RIP for the SUV
Stick a fork in them, they're done. SUVs once ruled the Earth but like the dinosaurs, they've outlived their time, argues Alex Taylor III.
NEW YORK (Fortune) -- Never easy, the automobile business has gotten exponentially more difficult in recent months, as manufacturers rewrite their new model plans to cope with the eventual tightening of fuel economy standards.
The latest victim is Volvo. According to a report in a Swedish auto magazine, Volvo is performing euthanasia on its popular sport-utility, the XC90. A revamped XC90 that was due to hit the market in 2010 has been cancelled because Volvo had no hybrid powertrain to put in it. For a brand that aspires to greenness as Volvo does, such an absence could be highly damaging to its environmental image. So after a facelift that will keep it on the market until 2012, the popular and highly-profitable XC90 will go wheels-up.
Although Volvo denied any plans to kill the XC90, it wouldn't be the first SUV headed off to the automotive graveyard. According to intelligence work by Global Insight, the Waltham, Massachusetts research and consulting firm, General Motors (GM, Fortune 500) has decided not to replace the old Chevy TrailBlazer and GMC Envoy when they expire in 2010. And Lexus has designated no successor to the GX 470 when it goes away at the end of the 2009 model year.
"They have to do it," says senior analyst John Wolkonowicz. "It is what consumers want."
Other manufacturers area are moving old SUV nameplates over to new-style SUVs, known as crossovers, that weigh less, deliver better fuel-economy, and are less in-your-face than the old trucky ones.
Both consumers and automakers will wind up paying for the changeover. Switching from old-style SUVs is expensive for automakers, who have to scrap their profitable truck engineering for more cost-constrained car mechanicals. That additional cost is likely to be passed along to consumers - along with all the other expenses of meeting the new fuel-economy requirements that could stretch as high as $5,000 a vehicle.
It is an ignoble end to a proud motoring era. Not more than 15 years ago, SUVs ruled the automotive landscape and produced record profits during Detroit's last golden age. Now the most popular SUV of that era, the Ford Explorer, is headed to the scrap heap, done in by fuel economy and the lingering effects of tire-shredding and rollover issues from several years ago.
The Explorer has been a shadow of its former self, selling at less than half of the 400,000 units a year it did during its glory years. The name will continue on but the vehicle is moving on the passenger car platform used by the Ford Taurus around 2011. (Those interested in a sneak preview can see Ford's (F, Fortune 500) concept-car version of the new Explorer at the 2008 Detroit auto show in January.) Likewise, the Chrysler Aspen and Dodge Durango, latecomers to the SUV party, will shift onto the unibody platform used by the Jeep Grand Cherokee.
Consumers get more from crossovers because they combine the functionality of the old truck-based SUVs with the ride and handling of a passenger car. Wolkonowicz says the shift from truck to car engineering probably saves 500 pounds in weight. The lower tonnage, along with improved aerodynamics that comes from sitting closer to the ground, will boost gas mileage.
Serious off-roaders, though, will want to stick with their Jeep Wranglers and Hummers, which will stay true to their rugged truck roots. Likewise, drivers who find themselves towing trailers will also want to keep their Chevy Tahoes and Suburbans, or Ford Expeditions, which will soldier on with their historic parts in place.
GM though, has found a way to have its cake and eat it, too. It has designed a hybrid gasoline-electric drive system for the Tahoe that gives the big SUV the same mileage as some passenger cars: 21 miles per gallon in the city, 22 mpg on the highway. The Tahoe hybrid is one of three finalists for the North American Truck of the Year award, voted by a jury of journalists.
"I'll be surprised if it doesn't win," says Wolkonowicz. "This is a way for people to get functionality and fun to drive in one package."
It all comes at a price. A two-wheel Tahoe hybrid costs $50,090, about $4,000 more than a comparably equipped conventional one, to pay for the electric powertrain and all those batteries. Progress in automobiles doesn't come cheap.