Will Automakers' Shift From Sedan To SUVs Pull Up Sales?

Major automakers on Tuesday reported a decline in new vehicle sales in April on weakening demand for sedans and compact cars. U.S. automakers have been feeling the heat for quite some time now with passenger cars fast losing their appeal to SUVs, pickup trucks and crossovers. Understandably, the changing trend has made a number of carmakers redesign strategies, with increased focus on SUVs and trucks.

Meanwhile, Japanese automakers, which so long had been holding an alternate view on demand for sedans in the United States, too reported weaker sales in April. This has made even Japanese automakers shift their focus to pickup trucks and SUVs. Undoubtedly, the decline in auto sales in April once again proves the changing preference of Americans, and automakers need to realize this to stay in the race.

April Vehicle Sales Down on Weak Demand for Sedans

Auto sales in April declined, as major automakers reported lower vehicle sales, owing to softening demand for sedans. A total of 17.15 million units were sold last month compared with 17.04 million in April 2017. Also sales were down from 17.5 million units reported in March.

Major U.S. carmakers are have been attributing the decline in sales to slackening demand for sedans. Ford Motor Company (NYSE:F) reported a sales decline of 4.7%, with passenger car sales down 15%, while pickup truck sales remained robust. Although General Motors Company (NYSE:GM) , last month, announced that it report only quarterly sales, renouncing monthly numbers that it used to give below, industry estimates show that the carmaker might post a decline of as much as 8%.

Fiat Chrysler Snaps Trend

Meanwhile, Fiat Chrysler Automobiles N.V. (NYSE:F) is the only automaker to have reported higher sales. Fiat posted an increase of 5% in vehicle sales in April. Interestingly, the company credits this rise to higher sales of Jeep. Also, Fiat, which last week reported a 60% rise in profits in the first quarter, attributed it to the robust sales of Jeep Wrangler SUV and Ram 1500 pickup truck. Fiat sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Americans have long preferred passenger cars but their taste is changing. SUVs and pickup trucks are fast replacing sedans, taking a toll on the overall auto sales. According to market research firm, J.D. Power, of the total new-vehicle retail sales in April, pickup trucks, crossovers and SUVs are anticipated to account for 67%.

Japanese Automakers Also Feel the Heat

Japanese carmakers so long believed that there still a huge market for passenger cars. However, they too seem to have been proved wrong, with falling sales of sedans. All three Japanese auto giants, Nissan Motor Co., Ltd (OTC:NSANY) , Toyota Motor Corporation (NYSE:TM) and Honda Motor Co., Ltd. (NYSE:HMC) reported lower sales in April. While Honda and Toyota’s sales declined 9.2% and 4.7%, respectively, Nissan’s sedan sales in the United States fell 35%.

It isn’t that the Japanese haven’t realized the changing choice of Americas. They too have been focusing on SUVs and crossovers and are also at times getting their vehicles exported to meet growing customer demand in the United States. In fact, in 2017, Honda pumped in huge amount of money on redesigning it flagship sedan Accord.

Toyota too did the same with its Camry. Moreover, Toyota reported RAV4 SUV crossover as its highest-selling vehicle last year. Nissan too seems to be following the footsteps of Toyota and Honda, as it has already expressed the desire to redesign its sedan, Altima, later this year.

SUVs, Pickup Trucks Are the Future

An increasing number of Americans are opting for more space in their vehicles, which has resulted in higher demand for SUVs and pickup trucks. According to an IHS Markit report, market share of sedans have declined from 38% in 2012 to 26% in 2017. And most of this share has been robbed by SUVs which have increased from 32% to 43% between 2012 and 2017.

Ford last week announced plans of doing away with production of almost all its sedans — Taurus, Fusion, Focus, Fiesta and C-Max —in the United States. Instead, SUVs and pickup trucks will comprise 90% of its portfolio in North America by 2020. General Motors too will scrap production of Chevrolet Sonic subcompact by this year and is contemplating on doing the same with Chevy Impala over the next few years.

Understandably, auto giants are not trying to change the preference of Americans toward a particular direction. They have realized that with gas prices plunging in 2014 and an increasing number of Americans opting for more space in their vehicles, SUVs and pickup trucks are the future. This has made them redesign their portfolio and business strategy to stay in the race.

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