What's driving the shift to crossovers

Larry P. Vellequette, Crain News Service
Photo collage by Scott Merryweather; photos courtesy of Ford Motor Co.; Nissan North America; General Motors Co.; and Honda North America
Crossover sales are booming. Some of the top sellers are the Ford Escape, Nissan Rogue, Chevrolet Equinox and Honda CR-V

By Larry P. Vellequette, Crain News Service

DETROIT — A few weeks from now in Toledo, Ohio, Kristina Wisner will trade in her dinged-up 2006 Honda Civic for a 2016 Honda HR-V, so she can “sit higher” and “be able to haul stuff when I need to.”

When she gets her new subcompact crossover, Ms. Wisner will be yet another consumer abandoning a sedan for a crossover or SUV.

The evidence of what's going on is striking: Through the first half of the year, in a U.S. market that's up 4.4 percent, the historically biggest segment — midsize cars — is down 3.4 percent. It begs a question: Why now?

The answer, according to experts, is that consumers no longer must choose between the fuel economy and comfortable ride of a sedan and the versatility and increased visibility of a crossover or SUV.

“If you go back in time and [bought] an SUV, you would be compromised to some extent of the way that vehicle performed on-road,” said Mike Manley, the global head of the brand that has most capitalized on the shift, Jeep.

“Now I can get everything I want to get, and I don't have to give up all those things that I might have had to give up five or six years ago,” he said.

John Krafcik, president of TrueCar.com, said the additional cargo and passenger space in crossovers and SUVs enables consumers to do more with those vehicles, such as haul large items, than with similar-sized sedans.

“One of the fundamental drivers of the American car industry is that, all other things being equal, people will always choose the most flexibility,” said Mr. Krafcik, a former executive with Ford Motor Co. and Hyundai Motor America.

More efficient

Consumer appetites for crossovers and SUVs have been growing for years, and auto makers have scrambled their lineups to capitalize on the shift, adding crossovers and subtracting sedans.

Some of the move to crossovers and SUVs can be explained by the increased fuel economy of those vehicles, some of which — such as the Jeep Cherokee and Ford Escape — now share platforms and components with fuel-efficient cars.

“If you're coming out of a car that is a decade old, the chances that a new crossover matches or beats your car in gas mileage is pretty good,” says Dave Sullivan, an analyst with AutoPacific Inc.

 

Here's an example. In 2005, a consumer choosing a Honda CR-V crossover with a 2.4-liter engine and automatic transmission (26 mpg highway) instead of a Toyota Camry with a 2.4-liter engine and automatic transmission (31 mpg highway) would have faced a 5 mpg penalty in highway fuel economy.

In 2015, choosing the CR-V (34 mpg highway) over a Camry with a 2.5-liter engine (35 mpg highway) means a penalty of just 1 mpg on the highway.

Laurie McCants, managing partner at Honda of Covington, in Covington, La., said the shift from sedans to crossovers and SUVs is occurring on her new- and used-car lots.

“I've noticed more demand on the used-car side as well” for crossovers and SUVs, McCants said. “It just comes down to being practical. So many SUVs have been sold, especially in places with a lot of trucks, like Texas, that if you're in a car and you're surrounded by these huge trucks and SUVs, it's overwhelming and you're not going to feel safe.”

Added Ms. McCants: “My mom is 73, and she's in an SUV because I want her to have that visibility.”

Better view

Meanwhile, crossovers and SUVs maintain the big advantage of a higher seating position — what Jeep's Mr. Manley calls “command of the road.”

A proliferation of pickups, semitractor-trailers and bigger SUVs on the roads has made many sedans seem tiny by comparison. Manley said it's part of what's driving interest in the new Jeep Renegade, which debuted in the U.S. in March and racked up sales of 14,431 units through June.

More space, similar mpg Parking the sedan
       
Compact crossovers, as defined by TrueCar, offer similar fuel economy but a lot more luggage volume than midsize sedans. Automakers' U.S. lineups have added crossovers since 2010 and reduced the number of sedans in response to changing consumer preferences.
 Midsize sedansCompact crossovers U.S. nameplates20102015
Average fuel economy28.8 mpg26.8 mpg Cars, midsize or smaller7348
Average passenger volume102.4 cubic feet109.9 cubic feet Crossovers4966
Average luggage volume15.7 cubic feet35.8 cubic feet Source: Automotive News Data Center

Note: Averages based on top 5 selling nameplates in each segment for the first half of 2015. Midsize sedans: Toyota Camry, Nissan Altima, Honda Accord, Ford Fusion and Chrysler 200 Compact crossovers: Honda CR-V, Ford Escape, Chevrolet Equinox, Toyota RAV4 and Nissan Rogue

SOURCE: TrueCar

    
  

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“Today, over 70 percent of the people looking at Renegade have never owned a Jeep before in their life,” Manley said.

“There is no doubt that once you're used to that ride height and seat position, it makes a difference psychologically. I know I feel more vulnerable” in a sedan.

Good news

The shift from sedans is good news for the industry, except for auto makers whose lineups are full of sedans and whose top sellers have been cars such as the Honda Accord.

In the first six months of this year, U.S. Accord sales are down 16 percent from the same period of 2014.

According to KBB.com, incentives for compact and midsize cars are higher than for compact and midsize SUVs and crossovers.

In May, for example, the average incentive given for a Honda HR-V was just $25, while the average incentive givenfor a Jeep Renegade was $1,425, according to data compiled by KBB.com. Compare those numbers with an average incentive of $1,850 for compact and midsize cars in May.

“Midsize sedans have become commodity cars. They've become the $199-a-month lease points,” says TrueCar.com's Mr. Krafcik. “Compact crossovers, for example, typically have about $5,000 more transactional revenue, with about $1,500 additional cost per unit than a midsize sedan.”

Mr. Krafcik added: “Consumers are getting what they want, and OEMs are benefiting as well."

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Larry P. Vellequette is a reporter with Automotive News, a Tire Business sister publication based in Detroit.

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