Automakers Increasing SUV Offerings as Demand Grows
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DaimlerChrysler, BMW, Honda Motor Company’s Acura, and other automakers are increasing offerings of more profitable luxury sport-utility vehicles to capitalize on soaring demand.
Sales of luxury SUVs rose almost six fold to 495,502 from 1997 to 2003, while sales of sedans costing more than $30,000 fell 17%, according to Global Insight of Lexington, Mass., which forecasts American auto sales. Automakers’ dependence on the vehicles is growing. Sales are forecast to rise 45% through 2015, according to Global Insight.
“The margins on these up market models are much higher than on passenger cars, even luxury passenger cars, and there is a lot of demand for them in the U.S,” said the head of equity investments at SEB Invest GmbH in Frankfurt, Thomas Koerfgen, who oversees $4.5 billion, including Daimler-Chrysler and BMW shares.
DaimlerChrysler’s Mercedes is planning to almost triple its SUV models in the next two years, starting with a new M-class to be introduced at the North American International Auto Show in Detroit, which opens to the public on January 15. BMW added a second model last year, and the introduction of Porsche’s Cayenne SUV helped win dealers in communities where sports cars aren’t a draw. Models such as the $73,085 Land Rover Range Rover and $70,100 BMW X5 cost almost double the most expensive Jeep Grand Cherokee, at $34,145 and Ford Explorer, at $37,605, according to vehicle pricing Web site Edmunds.com.
Honda’s Acura brand will introduce at the Detroit show an entry-level luxury prototype. Acura plans to start selling a second luxury SUV next year, the company said December 16.
“Among the country-club crowd, the Range Rover is just as acceptable now as the sedan,” said a forecaster for Lexington, Mass.-based Global Insight, Rebecca Lindland.
Porsche plans to open 13 North American dealerships this year, the first in a decade, as rising sales of its Cayenne sport utility make the brand easier to sell in cities such as Boise, Idaho, and Green Bay, Wis., the chief executive officer, Peter Schwarzenbauer, said in September.
New American and Canadian dealerships may boost annual sales by as many as 1,000 in North America. Cayenne, with a starting price of $43,665, generated 54% of Porsche’s sales in first eight months of 2004. The model was introduced in March 2003.
New models helped Stuttgart, Germany-based Porsche, which has 203 dealers in North America, earn more than $1 billion in annual pretax profit for the first time in the fiscal year ended July 31, the company said in August.
Debra Domeyer, 45, drove luxury sedans until she had twin girls last year. To adapt to strollers and diaper bags, she traded in her Mercedes-Benz sedan for a Lexus RX-330 sport-utility vehicle.
“It answers more of the family needs,” said Ms. Domeyer, chief technology officer at Cardirect.com in Los Angeles. “I don’t know how I could ever go back to a sedan.”
Ford Motor Company, the second biggest American automaker, started the rush of buyers to all-wheel-drive and four-wheel-drive models that can seat as many as eight when it used sales of the Lincoln Navigator SUV in 1998 to displace Cadillac as the top American luxury brand after 57 years.
Mercedes, followed by Toyota Motor Corporation’s Lexus, and BMW has since used luxury SUVs to pass the American brands. Lexus sales increased 66% since 1998, when it added the first of its three luxury trucks. Foreign brands account for 74% of luxury SUV sales.
The Cadillac Escalade SRX introduced this year helped the division post its best annual sales in six years, rising 46% through 11 months and ousting Mercedes from third place.
Mercedes lags behind competitors as buyers like Ms. Domeyer opt for new designs from BMW, Lexus, and Acura. Ms. Domeyer said she didn’t trade her Mercedes sedan for the Mercedes M-Class SUV since it hasn’t been redesigned since it was introduced five years ago and the Lexus design was new.
Mercedes is seeking to increase SUV models to 28% of sales in 2006 from about 11% now, Paul Halata, the American unit’s chief executive, said in October. Mercedes will have a redesigned M-Class, a new larger sport utility vehicle, and a station wagon style SUV called the GST, he said.
“Mercedes is coming out with two huge vehicles, and that is the segment for the luxury SUVs that is doing well,” said Michael Rachor, a fund manager at Activest Investment in Munich, which overseas the equivalent of about $69 billion in assets, including Damiler Chrysler and BMW shares. “People in the U.S. tend to look for the bigger vehicles.”
Mercedes expects total American sales of about 220,000 this year, up from 218,551 last year. The company expects sales to increase “significantly” in 2005 with the addition of a redesigned MClass, the GST, a new small station wagon called the CST, and other models, Mr. Halata said.
The automaker will build all of the sport-utility vehicles at its Vance, Ala., plant that now produces the M-Class.
“I might need to go for a bigger model, next time, to hold all the stuff,” said Ms. Domeyer. “I’m getting used to it, and there’s not really much I miss from my car.”