Why loyalists can't quit their SUVs

Contrarians have their day as hauling power moves badges like Tahoe

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Forget conventional wisdom.

It would dictate that with gas idling around $2.60 a gallon, this might not be the best time to introduce a new full-size sport-utility vehicle. But that's just what three carmakers are doing, including beleaguered General Motors and Ford.

It's not that the carmakers are clueless.

"We've conducted heavy research, discussed this extensively internally," says Stephen Berkov, marketing director at Audi of America, which rolls out its first SUV this spring. "It's clear that the SUV in some concepts is becoming stigmatized. It's also clear that as companies brought non-SUV alternatives, the market is rejecting them. Arguably, Americans insist on SUVs and demand it. It's unique to [the American] lifestyle and utility."

Not for all Americans, however. The full-size SUV market is shrinking as "discretionary" buyers bail out, leaving the core of customers who can't be shaken by high gas prices. "Where we used to see the segment at 900,000 units annually, we now see it leveling off at 650,000 to 700,000 units," says Barry Redler, group marketing manager for the Ford brand. The discretionary buyers are switching to midsize SUVs and crossovers.

Stricter gas mileage rules for SUVs, announced by the U.S. Department of Transportation late last month, might slow the exodus a bit.

"The overall large-SUV market is approximately 700,000 units," confirms Art Spinella, president of CNW Marketing Research. "That figure accounts for new-vehicle buyers who have a specific need or desire for this type vehicle. The inflated sales were driven by 'fashion statement' buyers, those who bought a large SUV because it was the thing to do for whatever image reasons."

Russ Clark, general director-truck marketing at General Motors Corp., asserts simply: "It's always a good time to bring in a new product, especially when you bring in a vehicle like [the revamped 2007 Chevrolet] Tahoe, with class-leading fuel economy and class-leading power. With all of the features and benefits we're bringing to the segment, we expected to and are currently enjoying success with the vehicle."

Chevy redid the Tahoe for the 2007 model year, launching it last New Year's Eve with a big blitz on TV and in Times Square. Tahoe sales were up nearly 50% for the first two months of 2006, according to Automotive News. By comparison, nearly all other full-size SUVs finished lower than a year ago.


Sales for the first two months included both model year 2006 and '07 Tahoes, and some of this sales success can be traced to the incentives on the 2006 model. Power Information Network says those incentives averaged $5,270 per unit in January and $3,741 in February.

"Calendar-year-to-date, we've sold 20,000 new Tahoes and 26,000 '06 Tahoes," Mr. Clark says. The revamped '07 Tahoe falls under GM's new approach of pricing vehicles closer to the actual transaction price, while scrapping incentives, so sales for later in 2006 may more accurately reflect Tahoe's resilience to market pressures.

"[The 2007] Tahoe has received very positive press reviews and word-of-mouth," says Tom Libby, senior director-industry analysis at Power Information Network, a division of J. D. Power & Associates. "The models are very competitive and include features not found in other vehicles, such as Active Fuel Management."

Chevy is using the AFM technology, not new to its full-size SUVs, as a selling point in its Tahoe advertising from Campbell-Ewald, Warren, Mich. AFM can temporarily shut down the combustion process of half the engine's cylinders under certain driving conditions, such as highway cruising, to save fuel.

"Active Fuel Management, along with Tahoe's improved coefficient of drag, results in 7%-8% better fuel economy," Mr. Clark says, adding that the Tahoe's mileage "numbers are as good as or better than some midsize SUVs."

"The overall marketing message for the 2007 Tahoe is: more capable, more refined, more responsive. By more responsive, we're talking about more power and more fuel efficiency, thanks to Active Fuel Management. The 2007 Tahoe is also E85 capable [can run on up to 85% ethanol/15% gasoline] so it's more socially conscious and more aware," says Andrea Wells, Chevy account director at Campbell-Ewald. Chevy is promoting AFM in TV and print ads, as well as on Chevrolet.com.

Chevy has refused to give up on the discretionary buyer. "When you layer on the vehicle refinements, that's the gravy for these core buyers, but they provide the keys for discretionary buyers," Ms. Wells says. "The message we have out there works for both groups. ... It's always tough [knowing whether you should focus more of your efforts toward core buyers]. You want to retain your core buyers, and with the right media plan, you can reach both core and discretionary buyers. The level of refinement in the previous vehicle was not there for discretionary buyers. It's there now."

GM domestic rival Ford Motor Co. will launch its revamped Ford Expedition and Lincoln Navigator in the fourth quarter with ad support from JWT, Detroit. "Our products and our brands fit perfectly with the core full-size SUV segment and what it is becoming," Mr. Redler says, adding, "We're seeing the market focus on the core customer who really values what this product can bring them."

Mates horses, fuel savings

Coming to showrooms this spring is the Audi Q7. One of the main themes of its marketing, with ads from McKinney, Durham, N.C., will be that the motorist can have both performance and fuel economy thanks to the Q7's direct fuel injection system. "The 4.2 V8 with [the direct fuel injection] technology [is] straight from the Audi R8 Le Mans car. It won many times because of its fuel efficiency. [It] also delivers more power," Mr. Berkov says.

The new SUV won't brave the market entirely without fuel-saving options. Audi plans to introduce a V6 for the Q7 next fall and, perhaps as early as the 2008 model year, a fuel-saving V6 turbo-charged diesel engine. Audi also showed a hybrid version of the Q7 at the 2005 Frankfurt Auto Show, and some believe that it has obvious market potential for the U.S.

There are other ways SUV marketers can approach the fuel efficiency debate-like by ignoring it altogether or making their own efficiency claims even without diesel or hybrid engines.

"Interestingly enough, when we talk to core customers ... fuel economy doesn't make the top four, five or even 10" reasons why they purchase, Ford's Mr. Redler says.

But GM's Mr. Clark says: "If you lay down why people buy SUVs, it's really about fuel efficiency. We currently have an ad out that shows it takes three cars to equal the efficiency and capability of our Suburban. In that aspect, it's more fuel efficient to drive a Suburban."

And the faithful SUV buyer wants a lot of the same thing that a small-car buyer wants.

"There is a fairly large, stable and profitable market for SUVs," Mr. Spinella says. "To get a larger share requires added content, new styling on a more frequent basis and a higher marketing budget to reach the more targeted potential market."
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