The key, however, may be incentives, which auto experts said are being used increasingly to maintain SUV sales' growth and market share.
In 1994, SUV incentives were 1.8% of the manufacturer's suggested retail price, but leapt to 8.9% of the sticker price as of Sept. 15 this year, said Art Spinella, VP consultancy CNW/Marketing/Research. In 1994, only 8.8% of all SUV owners left the segment for other vehicle types, while 31.4% left for other vehicles this year, he said.
"You've had a steady increase in incentives and defectors, so what the incentives are doing is increasing the pool to draw more people into the segment," he said. "You can continue to increase sales as long as you throw money at it."
TOYOTA ESCHEWS INCENTIVES
Not all SUV makers are doing so, however. Toyota Motor Sales USA's Toyota Division isn't in the incentive game for its SUVs, said Steve Sturm, VP-marketing at the unit. "We put enough product out there to support the market," he said. "How much volume are you going to push through the system vs. demand?"
In the 2001 model year, Toyota will offer more SUVs than ever before (see related story, at right). Among the new arrivals is the Sequoia, coming later this fall. The entry moves the brand into the new full-size SUV category, competing against the likes of Ford Motor Co.'s Ford Expedition and General Motors Corp.'s Chevrolet Tahoe. "The Sequoia is unchartered water for Toyota," said Mr. Sturm. Toyota is projecting sales of 60,000 units next year.
Chevrolet is more upbeat about how many Blazer and TrailBlazer SUVs it will sell in 2001. Russ Clark, brand manager of both those midsize SUVs, projected combined sales of 230,000 units for the Blazer and all-new TrailBlazer next year. So far, Chevy has sold 163,213 Blazers this year through August vs. 146,928 during the same period a year ago, up 11.1%, according to Automotive News.
TrailBlazer arrives early next year as a 2002 model. In addition to the two midsize SUVs, Chevy markets the small Tracker and full-size Tahoe and Suburban. The SUV segment "continues to grow and fragment," Mr. Clark said.
Ted Cunningham, exec VP-global sales and marketing at DaimlerChrysler, described the SUV category as "very expensive" to marketers and fraught with "very severe competition." Car marketers, he said, "have to put their money into product differentiation and find consumer niches, just like we did with the [Chrysler] PT Cruiser."
Daimlerchrysler announced last week its North American Chrysler Group will post a third quarter operating loss of roughly $528 million, citing increased model incentives and startup costs of new models.
Despite incentives, the marketers continue to earn hefty profits on SUVs, said Mr. Spinella. In the first half of 2000, the profit-per-vehicle in the midsize category was $8,800, excluding incentives; $6,500 per small SUV; $12,500 per full-size SUV and $17,000 on each luxury SUV. "It's easy to give away $4,000 in incentives on a luxury SUV if you're still going to make $13,000" per unit, he said.
Although the SUV segment accounts for just 18.7% of total industry unit sales, it generates 39.3% percent of profits, Mr. Spinella added. "They're going to save this segment any way they can."
Luxury SUVs are the best-sellers of the category, with total unit sales rising 22% through August vs. the same period in August 1999, said Bob Schnorbus, a director at consultancy J.D. Power & Associates. Small SUV sales during the first eight months of 2000 are 2.8% higher than a year ago, while sales of midsize, also called compact SUVs, increased by 3.6%.
"The low end of the market has done very well because of price-point issues," said Mr. Schnorbus. New entries, like Mazda North American Operations' small Tribute, and redesigns like Toyota's RAV 4, make them more competitive to older SUVs.
Mr. Schnorbus said it's too early to predict whether sales of Ford's Explorer would be hurt by the Bridgestone/Firestone tire recall, which mostly impacts the midsize SUV segment. The tire maker announced Aug. 9 the recall of 6.5 million Firestone tires following dozens of deaths and accidents linked to tread separation.
EXPLORER TO DECLINE
Mark Cornelius, president of consultancy Morgan & Co., said he expects Ford Explorer sales to decline, though not drastically, when September tallies are announced this week. September was the first full month of the Firestone recall, he stated.
Doug Scott, president of Allison-Fisher, a consultancy, expects "bumps for the Explorer" due to the tire debacle. But long term, Ford's customer loyalty and strength in trucks bodes well for Explorer's future. He said rising gasoline prices "are up against an American passion" for SUVs and "we're still quite short of gas prices affecting the SUV market any time soon."