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Cars (sedans and hatchbacks) are on the decline in the United States, rapidly being replaced by larger SUV’s. In the first three quarters of 2018, car sales were down 21.3% while SUV’s were up 20.1%. In response, General Motors is phasing out its car lineup, discontinuing the Impala, Volt, and Cruze. Ford Motors is discontinuing the Fusion, Taurus, and Fiesta by 2020, and has already discontinued the Focus sedan.
With the American car brands already struggling in the dwindling market for sedans, focusing production on SUVs and trucks is brilliant market foresight. But while the decision to discontinue sedans is unquestionable, the continued decline of small cars and sedans despite the rising gasoline prices is puzzling. After all, SUV sales exploded in the 1990’s only to fall again in the mid-2000’s during a spike in fuel prices. However, SUVs in 2018 are nothing like the SUV’s of the 1990’s. They drive more like cars, have the luxuries of a car, and many rival the fuel economy of a car. For example, Toyota’s compact sedan, the Corolla, has an average fuel economy of 32 miles per gallon combined while it’s compact SUV counterpart, the RAV-4, averages 30.5. The RAV-4 also has a higher ride position and 38.4 cubic feet of cargo space to the Corolla’s 13 cubic feet.
The surprise persistence of SUV growth is not only down to improvements to the SUVs themselves. Consumers are also willing to pay extra for the benefits of an SUV. While the Toyota RAV-4 is arguably a superior vehicle with its high capability improvements for a low fuel economy cost, the base MSRP is $6,800 more than the Corolla’s. So how are consumers able to afford the SUV craze? They certainly don’t have extra cash in their pocketbooks; real wages (adjusted for inflation) have remained stagnant over the past few years. Rather, they are extending their loans, averaging 69.5 months, up nearly four full months since 2013 according to Edmunds.com.
For the time being, backmarkers in the dwindling sedan segment will continue to discontinue failing models, opting instead to boost production of more profitable SUVs. For car enthusiasts, losing classic production cars is a horrifying prospect, but SUVs are more practical for the people, nearly equally terrible for the environment, and more practical for manufacturers, offering greater profits.