Americans are back to favouring big for their cars

John Bruno, president of one of New York’s biggest Cadillac car dealerships, sighs over the challenges of satisfying demand for the manufacturer’s latest hot model. “I wish I had another 100 of the new car,” he says, with a car salesman’s hyperbole. “It’s a phenomenal product.”

But the popular vehicle for Potamkin Cadillac in Manhattan is not one of the widely praised sedans that Cadillac, part of General Motors, has been producing over the past two years. It is the latest version of the Escalade, a sport utility vehicle that weighs 5,718lbs (2.59 tonnes) and is 17-feet (5.18-metre) long.

The Escalade, which achieves a modest 17 miles per gallon average fuel economy, enjoyed sales last month nearly twice those of November last year. The vehicle is a clear beneficiary of a sharp shift among US car buyers away from small sedans to SUVs and pickup trucks — prompted by the plunge in oil and petrol prices.

Latest sales figures highlight how these big vehicles, long known as the gas guzzlers, are back in vogue. The market share of smaller SUVs, known as cross utility vehicles, was 28.4 per cent in November, up 1.5 percentage points over the same month last year, according to the US National Automobile Dealers Association. The share of big SUVs such as the Escalade increased 0.3 percentage points to 7.4 per cent, while that of pickup trucks rose 0.8 percentage points to 14.5 per cent.

US car buyers increasingly turned to smaller, less fuel-hungry vehicles — notably sedans — when petrol prices surged above $4 a gallon in 2008. That petrol spike boosted US sales for overseas carmakers such as Japan’s Toyota and their strong line-ups of smaller, more fuel-efficient saloons. It helped to force General Motors and Chrysler into government-managed bankruptcies in 2009, and propelled Ford into a restructuring.

Barb Samarzich, chief operating officer of Ford Europe, told a conference this month the fuel price decline had made consumers feel “more comfortable” with buying a larger vehicle. “From a financial perspective, cost of ownership, I hate to say it, the consumer looks at where the price is today, not where it’s going to be,” Samarzich said.

Riddhish Dubal, a consultant for Alvarez & Marsal, the professional services firm, says most carmakers regard $3.50 a gallon as a “tipping point” in consumers’ sales decisions. According to the US Energy Information Administration, average prices across the US for standard petrol this week were $2.68 a gallon, down 26.4 per cent from the $3.64 peak reached in late June.

Because US fuel taxes are low compared with other industrialised countries, underlying oil price changes can have a big impact on consumers’ behaviour. “If you go lower, consumers historically purchase the less economical, larger trucks, big SUVs,” Dubal says.

The shift looks set to boost the profitability of the big three Detroit-based carmakers — which all have strong big vehicle line-ups and secure high profit margins on them. Michelle Krebs, an analyst for autotrader.com, a car information site, says the shift is most worrying for carmakers such as Korea’s Hyundai, which sell little other than sedans in the US. Hyundai’s November sales in the US were down 4 per cent compared to the same month last year. The company did not respond to requests for comment.

“They have no big SUVs and trucks,” Ms Krebs says. “They’re in the market for small cars and mid-size cars that aren’t selling.”

Yet, according to Derrick Hatami, head of North American sales for Japan’s Nissan — whose sedans accounted for 59 per cent of its US sales in November — even saloon-dependent carmakers have reasons to be optimistic. “The fact that fuel prices are low is helping to drive growth overall,” Hatami says of the general market.

The demarcation lines between vehicle types are no longer as clear as they once were, Krebs says. Nearly all SUVs now use the lighter structures of sedans and improved engine technology.

Even the latest Escalade’s 17mpg average fuel economy is a sharp improvement on the 13mpg that the first, smaller version achieved in 1999. “The idea that these SUVs suck a lot of gas isn’t true any more,” Krebs says.

This improved fuel efficiency means that while Americans are embracing larger cars once more, they are not returning to the gas-guzzlers, according to research by Michael Sivak and Brandon Schoettle of the University of Michigan. The average fuel economy of vehicles sold in the US held steady at 25.3mpg in September, October and November. The figure is a slight decline from the 25.8mpg peak in August, but marks a 25.9 per cent improvement on the average in October 2007, when the university academics started monitoring.

“The unchanged average fuel economy is likely a net consequence of less demand for fuel-efficient vehicles because of the decreasing price of gasoline — and improved fuel economy of 2015 model year vehicles,” Sivak says.

Bruno recognises the significance of the improvements in vehicles’ quality and efficiency and credits them with encouraging the rebound in big vehicle sales. “The difference from an engineering standpoint is like night and day,” he says.

However, he also admires the engineering of another vehicle that sits in his Manhattan showroom off 11th Avenue — Cadillac’s highly regarded ELR hybrid-electric sedan. “Not only is it a phenomenal automobile, it’s a phenomenal-looking automobile,” Bruno says.

Customers telephone begging him to find new Escalades. But he finds the hyper fuel-efficient vehicle — one of a family of electric cars once touted as saviours for GM — almost impossible to sell. “I just don’t think that the American public is ready for a car like that,” he says wistfully.

— Financial Times