Roadblock ahead as automakers bank on SUV boom to stay afloat

Sales of passenger cars dropped sharply in the US market last month, while shipments of SUVs and pickup trucks increased. Though the sector has been witnessing such a trend for the past few years, it became more prominent in recent months.

Passenger cars, which accounted for more than half of the total vehicle sales nearly a decade ago, have slipped to the second position now. In November, about 60% of all the private vehicles sold in the local market were either SUVs or pickup trucks.

Automakers, including market leaders General Motors (GM) and Ford Motor (F), are busy realigning their production strategies to match the customers’ taste. Ironically, the environmental benefits achieved by the adoption of electric cars are reversed by the shift to the gas-guzzling vehicle models.

While the ramifications of the new fad among vehicle buyers are debatable, there is no doubt SUVs and pickup trucks have been the main growth drivers for auto manufacturers. No wonder the market is seeing a new breed of large passenger vehicles and crossovers these days, with the companies wanting to sell the pricier models to overcome the squeeze on margins due to lower sales of the other variants, including electric cars.

The environmental benefits achieved by the adoption of electric cars are reversed by the shift to the gas-guzzling vehicle models

There are multiple factors that favor the change in the buyers’ preference, and better affordability is one of them. According to market watchers, people are becoming aware of the comforts and conveniences offered by the big passenger vehicles, such as space, better safety and the increasing fuel efficiency.

Well, boosting their SUV profile to meet demand can be justified only if the manufacturers take steps to make them more fuel-efficient and eco-friendly. It is better to redesign the vehicles at the earliest because the current trend is likely to stay in the foreseeable future. And, it is not limited to the US – it is estimated that SUVs will account for nearly 50% of all private vehicles sold across the world in the next five years.

General Motors takes hard decisions on restructuring and job cuts

Shares of both GM and Ford hit multi-year lows recently and are maintaining the downtrend.  Analysts have a consensus buy rating on GM and hold rating on Ford, making both the stocks potential investment options.

New car sales of GM fell sharply in recent months, forcing the company to stop production at some of its US factories and reduce workforce significantly. With rival car maker Ford also facing a similar challenge, it has become clear that SUVs and pickup trucks alone cannot support the sector’s growth. Going by the current trend, it is very likely that more car models will disappear from the streets in the coming months.

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