The American Market is Changing, But What’s in Store For Us?

By Jason Lu

08.22.2008

Amidst high fuel prices and economic troubles, the American market is changing as quickly as you can say “Pain at the Pump” or “Credit Crunch”. Owners are ditching gas-guzzling SUVs and swapping them for fuel-sipping cars, which is a plus for automakers that have several small, fuel-efficient vehicle offerings. Others who have depended heavily on their arsenal of full-sized SUVs and pickup trucks are taking the blow with their market shares shrinking and their customers flocking to other brands. American car-buying habits are changing, no doubt about it, and they are changing fast. Automakers are naturally taking note of this, so in response, many have decided to replace nearly their entire lineups. There is however, one statement that really caught my eye when I did research for a Ford article: “North American and European consumer tastes and requirements are converging”. Could it be true that we may one day mirror the European car market? Would we be able to see Peugeots and Skodas parked alongside a Mondeo? What about Toyota’s success in the U.S. market?

Beginning in the 1990s, Americans had been in love with SUVs and overly-large vehicles. Gas prices hovered around a dollar a gallon while a typical SUV, getting 15 miles per gallon, was the ideal transportation for the soccer mom, her kids, her kids’ friends, and the dog. The daily routine included taking the kids to school, going to work, buying groceries, picking the kids up from school, taking them to soccer practice, stopping at Starbucks, and so on. In short, life revolved around driving, cheap gas, and big cars. Those were the golden years of the Detroit Big Three; Explorers, Durangos, Tahoes, and Yukons were at the top of most buyers’ shopping lists. Market shares for domestic automakers were still relatively high and there wasn’t enough competition in their end of the market to necessitate concerns about innovation or quality. In fact, Peugeot had just been kicked out of the market, and the Japanese were too insignificant to be a threat. Brand loyalty was the key to success in the 1990s, although Honda, Nissan, and Toyota were steadily swallowing market share throughout the decade.

Then came the 21st century, and with it the end of the cheap fuel and cheap credit era that fueled gigantic profits in Detroit throughout the 1990s with SUV sales. Detroit had long since abandoned any credible efforts in the mainstream car market, shifting both R&D and production resources to ever larger, ever more powerful SUVs. Gas prices steadily climbed throughout 2005, but when Hurricane Katrina hit the Gulf Coast and affected several refineries and offshore platforms, they immediately and rapidly jumped, and despite a recent pullback, have continued their upward trajectory for the past three years.

The gas price problem, coupled with the housing bubble popping in many areas and an instant elimination of billions of dollars in home equity, made it tougher for consumers to afford to buy $50,000 vehicles, and that’s not even talking about having to put fuel into them. Detroit’s truck-centric lineups and lack of credible car offerings predictably spelled trouble for them and [relatively] good times for their import brand competitors who had continued to put an effort into cars, and in fact had comfortable, reliable (according to J.D. Power and Consumer Reports) cars that they were happy to sell to former Big Three truck and SUV owners. Meanwhile, buyers who were still looking for SUVs found themselves in the seats of Highlanders, RAV4s, Pilots, and CRVs instead of Suburbans, Expeditions, and Durangos. More recently, the Prius and Civic have become the new cool while domestics scrambled with incentives and offerings to try to lure buyers into buying SUVs.

So far, 2008 has been an even worse year for automakers. Gas soared to more than four dollars a gallon while the mortgage crisis devastated industrial work. The Civic replaced the F-150 workhorse as the best-selling vehicle in the country. SUV development work was halted, and domestic automakers for the first time in many years put especially strong emphasis on small efficient vehicles. News of prominent small cars began to surface onto the web: Next-generation Saturn Astras were caught testing, a handsome Chevrolet Cruze was snapped with camouflage, a jaw-dropping Taurus was spied with a camera phone, and plans for small European Fords were announced. With so many changes happening at once in the market, it didn’t seem like an overstatement to say that the U.S. was in the throes of an automotive revolution. According to Mark Fields, Ford’s President of the Americas, the market is becoming more European. Obviously that means smaller cars, but there is a much deeper meaning behind those words. In Europe, car buyers have much higher expectations than in the U.S. Quality inside and out along with driving dynamics and uniqueness are essential in European products. Don’t forget, 15 miles per gallon is simply unacceptable in a market where gas prices top the equivalent of eight or nine dollars per gallon. Europeans, to add on, are willing to pay premiums for high-quality small cars while Americans are just beginning to shed the notion of “small is cheap.” So what exactly is in store for Americans in the next few years?

In the American market today, choices are very limited. Americans are offered significantly fewer brands than Europeans are. We are also deprived of a wide selection of powertrains. If one wants to buy a fuel-efficient car that gets 40 miles per gallon, choices are generally limited to a Smart, Prius, TDI Jetta, or Civic Hybrid. It would make sense if more compacts and subcompacts could achieve 40 miles per gallon, but the most efficient engines are nowhere to be found in automakers’ U.S. lineups. For example, the only engine offering for VW’s Rabbit (Golf in Europe) is a gasoline 2.5 liter five-cylinder that gets 25 mpg on average. The same car in Europe gets eight engine options, with displacements as little as 1.4 liters. This problem extends to other cars too. The smallest BMW engine in the U.S. is a 3.0 liter inline six, while in Europe buyers can choose from among ten different diesel and gasoline powertrains for the 3-series alone. A culprit behind limited engine choices is the American tendency to think that small engines can’t be powerful or upscale, which leads automakers to provide consumers with only larger displacement offerings. Couple that perception with the lack of diesel powertrains and voila: immediately any engine with a displacement under two liters and any diesel engines that do not meet U.S. emissions standards are struck from the options list. Unfortunately, those missing choices account for more than 50 percent of available powertrains, which means U.S. buyers are left with less than half of the choices available in other markets.

