 73 percent growth in the first half, tops of any category and parallel to the 10-month waiting lists stacking up at dealerships around the country.

Honda, which already markets the hybrid Insight, seeks to push the category further mainstream with a hybrid version of its popular Civic. But Ford may be leading the pack with its Escape hybrid SUV, a concept that, according to one staunch critic of SUVs, assuages one of the biggest misfires in automobile dogma.

"Standard thinking is you have to buy a smaller car when it comes to a fuel-efficient vehicle, but you can't really measure a consumer's desire for fuel economy if there's no direct substitute," says David Friedman, research director for the Clean Vehicles Program at the Union of Concerned Scientists. "And this is the good news, that this is really the first time that consumers have had so many new choices when it comes to new vehicles. They're pretty expensive because they're in low production volume right now, but it's a start."

Who will make that big conversion in manufacturing and that investment in marketing dollars to make hybrids into product line staples instead of tokens? Toyota, ever surfing the crest of the market, shifted gear this summer from model advertising to a brand campaign touting the nine cars in its line that got 30 mpg or better, including the Prius, which the company bumped up to nearly 50,000 production units this year, still a drop in the bucket for the overall market.