Don’t mistake this for a U.S.-only trend. IHS says Chinese SUV sales will rise from 7 million in 2015 to 15 million in 2025.
That’s a recipe for cutthroat competition, and a challenge for automakers, as the gravy train slows for vehicles that have been profit machines for years as supply struggled to catch up with demand.
The ratio will reverse in 2019, according to Zo Rahim, Cox Automotive research manager.
That will be the first year when the number of SUVs coming off three-year leases exceeds passenger cars. Many of those vehicles will have nearly the same looks and features as new ’19 models, setting the stage for intense competition.
“There’s a tsunami of off-lease and used, like-new SUVs coming back into the market in 2019 and ’20,” Rahim said.
“It’s an SUV war as automakers battle their own off-lease vehicles and all the new models coming in the next two or three years. The market will be much more competitive.
“This is great for consumers. Incentives are likely to rise, and the supply of good used vehicles will increase.”
Not an end to the boom
This isn’t the end of the SUV boom. There’s still plenty of money to be made from SUVs, but automakers will have to work harder to sell them, Brinley said. It can cost $100 million simply to teach customers a new nameplate exists, the first baby step toward selling a vehicle.
“The market is going to be much more crowded and competitive,” Brinley said. “An SUV gives you more space and utility. People are willing to pay more for that, but how much they’re willing to pay will shrink as the number of available SUVs rises.”
Industry insiders say the average price for an SUV in the United States has been about $8,000 more than for a comparable sedan. That estimate covers everything from subcompact SUVs to $100,000-plus vehicles like the Cadillac Escalade and Lincoln Navigator, so the extra margin on smaller mass-market SUVs is already much smaller.
Automakers will have to step up their design and engineering games to carve out a niche in this crowded marketplace.
“The compact and subcompact SUV segments are incredibly competitive,” said Erich Merkle, Ford’s U.S. sales analyst. “Every automaker wants to have two or three entries there.”
That will lead to experimentation, as automakers try new ideas to win business. The Nissan Kicks is an example. It looks vaguely like an SUV, but doesn’t offer all-wheel drive or some other common features to keep its base price under $18,000.
Another is Ford’s upcoming Bronco, a small off-road-oriented SUV that will try to parlay a familiar name and off-road ability into a spot on buyers’ shopping lists. It’s due to go on sale in 2020, when competition will be frenzied.
Models need identities
For the last few years, any new SUV could count on healthy sales. That will change as showrooms and parking lots fill up with SUVs from every imaginable brand.
Newer vehicles will have an advantage, but just being new won’t be enough. Automakers will have to learn how to give SUVs distinct characters like their cars used to have.
That’ll be easy for brands like Jeep and Land Rover, which have storied histories of off-road capability and military service. Other brands and new nameplates with no heritage will have a tougher time.
Despite that, the SUV market will remain too big and too rich for any automaker to ignore.
Demographics will play a role. Merkle predicts baby boomers will want SUVs’ height and ease of entry as they grow older. Empty nesters will keep the market for small SUVs humming.
At the same time, the even larger millennial cohort of the population is approaching its prime child-rearing years.
“They’re starting to look at three-row SUVs to carry the family,” Merkle said. “In the next five to 10 years, millions of people will move into the market for that kind of vehicle.
“We haven’t seen the peak of sales or profitability for those vehicles yet. There’s more growth to be had.”
And in the meantime, some sweet deals.