Collapsing sales of sports utility vehicles are a sure sign that the era of cheap, guilt-free motoring is at an end. But the big question for manufacturers is how they fill the gaping hole blown in their profits by the decline of the high-margin off-roaders.
Figures out last week showing sports utility vehicle sales in the UK fell by a fifth in May are a sobering glimpse of the automotive world to come. Small will increasingly be beautiful and motor marketers will have to promote low fuel consumption and lightweight vehicles as the latest sexy must-have for status-seeking drivers.
But they could struggle to make the environmentally-friendly hybrid petrol/electric models seem as attractive as the road-hogging 4x4s that have been clogging up posh school runs for the past decade. Selling the environmental benefits of hybrids as SUVs are priced off the roads will be a long-term challenge. For the time being, marketers are putting a brave face on last week’s figures from the Society of Motor Manufacturers and Traders. These showed that sales of “dual purpose vehicles” – SUVs – plummeted 18% in May, compared with the same month last year.
One source claims that the auto industry was taken by surprise by the speed and extent of the May downturn. After all, the situation was not looking too bad in the first months of this year – sales of “off-roaders” have actually risen by 4% in the five months to the end of May 2008 compared with the same period last year.
The confluence of steep hikes in petrol and diesel prices, punitive levels of vehicle excise duty on high-polluting cars and the environmental backlash against SUVs have devastated sales of some models. Combined with the credit crunch and the prospect of lower City bonuses, May has turned into a month from hell for SUVs.
Land Rover global marketing director Colin Green puts a brave face on the figures: “We’ll have to wait a little longer to see whether it is a trend or a transient thing. If petrol prices stabilise and consumers get used to it, we will be able to assess whether their choice of vehicle has been affected.”
Although UK Land Rover sales fell 32% in May, Green says March sales were “our biggest ever month.” And while sales are plummeting in the US, where General Motors last week announced it is closing four SUV factories and may sell its Hummer division, Green says Land Rover has done well worldwide. “We see tremendous growth in emerging markets like Russia and China offsetting the declining US market,” he says. Last year was Land Rover’s “biggest ever year” worldwide, with 226,000 vehicles sold.
Unsurprisingly, the SMMT figures show sales of the biggest, most-expensive SUVs suffering most. May sales of “large premium” SUVs fell 27%, with BMW’s X5 down 62% and Volvo’s XC90 down 50%. The Audi Q7 increased sales by 5% in May, but is down nearly one fifth in the year to date. “The Q7 is bang on target based on how old the product is,” says Audi UK head of marketing Peter Duffy. The company is to introduce a smaller model, the Q5, towards the end of the year. “The Q7 is big and takes seven people comfortably. There will always be a segment that finds that valuable. People who want that in a smaller format will have the Q5, which carries five people,” he says.
Sales of “SUV Compact” cars fell only 9% in May. The Nissan Qashqai, launched in March 2007, is now the UK’s biggest selling SUV, displacing the previous top-seller Honda CR-V, according to the SMMT figures. In the year to date, Qashqai has sold 9,558 vehicles, outstripping the CR-V’s total of 9,040.
However, Nissan is furious about the SMMT figures. It claims Qashqai is not an SUV and should be considered as a C-class car, compared to models such as the Ford Focus and VW Golf. A spokeswoman says most Qashqais are two-wheel drives, not four-wheel, so should not be counted as SUVs. But she adds: “Sales are doing incredibly well, it is our best selling car of all time.” She denies that Nissan is seeking to avoid adverse publicity surrounding SUVs by simply re-classifying the Qashqai.
The creation of “cross-over” models – models that combine elements of SUVs and passenger cars – indicates that manufacturers are already looking beyond big, road dominating SUVs. They have started taking weight out of the vehicles and are creating smaller models such as the VW Tiguan and the Ford Kuga. “Manufacturers have known for a while now that, in Europe at least, large SUVs are on the wane. If you look at product development in that area, it is all about making the products smaller,” says Mike Moran, former Toyota commercial director and now a consultant at The Automotive Partnership.
Moran adds that manufacturers create products in cycles of four to six years, and are half way through the current cycle. The next wave will see far smaller models. All is not lost for SUV marketing, though, he believes. “This is a classic example of marketers with experience being better placed to thrive. There are things you can do,” he says.
To counter environmental criticisms, Land Rover has offered to offset carbon on the first 45,000 kilometres of driving a newly purchased vehicle, he says. And while SUV manufacturers will offer big discounts and incentives, a “more elegant solution” is to go back to people who have bought SUVs and get them to replace earlier. “SUVs are still perfect to drive. For people who need a vehicle of that size, you could pay the petrol or road tax for a year,” he suggests.
For some, the SUV era has been a triumph of self-deception over utility and cannot come to a close soon enough. Chris Wood, chairman of branding agency Corporate Edge and an industry consultant, says: “The question about SUVs is not why they are in decline but what was their appeal in the first place, given today’s urban environment.”
He says there is more justification for the huge models in the US, where many people live in the wilds and there are good reasons to have off-roaders. “It is like having a shotgun,” he says. He describes SUVs in the UK?as an old-fashioned status symbol, becoming popular following the collapse of the GTI trend in the late 80s. “There’s a feeling of arrogance and superiority in driving one – or safety and security, depending how you define it. You feel defended and secure, on top of things.”
In reality, says Wood, SUVs have encouraged self-deception among their drivers. They give the feeling that you could go off-road if you wanted, yet in the UK hardly anyone does. Driving one also suggests to the world that you have a country pad to visit at weekends, hence the Chelsea Tractor moniker. They are more muscular than people carriers, so are ideal for a school run where exhibiting status superiority over rival parents is important.
While SUVs tapped into the low-fuel price zeitgeist of the 1990s, in coming decades, environmentally friendly hybrids will have to become the fashion. But Wood says the performance of hybrids will need to be top quality. He draws a parallel with the confectionery market, where people want “better for you” products, but will only buy them if they deliver the same indulgence as the more fattening sweets. He is convinced hybrids can deliver a good enough drive to attract city-bound SUV drivers. The Toyota Prius is the most visible hybrid, but other manufacturers are rushing out fuel-efficient models.
Marketers will have to use their ingenuity to keep alive interest in SUVs while at the
same time ensuring drivers can be persuaded to switch to a hybrid. Rocketing taxes and fuel prices will help.