Companies & Industries

Luxury Car Companies Race to Make Tiny SUVs


The 2015 Lincoln MKC

Photograph courtesy Ford Motor Co.

The 2015 Lincoln MKC

The new luxury sedan isn’t a sedan at all.

A crowd of blue chip brands are steering hard into the compact-crossover vehicle segment, betting that affluent buyers will pass up low-slung steering machines for something just a bit bigger, a touch further from the ground, and with a body that’s a little on the bubbly side.

New crossovers outnumbered virtually everything else at the Detroit auto show on Monday. Lincoln’s (F) display was dominated by its MKC, which will start selling in the summer. Porsche (PAH3:GR) showcased its coming Macan, its first micro-SUV. Audi (NSU:GR) unveiled its Q3, a new smaller sibling of its Q5. And Mercedes (DAI:GR) hired singer Kelly Rowland, of Destiny’s Child fame, to herald the coming of its GLA 45 AMG, which looks like a wild mash-up of a sedan, a station wagon, and a standard SUV.

“These executives are figuring out that everybody likes crossovers more than cars,” says Larry Dominique, executive vice president of TrueCar. He points out that drivers like sitting up a bit higher than they would in a car, “and everyone hates driving a truck-based SUV.” Jeep’s Cherokee, a baby version of the Grand Cherokee, is a perfect example. It hit U.S. dealerships in October; in December about 15,000 were snapped up.

Lincoln’s director of product development, Scott Tobin, believes his coming crossover will win over first-time luxury buyers—namely, young couples—and empty nesters who want to downsize from large SUVs. “We’re going straight for one of the most important segments of the pie, and the pie is definitely growing,” he says.

Tobin is right about that. Here’s a look at the change in U.S. sales from 2012 to 2013 for the most popular segments of the car industry:

1: Mid-sized car: +1.3%
2: Compact car: +4.9%
3: Mid-sized crossover +5.1%
4: Compact crossover: +15.6%
5: Large truck: +16.2%

Based on total volume, the “compact” and “mid-sized” crossover categories now account for more than one in five vehicles sold.

“It’s taking share both on [larger] SUVs and on the mid-sized cars,” says Xavier Mosquet, senior partner of the auto practice at Boston Consulting Group. “People like the adventurous aspect, maybe also the safe aspect.”

Most of those sales are going to such relatively mid-range models as Honda (HMC)’s CR-V, Ford’s Escape, and Chevy’s (GM) Equinox. All the luxury leaders have to do is convince a few of those buyers to splurge a bit—say, for a BMW (BMW:GR) X-1. Meanwhile, sales of entry level luxury SUVs have plenty of momentum as well. They grew at almost 16 percent in 2013.

What’s more, no single automaker dominates the sector, so a lot of market share is up for grabs. If what we’re seeing in Detroit is any measure, the crossover lane will be bumper-to-bumper in no time.

Kyle-stock-190
Stock is an associate editor for Businessweek.com. Twitter: @kylestock

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Companies Mentioned

  • F
    (Ford Motor Co)
    • $16.65 USD
    • 0.07
    • 0.42%
  • PAH3:GR
    (Porsche Automobil Holding SE)
    • $68.35 EUR
    • 0.06
    • 0.09%
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