Detroit Is Losing More Ground in Crossovers

(Bloomberg) -- During broadcasts of Wimbledon tennis matches this month, a promotional game was playing out between General Motors Co. and Ford Motor Co. Unfortunately for Detroit, the two look outmatched by other opponents.

The advertisements were for crossover vehicles that are crucial to automakers’ success in the U.S., with consumers buying them in droves at the expense of sedans. GM was dangling a hefty 18 percent discount on most Buick Encore models. Ford was hitting back with an ad in which the narrator opened: “Considering Buick Encore? You should look at the all-new Ford EcoSport.”

But the dueling commercials highlighted an all-too-familiar story. In a sequel to Detroit’s virtual capitulation of the still-sizable U.S. passenger-car market, GM and Ford are trying to pick off one another’s customers as they struggle to go toe-to-toe with the likes of Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co. The ground they’re giving up to Japanese automakers now is with the crossovers that boast better handling and fuel economy than truck-based sport utility vehicles.

“The U.S. has been the epicenter for the crossover market for 20 years, and the fact that our domestic automakers aren’t any better at it than the foreign brands is damning,” said Eric Noble, founder of the CarLab, a consulting firm in Orange, California.

Detroit Is Losing More Ground in Crossovers

By 2023, GM, Ford and Fiat Chrysler Automobiles NV will produce only 35 percent of North America’s crossovers, down from 61 percent in 2005, according to Alan Baum, an independent auto analyst in West Bloomfield, Michigan.

That’s less of a collapse than in cars. Detroit will account for just 16 percent of North American output by 2023 -- after Ford and Fiat Chrysler will have stopped making mainstream sedans -- down from 53 percent in 2005, according to Baum’s estimates.

Detroit Is Losing More Ground in Crossovers

Still, Baum expects the three traditional U.S. automakers will miss out on the sales growth in car-based crossovers and become even more dependent on pickups and bigger SUVs built on truck frames. By 2023, Detroit’s share of North American truck production will remain rock solid at 86 percent, Baum said.

“The Asians and the Europeans are taking over crossovers in the U.S. by adding new models and more manufacturing capacity. They did the same thing in cars 10 or 20 years ago,” he said. “In Detroit, this puts even more pressure on trucks.’’

Automakers will tally up the score next on Wednesday by announcing July sales. Industrywide deliveries may have slowed to at an annualized pace of 16.7 million in July, according to a Bloomberg News survey of 10 analysts. The rate, which is adjusted for seasonal trends, was 16.8 million a year earlier and 17.5 million in June.

Detroit Is Losing More Ground in Crossovers

As Detroit automakers come to grips with the softening market, models like the Ford Escape illustrate their uphill challenge. An assembly plant in Louisville, Kentucky, is the company’s lone source of the crossover model for North America, with the capacity to build about 350,000 a year, Baum said.

Honda, by contrast, is about to have four North American plants building its CR-V model. The company gets about 200,000 units annually from each of its factories in East Liberty, Ohio, and Alliston, Ontario. About 70,000 are built in Greensburg, Indiana, and its plant in Marysville, Ohio, will chip in an additional 40,000 units a year starting next month.

All those plants add up to capacity for more than half a million CR-Vs a year in North American factories that also produce a smorgasbord of other models -- and can adjust relatively quickly as consumer tastes evolve.

“We’re moving cars all over the place all the time to maximize our opportunities in the market,” Ray Mikiciuk, assistant vice president of sales for Honda’s U.S. unit, said by phone.

Japanese automakers also supplement North American production with imports, an approach that looks riskier as the Trump administration has begun a national-security investigation that could lead to prohibitive tariffs. Nissan sources Rogue models from Tennessee and Japan, while Toyota relies on Ontario and Japan for RAV4s.

U.S. automakers still are capable of strong forays in crossovers, Baum said. GM’s Chevrolet, for instance, reported a 17 percent sales jump for its Equinox crossover through June after completely redesigning the vehicle last year.

Brian Johnson, a Barclays Plc analyst in Chicago, points to the brand’s forthcoming Blazer model as the kind of performance-oriented crossover that Detroit will need to differentiate from other offerings and command premium prices.

But that sort of effort may be an exception over the next four years. Fiat Chrysler, for example, will account for about 3 percent of the industry’s new-car introductions, 11 percent of crossovers, and 31 percent of trucks during that span, Baum said.

That plan carries some risk. Oil prices have jumped about 65 percent since June 2017, topping $70 a barrel on Monday. And crude could get even costlier if geopolitical tensions escalate between the U.S. and Iran, as they did in 1979 -- with devastating consequences.

“Detroit isn’t any less dependent on pickups now than it was in 2007,” Noble said. “Pickups are great when America is booming, but they’re horrible in a downturn.”

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