November 1, 2013

News & Features

Large SUVs still in demand despite high gas prices

The Associated Press


Clockwise from top left: The 2015 Cadillac Escalade, 2014 Nissan Armada, 2015 Chevrolet Suburban and 2014 Toyota Sequoia are large people-haulers.

The big SUV rolls on. Five years ago, when gas hit $4 per gallon, auto industry analysts boldly predicted that enormous SUVs would vanish like the automobile tail fin.

But General Motors recently unveiled a redesigned lineup of its truck-based SUVs, 3-ton behemoths that are still popular with drivers hauling around boats, campers and families, or who like to feel safer in a big vehicle. The 2015 Chevrolet Tahoe and Suburban, GMC Yukon and Cadillac Escalade will hit showrooms in late winter or early spring.

"There are some people, especially in our market, who want a product in that segment," says Ed Williamson, part-owner of two GMC and Cadillac dealerships near Miami, where people often use the V-8-powered SUVs to tow boats.

Trucks at heart
    GM's new engines, transmissions and suspensions used in its full-size pickup trucks will be used in its new SUVs. All it took was a minimal amount of engineering to make the SUV bodies sleeker, update the interiors and add third-row seats that fold into the floor.

In recent years, buyers have flocked to crossovers, which are car-based sport utilities that are easier to drive, carry just as many people and get better gas mileage. Yet there's still a lucrative U.S. market for the truck-based SUVs, and GM controls more than 70 percent of it.

Americans bought more than 132,000 big SUVs from GM from January through August, compared with around 114,000 in the same period a year ago, even though the sticker price can top $50,000 and a fill-up can cost close to $100.

Such SUVs became the rage in the late '90s. Gas mileage was of little concern when fuel cost just over $1 per gallon.

Nissan and Toyota joined the market with the Armada and Sequoia SUVs, trying to take a piece of Detroit's action. By 2001, big SUV sales hit a record of just over 917,000, according to Ward's Automotive. The SUVs accounted for about 5 percent of all car sales that year, driven mostly by people who weren't going off-road or towing something.

"We were really in sort of a truck craze at that time," says Bill Visnic, an analyst with auto-research site

Sales were fairly stable until 2005, when gas spiked over $3 per gallon. About the same time, companies started putting people-haulers on car underpinnings. The new vehicles became hits, and large SUVs took a back seat.

But there is still a healthy demand. Because they carry up to eight people, Suburbans and Yukons are more efficient than driving two cars, says Chris Hemmersmeier, CEO of a 10-franchise dealership chain in Salt Lake City, where there's an abundance of big families and people who travel to nearby mountains.

"When you look at it in miles per passenger, it's pretty good," Hemmersmeier says.
There are still buyers who just want something big. GM's data show that more than half of Tahoe buyers never tow anything, and only 1.3 percent go off the road at least monthly. About 35 percent have children in their homes.

For GM, the business case for updating the SUVs makes perfect sense. They sell to high-income households for an average of $47,000 each. Analysts say GM makes at least $10,000 per SUV.

With government greenhouse-gas limits and rising fuel-economy requirements, it's possible that this will be the last generation of big SUVs. John Schwegman, GM's executive director of truck product and pricing, says the company will see if it can meet government targets and still make money.

Visnic, of Edmunds, says GM may make enough money on them to pay government fines for not meeting fuel-economy requirements, similar to what luxury- and sports-car makers now do.


Partner video