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Analysis End of the road for SUVs?
CHICAGO, (UPI) Aug. 13 , 2004 -

Maybe it's the higher gasoline prices, maybe higher insurance costs, maybe higher repair and operating expenses, but the American consumers' decade-long love affair with sport-utility vehicles may be cooling down.

Sales incentives on SUVs are bigger, but don't look for any fire sales.

Automakers sold 4.5 million SUVs in 2003, but the big, powerful gas hogs are staying on dealer lots longer than historically these days prompting discounts as high as $5,000, depending on the model. Fewer than 1 million SUVs were sold annually in the early 1990s. There are now more than 20 million on the road and as their popularity and size grew they became the cash cows of the auto industry, especially for Detroit automakers.

As a rule, the bigger the people-hauler, the better the profit margin.

Profits were huge but the market is changing, according to J.D. Power and Associates, a respected auto-industry research source based in Westlake Village, Calif.

SUVs are sitting on dealer lots longer than they did just a year ago, and while average new-vehicle prices are up, so are buyer incentives.

The number of days SUVs typically sit unsold at dealers, called days to turn, increased to 73 days in July from 60 days in July 2003 -- a 22 percent increase. Luxury SUVs like the Cadillac Escalade and Acura MDX are sitting at dealers about 50 days compared to 34 days a year ago.

The data clearly suggest the SUV segment is under exceptional pressure, said Tom Libby, senior director of industry analysis at the Power Information Network LLC. Higher gas prices and a renewed emphasis on cars by some of the OEMs (original equipment manufacturers) have both likely played a role in this trend.

Manufacturers are well aware of the softening market but say this is not the end of the road for the SUVs, even though Ford Motor Co. President and CEO William Ford Jr. proclaimed 2004 the year of the car at the winter and spring auto shows.

Ford's oldest facility, the 80-year-old Chicago Assembly Plant that began making the Model T in 1924, began churning out all-new 2005 Ford Five Hundred and Mercury Montego sedans in July along with the Ford Freestyle, a crossover vehicle with the characteristics of a car, station wagon, minivan and sport-utility vehicle rolled into one.

The Five Hundred starts at $22,795, the Montego $24,995 and the Freestyle at $25,595. A Mercury derivative of the Freestyle is planned next year.

The South Side plant made midsize Ford Taurus and Mercury Sable sedans for 18 years.

Chrysler debuted its roomy Pacifica last year, and it seems nearly every manufacturer has or is planning a crossover vehicle based on a car platform. There's the Nissan Marano, Honda Pilot, Buick Rainer and Volvo XC90.

Libby said people are trading in their old SUVs. SUVs comprised 29 percent of trade-ins for the 2005 Dodge Magnum, a muscular sporty station wagon selling at full-sticker price.

PIN said the average transaction price on an SUV was down 2 percent, or $690, in July compared to a year ago, while overall new-vehicle prices edged up. Average incentives per SUV were up 12 percent from June to $3,440.

Of course manufacturers have been offering generous incentives to sell cars and trucks, too.

Automakers admit inventories are bloated but say it is a supply problem, not a demand problem. Manufacturers built too many cars, trucks and SUVs based on overly optimistic economic forecasts.

According to Autodata, SUV sales rose 7.5 percent in July compared to the same month a year ago while new car and truck sales were up 2.9 percent. Sales of entry-level SUVs were up 4.3 percent through July, midsize SUVs up 6 percent and full-size SUVs 3 percent.

A lower center of gravity makes the somewhat more fuel-efficient crossovers handle like cars with the space of an SUV. They now account for 40 percent of sport-utility vehicles, and Ford expects SUVs to lead growth in the market segment for the rest of the decade.

We'll have to wait to see if it's ongoing or an aberration, Libby told USA Today. But the end of the SUV? That's ridiculous; it's not.

SUVs came under attack in 2002 in the book High and Mighty: SUVs: The World's Most Dangerous Vehicles And How They Got That Way. The book hit the stores with advance publicity worthy of Ralph Nader's 1965 Unsafe at Any Speed, which questioned the safety of the rear-engine Chevrolet Corvair subcompact, but SUV sales did not even hit a speed bump.

Author Keith Bradsher, former Detroit bureau chief of the New York Times, attacked SUVs for being dangerous, polluting, rollover-prone gas-guzzlers. He said SUV buyers tend to be people who are insecure and vain. They are frequently nervous about their marriages and uncomfortable about parenthood. They often lack confidence in their driving skills.

The book warned the danger posed by SUVs would only get worse as older, full-sized behemoths pass from their affluent original owners to younger drivers as high-mileage used vehicles.

The Evangelical Environmental Network's What Would Jesus Drive campaign traveled to 11 U.S. cities in 2003, and leaders of the movement met with Bill Ford to urge automakers to make more environmentally friendly vehicles.

The 2005 Ford Escape Hybrid will be the industry's first gasoline-electric small SUV when it reaches showrooms this summer.

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