Americans who are looking to downsize from truck-based SUVs fare a bit better with a modest range of car-based crossovers. The CRV, RAV-4, and Tiguan will immediately spring to mind as they offer a so-so, but nevertheless improved fuel economy over truck-based SUVs. (Again, fuel-sipping engines are unavailable). Those looking for an even more efficient alternative may turn to wagons – although I prefer the British term “Estates” to separate this handsome body style from the 1960s and 70s behemoths with fake woodgrain side panels. As soon as you log onto Edmunds, you will notice that again, there aren’t many true wagons to pick from. There are so few choices that Edmunds categorizes vehicles like the Dodge Caliber under ‘wagons,’ probably just to fill up the space. Unless you are wealthy and can afford BMWs, Audis, and Mercedes, you will be stuck with wagons from Volvo, Volkswagen, or a few from Subaru. Automakers know that Americans don’t like wagons, so most don’t offer them. What’s with all the hatred of wagons? I will never understand. Again though, Americans have just eliminated a significant amount of their car-buying choices.

It also seems as if the U.S. market just can’t get its hands on stylish, unique vehicles. Sure there are some Volkswagens and Volvos that are within reach of the average person, but everything else seems to scream “boring.” The American market has not historically been very style conscious, having been struck bland by full-sized SUVs and trucks that had limited design flexibility. Styling is subjective, but the Japanese were never known for design and uniqueness. To many eyes, new Toyotas and Hondas seem to appear more awkward than just boring. Stylish non-luxury crossovers are limited. Although the Tiguan does stand out in the segment in terms of looks, there is no Ford Kuga or Nissan Qashqai to pick from. Good-looking compact hatchbacks consist of the VW Rabbit and Volvo C30. The Yaris? I don’t think so. Scavenging for a nice-looking sedan is a challenge. The Japanese and Koreans are anonymous in the crowd while the current Taurus will likely not win any design awards. If you want a sedan that will stand out, your best bets are probably the Malibu and Passat. This problem stems from the past where American tastes were too different from Europeans. The Mondeo, badged as a Contour in the U.S., was a failure as buyers favored the larger Taurus. Automakers then created separate lineups for the North American market and kept their stylish vehicles to the rest of the world.

Lack of brands, limited engine options, inadequate body styles, and virtually no uniqueness are just a few descriptions that fit the American market. Compare our market to the Europeans and you will find that things are much more complex across the pond. Automakers face intense competition in every segment and they also have to deal with ever-increasing consumer expectations. Being more environmentally conscious, vehicles sold in Europe are generally smaller and much more efficient. Twenty miles per gallon is considered gas-guzzling there, and environmentalists will be knocking at your door (not to mention the heftier registration fees for larger engines). Style and uniqueness are must-haves, so Toyota’s anonymity makes it one of the worst-selling brands in some European markets. High-quality interiors are signs of good craftsmanship so unsurprisingly, the top two market dominators in Europe are Ford and Volkswagen.

The current trend of the American auto market is beginning to shift in a new direction, with consumers downsizing from large vehicles and finding smaller alternatives. In the next few years, several new products will wash up on our shores. Plans are in place for American brands to bring over some stylish European products. Automakers are even going as far as making more hatchbacks and wagons for the U.S. as SUVs are being abandoned. In the next few years, the Yaris will begin to face stiff competition once the Fiesta and new Rabbit arrive. The Corolla could be outshone by the European Ford Focus while the Accord and aging Camry may very well be usurped by the Ford Mondeo, Saturn Insignia, and Chevrolet Malibu. Volvo is said to be considering a move downmarket to increase its sales volumes, possibly venturing into VW territory, where it will open up more choices for buyers not wanting to pay premium prices for premium brands. Several companies are also making or considering a comeback to the United States. Alfa Romeo has announced plans to return to the U.S. market, beginning with its 8C Competizione, and possibly with its MiTo subcompact. Peugeot is rumored to be reentering as well, with offices already established in North America and vehicles for sale in Mexico. Most of the new upcoming vehicles are major products that are aimed at style, refinement, and brand identity. Toyota though, could face pressure in its largest market as its bland lineup becomes overwhelmed with new American and European rivals. Would it be too bold to say that Toyota’s reign could be overthrown in the next few years? We will just have to wait and see.

In the 2010 to 2012 timeframe, the American market will begin to see the light with additional brands and new products. Speculation exists all over the automotive world about what kind of changes there will be during that time. Of course, my own speculation could turn out to be entirely wrong, but maybe not. What I do know is in just three or four years, the market will be offering some very different vehicles – in terms of vehicle size, feature, content, and powertrains – than it is today. Today’s leaders could become tomorrow’s underdogs while those not necessarily doing well now may conquer tomorrow.

COPYRIGHT Autosavant – All Rights Reserved

Author: Jason Lu

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1 Comment

  1. If the American market looks more like the European market in the future, all I can say is, it’s about time. We have to suffer through products offered here in the U.S. in the past that many times were dumbed down to the lowest common denominator of drivers in the United States. Which is pretty damn low. My Aunt Karen springs to mind immediately, but I’m sure we all have our own stories to tell. I’ve lived in Europe, lived in the U.S., and the average member of the public is more demanding in Europe regarding handling and fuel economy of their cars, so if we can get more of that here, so much the better.

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