GM hoping big SUV category still has life

GM certainly is hoping for something better than the lackluster response that greeted the redesigned Ford Explorer last year. The Explorer virtually defined the category in the 1990s and despite some well-publicized problems is the best-selling SUV ever, with more than 5 million units delivered since its debut in 1990. Ford sold only 12,000 Explorers in November, down more than 50 percent from a year earlier, and for 2005 overall sales were down about 24 percent.

With a more extensive redesign and array of new models, GM is likely to generate decent sales of the SUV line and improved profit margins over the next several quarters, said Peter Nesvold, an auto industry analyst at Bear Stearns. But GM, Ford and DaimlerChrysler are facing an uphill battle as big SUVs go out of fashion and lose share to the smaller, more fuel-efficient crossover vehicles.

And because crossovers are based on car platforms, foreign-based manufacturers like Honda and Nissan are likely to gain because “they are perceived as being more in touch with what consumers want in cars,” he said.

“Historically the Big Three were known as really great truckmakers,” he said. “It happened that in the '90s trucks came into fashion disguised as SUVs. A lot of buyers loved the utility of it, the perceived safety and the command seating. But it is a tough ride.”

The impact of fuel prices on SUV fashion is a matter of some debate.

Buyers of large SUVs, which sell for $35,000 and up at dealers, tend to be affluent families with a median household income  of $69,000, compared with $53,500 for all new vehicles.  Many of those buyers will be undeterred by the thought of spending an extra $500 a year in fuel costs, especially if they have a boat to tow or a large family to haul.

In fact higher fuel prices probably have more of an economic impact on the residual value of SUVs. As gas prices soared in late summer, the price of used SUVs fell sharply.

There is also a psychological factor, at least among some consumers. Nesbold said auto industry executives have been surprised by the strong market interest in hybrid vehicles, which tend to be more fuel efficient and have gained a reputation as the best available choice for the environment.

Ford already offers a hybrid version of its Escape small SUV, and Ballew said hybrid technology will be offered in GM’s large SUVs, but not until 2007.

“At today’s price points we don’t think that powertrain will dominate, but it is an important option to offer,” he said. GM is more interested in emphasizing the improved fuel economy of its regular powertrain that will be incorporated in the forthcoming truck platform.

Nissan Motor Corp. via AP file The Nissan Murano is one of several hot 'crossover' vehicles that are taking market share from truck-based SUVs.

“What is important for us is to make sure the world understands that this is best-in-class in terms of fuel economy by most objective measures,” Ballew said. Ballew does not expect gas to return to $3 a gallon anytime soon but said the automaker has production “contingencies,” which he declined to specify, in case the price of gas goes up or down significantly.

Mark McCready, director of pricing strategy and market analysis for online car retailer CarsDirect, said the gas price shock of this past summer is playing a major role in changing consumers’ attitudes.

“Even today, gas prices have stabilized, and we still haven’t seen the change in consumer behavior back to what it was before,” he said. “I think it is more of a permanent change. Financially buyers don’t don’t want to take the risk. … They realize that maybe I don’t need that much car, and what if [a spike in gas prices] happens again?”

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