GM still makes the Cadillac Escalade SUV, and it's still big.
But it's far more efficient and refined than the Escalades of
old. Source: General Motors.
It's the biggest trend in the auto business: SUV sales are
Gasoline may cost more than $3 a gallon, but -- just as we saw
a decade ago -- more and more buyers are choosing SUVs over
Part of the reason is practicality: Families with kids find a
roomy SUV to be easier to live with than a cramped compact car.
Buyers may also like the more upright seating position, and the
advantages of all-wheel drive.
But last decade's SUV boom ended badly -- for the Detroit
automakers who neglected fuel economy in favor of cranking out
ever-bigger SUVs, and for consumers who were stuck with the
fuel-chugging behemoths when gas prices jumped and the economy
Is this another disaster in the making for companies like
These aren't your big brother's SUVs
Investors are always warned to be wary of anyone who says,
"It's different this time" -- but it really is different this
time, at least in some key ways.
First, these aren't the SUVs of old. While GM and Ford do
still make big truck-based SUVs like the Chevy Tahoe and Ford
Expedition, those are niche choices in today's market. They're
not the big sellers. (And even the Tahoe and Expedition have been
reworked. They're safer, more comfortable, and more
fuel-efficient than their predecessors.)
Ford's Explorer is still a big seller, but today's Explorer is
a more car-like -- and more family friendly -- product. Source:
Ford Motor Co.
These days, the big sellers are "crossovers," SUVs based on
platforms and architectures shared with car models. Ford's
hot-selling Escape (up 19% last month) is a mechanical cousin of
its Focus compact, and the current Ford Explorer (up 32% in July)
shares a platform with the Taurus sedan.
's SUV stalwart Jeep is in on the act: Its hot-selling
Cherokee is related to the Dodge Dart and Chrysler 200
Even though it's built on a platform that is shared with
several Fiat Chrysler sedans, the new Cherokee still brings
a measure of Jeep's traditional off-road prowess. Source: Fiat
The fact that many of today's SUVs are built on car
architectures means they're lighter in weight and more
fuel-efficient than the SUVs of old. It also means they drive and
handle more like cars than trucks -- making them more comfortable
for many and, arguably, safer.
In fact, they're more like the 21st-century versions of the
big station wagons that those of us of a certain age remember
from the 1960s and 1970s. They're taller and roomier, and many
have all-wheel drive -- but in terms of construction, safety
features, fuel efficiency, and handling, they're more like cars
But one thing
changed: SUVs are still very profitable products for their
A big boom in earnings thanks to shifting consumer
Ford and GM both reported strong second-quarter results in North
America, results attributed at least in part to big SUV sales.
GM's big SUVs -- the Chevy Tahoe and Suburban, GMC's Yukon, and
the Cadillac Escalade -- are all-new for 2015. Sales of the group
are up 16% this year through July. And
Jeep has been on an absolute tear
: Sales are up a whopping 44% this year through July.
But they're not the only ones.
reported an unexpectedly high second-quarter net profit of $5.7
billion -- thanks to
surging SUV sales
here in the U.S.
saw second-quarter profits surge 26%, thanks in part to a boom in
sales for its new X5 SUV, up 30% in the first half of 2014.
has been making
huge profits on high-end SUVs
like the Porsche Cayenne. And
sales and profits soar
thanks to its crossovers.
The SUV boom is benefiting more than Detroit. Sales of BMW's
X5 have surged this year. Source: BMW.
But unlike what we saw with Ford and GM last decade, none of
the automakers are dependent on SUV sales. Back then, the Detroit
Three neglected to invest in competitive fuel-efficient cars --
and they were caught out when gas prices suddenly rose and buyers
turned to Toyota and
s what really is different this time. Cars like GM's Chevy Cruze
and Ford's Focus and Fusion are competitive, strong-selling
models -- and Detroit's much-improved cost structures mean that
Ford, GM, and Chrysler can sell those cars at a solid profit
nowadays, making them worth continued investment.
Big SUV profits won't last -- but this time, that's
It is true that automakers' profits will take a hit if and when
the market turns away from SUVs (for whatever reason). SUVs,
generally speaking, are more profitable than cars, and selling
fewer SUVs and more compact cars will lead to shrinking profit
But I don't think it's fair to say that would be a crisis.
Instead, I think we should look at it this way: Automakers like
Ford and GM (and Toyota and BMW, and most of the others) are
taking advantage of the
offered by the current market with strong, profitable
As long as they remember not to put all of their
product-development eggs in the SUV-shaped basket, that's a good
thing for shareholders.
More from The Motley Fool:
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Is the SUV Boom Putting Ford and GM at Risk
originally appeared on Fool.com.
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