Small cars getting swamped by SUVs
DETROIT — Among the many shiny models vying for attention at Detroit’s North American International Auto Show are the revamped Volkswagen Jetta, Hyundai Veloster and Kia Forte.
But cars — particularly small ones — are having a tough time getting buyers to look their way as SUVs grow in popularity.
Car sales are expected to hit a record low this year after steadily declining for several years. SUVs surpassed cars for the first time in 2016, and the gap only widens: Auto shopping site Edmunds.com forecasts the utilities will make up 43.5 per cent of new vehicle sales this year, while cars will fall to 34.5 per cent.
The reasons are plenty, including relatively low gas prices, growing millennial families and small, attractive SUV models that are becoming more fuel efficient and affordable.
The small car slump and utility boom has spurred industry changes: Ford is converting a Michigan plant that makes the Focus for Bronco SUV production. The automaker plans to move Focus production to China.
So why the big push to make — and market — cars as the demand dwindles? There are economies of scale, since many cars are sold globally, including in overseas markets where small cars are more popular. Then there’s the “gateway” effect, according to Michelle Krebs, an executive analyst for the car buying site Autotrader.com.
“A small car is likely the first new vehicle a young person buys,” she said in an email. “So it is particularly important to make a good impression so that person sticks with a brand and moves up the size and price ladder.”
Despite the sales drops, the U.S. small car category is still “huge,” Krebs said, representing 2.1 million last year and the fourth largest vehicle segment.
Still, there’s no question that several car-dependent manufacturers have been hurt by the shift to SUVs, including VW, Hyundai and Kia. The models being showcased in Detroit are examples of “what they have to work with while they develop more sport-utilities,” Krebs said.
Hyundai isn’t giving up on small cars, as evidenced by the new Veloster. It also recently revealed the updated Accent subcompact, which has optional features like remote start, which lets the driver start the car with a smartphone, and a hands-free trunk that opens when the driver waves a foot under it.
“We still believe there’s big demand for basic transportation that offers more,” said Michael O’Brien, who leads U.S. product planning for Kia, Hyundai’s smaller affiliate.
Underscoring the point, Kia said the Forte had its best sales year in 2017.
Even though small cars have fallen out of favour in the U.S., automakers still need to invest in them due to demand in other parts of the world, said Mark Reuss, General Motors’ global product development chief. Also, Reuss said he has seen events that have rapidly shifted what consumers want, and he wants to be ready if that happens.
“These are long-term capital investments,” Reuss said. “Some of the big shocks that have happened that I’ve seen in my career flip things pretty quick, faster than we can change capital investments.”
Small cars are still an important part of the market, said Jonathan Smoke, chief economist for Cox Automotive, especially where people need something small and manoeuvrable.
Sales of new small cars also spiked after hurricanes in Florida and Texas, when people who needed transportation quickly went for the most affordable cars they could find.