INDUSTRY UPDATE
Beware of Divergent SUV Growth Rates Mike Jackson Executive Director, Strategy and Research 248.430.5954 │ mjackson@oesa.org
U.S. auto sales in the first quarter of 2021 surged 12% from depressed levels in 1Q 2020. Strong demand accounted for an increase of 430,000 units, reaching 3.97 million units, up sharply from a year ago when the onset of the pandemic triggered lockdowns in March 2020. Most manufacturers posted net sales gains, favoring auto makers with growing light truck portfolios. Passenger car sales fell 2.3% to just under 910,000 units in 1Q 2021, in sharp contrast to the 17.3% surge in light truck demand, accounting for 3.06 million units of pickups, SUVs and vans. Remarkably, the SUV category accounted for 82% of volume growth in 1Q 2021, or just under 370,000 units. Decades ago, GM, Ford and Stellantis (formerly FCA) fueled the emergence and growth of the SUV category, which still accounts for strong market share today. The industry eventually adopted the unibody architecture helping to drive strong economies of scale. As a tremendous influx of competition arrives in more mature categories, core entries that previously have been cash cows will face a tougher sales environment. It is critical for the US3 to continue exploring new product opportunities with variants across the sport utility and light truck categories. A few recent examples include the Chevy Trailblazer (subcompact SUV), the Ford Bronco Sport (compact SUV) and the Jeep Grand Wagoneer (full-size SUV). A key reason for the persistent decline of the passenger car category stems from what was a swift erosion in residual values. Some automakers became overly dependent on low-margin fleet sales to rental car companies. These sales helped maintain strong utilization rates at passenger car plants, yet eventually flooded the used car market, leaving consumers to carry the financial hit. The US3 auto makers shifted away from passenger cars in varying degrees and OEMs are wise to prioritize investments toward products that yield the highest returns. In contrast, passenger car portfolios at Toyota and Honda have been reduced, yet remain key contributors to profitability, augmenting their SUV product lines. Although VW and others were slow to expand their SUV portfolios, many have since redoubled efforts, allocating massive investments to meet growing consumer demand within regional and global markets. To this point, U.S. demand across the SUV category, fueled sales growth of 20.3% or 369,000 units in 1Q 2021, to reach 2.19 million units. This is certainly a rising tide that can lift nearly all boats, yet not all to the same height. For more mature categories, competition offers the potential to drive tremendous margin pressure despite growing market volume. 4 │ OESA News - 2021 Second Quarter
