Foreign carmakers take on US sedan market as Detroit's Big Three shift to SUVs

  • Just a decade ago, sedans, coupes and other passenger cars accounted for more than half the new vehicle market.
  • Through the end of November, that tumbled to just 30.5 percent with the decline expected to continue for at least several more years.
  • As the Detroit Big Three scale back sedans, foreign rivals Honda, Nissan, Toyota and Audi, among others, see opportunity.
2017 Toyota Corolla
Toyota
2017 Toyota Corolla

Anyone who questions whether there's a radical shift in the U.S. new car market just has to look at the November sales numbers.

On the whole, the market proved surprisingly solid. But a closer inspection reveals that while SUVs and crossover vehicles posted strong double-digit sales gains, demand for sedans fell by about the same amount.

Just a decade ago, sedans, coupes and other passenger cars accounted for more than half the new vehicle market. Through the end of November, that tumbled to just 30.5 percent with the shift expected to continue for at least several more years before leveling off, according to research firm IHS Markit.

That helps explain why General Motors last week announced it will abandon six once-popular sedans — shuttering three plants in the process. Rival Ford had already planned to abandon all passenger cars but its Mustang, while Fiat Chrysler has moved largely in the same direction. But might the Detroit Big Three be overreacting and, potentially worse, handing a gift to their foreign rivals as Honda, Nissan, Toyota, Audi and other foreign competitors all eye the U.S. sedan market.

The Los Angeles Auto Show last week offered some clues. While there are plenty of new SUVs, crossovers and pickups from both domestic and foreign-owned brands alike debuting at the annual show, there are also a number of new passenger cars, including the updated Nissan Maxima, a complete makeover of the Mazda3.

"We're still bullish on sedans," said Dietmar Exler, CEO of Mercedes-Benz USA, which is displaying a mix of new utility vehicles, like the midsize GLE, as well as sports cars and sedans.

There's no question foreign carmakers are trying to expand their utility vehicle lines. Hyundai has suffered a sharp slip in sales over the last three years, in large part because it had only three utility vehicles in its mix. It has added three more this year, including the new Palisade. Debuting in Los Angeles, it's the biggest SUV the Korean carmaker has ever offered.

"There's no question about it. We're in the SUV game big time," said Brian Smith, Hyundai's U.S. chief operating officer, during the Palisade's unveiling last week. With yet another utility vehicle coming next year, Smith added, he expects light trucks to account for 55 percent of the company's U.S. sales next year, up from 40 percent in 2016.

Nissan Maxima debuting at LA Auto Show
 Paul A. Eisenstein | TheDetroitBureau
Nissan Maxima debuting at LA Auto Show

That said, Hyundai remains committed to conventional sedans like the Elantra and Sonata, as well as the quirky little Veloster that is also all-new for 2019.

So is Honda. It had a new utility vehicle of its own to roll out for Los Angeles, the big Passport, which joins a lineup that has grown rapidly in recent years. But, if anything, Honda also added a new sedan to its mix this year. And the new Insight hybrid is getting noticed. It was not only named a finalist for North American Car of the Year during an L.A. Auto Show ceremony, but also was honored as Green Car of the Year at a separate auto show event.

"We have no intention of backing away from sedans," Ray Mikiciuk, assistant vice president for sales at American Honda, told CNBC.com.

While vehicles like the current Pilot and CR-V crossovers may continue gaining traction, Honda's core sedans and coupes, including the long-lived Accord and Civic models, are still expected to ring up at least sales of 700,000 in the U.S. this year.

If anything, "there's certainly an opportunity to grow" sales and market share on the passenger car side of the ledger "by the absence of some of those (Detroit) competitors," said Mikiciuk.

The all-new 2018 Honda Accord is displayed at the 2017 LA Auto Show in Los Angeles.
Frederic J. Brown | AFP | Getty Images
The all-new 2018 Honda Accord is displayed at the 2017 LA Auto Show in Los Angeles.

Executives with several other import brands echoed that perspective. So did Colin Thomas, senior analyst, strategic insights and analytics for research firm Jumpstart.

"While this strategy is in focus for GM, there is still a large population looking at cars, which means brands such as Honda, Toyota, Hyundai and Audi could look to take an even larger share of the car and sedan market," he said.

That's not to say Japanese and other import automakers are immune from the shift to SUVs and other light trucks.

Overall, strong light truck demand meant auto sales dipped only around 2 percent for November, according to various industry estimates — the numbers varying, in part, because GM no longer reports monthly numbers. According to Cox Automotive, however, sales of compact sedans plunged 18.4 percent while midsize models were off 15 percent.

Honda, in particular, saw demand for the car side of its lineup fall 12.6 percent last month, with Toyota dropping 17.3 percent, with particularly sharp declines hammering the traditionally strong Prius hybrid and Camry sedan.

Last month, the U.S. head of Japan's largest automaker indicated that he, too, is thinking about the need to restructure Toyota's lineup. "We are taking a hard look at all the segments we compete in, to make sure we are competing in profitable segments and that products that we sell have strategic value to the brand," Jim Lentz, CEO of Toyota Motor North America, told The Wall Street Journal.

Toyota Camry TRD
Source: Toyota
Toyota Camry TRD

Toyota officials have subsequently tried to downplay Lentz's remarks, saying there is no immediate plan to cut any of the brand's passenger cars. But they also acknowledge they are closely watching some of Toyota's weakest sedans, coupes and hatchbacks. Among the models likely to be dropped eventually are the subcompact Yaris and the Prius C, the smallest member of the so-called Prius family.

Of course, it's not unusual to see any automaker lop off a slow seller. Toyota even killed off the slow-selling Venza crossover a few years ago. And it is clear that the Japanese giant, like Honda, Nissan and most of the key import brands, will remain a major player in the passenger car market for the foreseeable future.

One reason is that the imports are, to a large degree, selling Americanized versions of sedans, coupes and hatchbacks they sell all over the world. That helps trim costs, especially when it comes to product development. That's less the case for GM which has walked away from a number of markets where passenger car demand is still strong — such as Europe, the automaker selling its German-based Opel-Vauxhall subsidiary to France's Groupe PSA last year.

"A Japanese sedan like the Toyota Corolla has a much more global appeal than a Chevrolet Impala," one of the six models GM is dropping, said IHS Markit principal automotive analyst Stephanie Brinley.

It is possible that American automakers could get back into the passenger car market if the shift to light trucks tapers off. Some observers believe that a reversal, at least to some degree, is inevitable.

The station wagons that were the vehicles of choice for increasingly suburban postwar America became passe by the 1980s, minivans taking their place. Today those soccer-mom-mobiles are largely a niche product, replaced by sport and crossover utility vehicles.

But Brinley warns that by all but abandoning sedans, coupes and hatchbacks it will become more and more difficult for Detroit to regain a foothold if, and when, such a turnaround were to take place.

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