Wednesday, May 17, 2006

Can big trucks sustain their profit margins? - The Business

In 2003, giant SUVs and pickup trucks, most of which function a large part of the time as family transportation, posted new sales records. Automakers provided buyers of these vehicles with sufficient incentives to ensure strong demand even as the number of name-plates and capacity devoted to them expanded.

At the Detroit auto show, the Japanese showed off their newest entries and concept vehicles, which declared their full participation in these profitable segments.

With so many new models and so much more capacity, dedicated to light trucks, it is easy to forecast declining margins in the sector. However, it might be appropriate to question the underlying assumption that the heaviest and biggest of the light trucks will continue to maintain even current sales.

Today's SUV owner has better looking and better driving alternatives to the unglamorous and ungainly tanks that are rapidly losing their fashion edginess. No longer are SUVs a fashion statement that suits the country club lifestyle. They are everywhere and they are not fun to drive. They merely let you haul a lot of people and stuff, so I'm not sure what that says about these owners versus the driver of a new Porsche Cayenne or Volvo SUV.

Fuel economy may not be on the auto industry's radar screen but it should be. The high price of gasoline and the fact that rising global consumption well keep the pressure on crude oil prices as China develops a car culture means that the days of $.90 a gallon gasoline are permanently over. Even though U.S. gasoline is still cheap by international standards, it is taking a bigger bite out of budgets.

Finally, the justification of driving an SUV on the basis of safety is open to question. It is a fact that these heavy vehicles cause more damage to smaller lighter vehicles, but SUV owners assumed they got more protection even as they made roads more dangerous for others.

Recently I witnessed an accident in a parking lot where the driver of a giant SUV backed into a Honda Accord pulling into the lot and pressed the car into the wall of a restaurant crushing the driver's side door. The SUV driver explained to police that she didn't see the Honda and she apparently wasn't aware she hit a car until onlookers began shouting.


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