It's official: After years of popularity, SUVs are out.
General Motors Corp. (NYSE: GM) this week announced it is putting its redesign of SUVs and full-size trucks on hold in favor of lighter, more fuel-efficient vehicles, according to The Wall Street Journal.
Aside from halting the redesigns, which GM previously expected to release as early as 2012, the company is considering killing a future Hummer SUV, as well as another brand, the newspaper reported Thursday.
The news came only a day after used-car retailer CarMax (NYSE: KMX) posted a first-quarter net income that fell 54.7 percent from the year-ago quarter, blaming SUV and truck prices that declined nearly 25 percent in three months.
With average U.S. gasoline prices that have soared above the $4-per-gallon mark for two weeks, according to the U.S. Energy Information Administration, combined with concerns about a possible economic recession, SUVs and large trucks are looking far less attractive.
"Lots of people are selling their SUVs or trying to sell them, and those in the business of taking in used [SUVs] and trying to sell them are getting stuck with them on the lot," said Robert Wilder, CEO of WilderShares, which manages clean-energy indices. "Who wants something that gets 15 miles per gallon when you could get something that gets 30 miles per gallon and does so with style? Things that were fun toys a few years ago start to look a little silly now."
Drivers are now looking for cheaper cars that get around 30 miles per gallon, according to Mike Omotoso, senior manager of global powertrain research at JD Power and Associates.
That might sound like good news for hybrids, and it is.
Sales of the Toyota Prius, the top-selling hybrid, reached 80,000 from January through May, up 4 percent from the same period last year, Omotoso said. Overall, automakers sold 160,000 hybrids in the United States in the first five months of this year and JD Power forecasts that number will reach 400,000 by the end of the year.
But even though hybrid sales are going strong, hybrids are seeing competition from small fuel-efficient gasoline cars, which have seen even stronger demand, Omotoso said.
Among other examples, Ford Focus sales are up 36 percent to 105,000 units in the first five months, Honda Civic sales are up 24 percent to 144,000 and the Chevrolet Cobalt is up 18 percent to 93,000, he said.
The trend marks a change in thinking for U.S. auto buyers.
"Because of gas selling for $4 or more, people are looking at compact cars as a cheap [alternative] to hybrids," Om otoso said. "Compact cars usually haven't sold well in the U.S., where the mentality is ‘bigger is better.' Now that times are tough, people are looking for an alternative."
The best-selling hybrids also have been small, but they aren't cheap, costing an average of $4,700 more than regular cars last year, according to JD Power.
Omotoso expects that premium to come down in the future, which would boost their attractiveness over small conventional cars for more buyers, if gasoline prices keep growing. The cheapest hybrids have the biggest advantage in this market, he said.
In spite of the compact sales, manufacturers have been driving hybrids larger, not smaller, in an attempt to reach a larger market for the technology, Omotoso said.
"They started small and are moving toward a wider variety of cars - trucks, pickups, crossovers - because even though people are looking at smaller cars now, they still want options," he said. "Not everyone can drive a compact car. If they have a family or a lot of luggage, they need a bigger vehicle."
But so far, large hybrids haven't done well, he said, attributing the slow sales of the Ford Escape and GMC Yukon hybrids to their sticker prices of more than $50,000.
The trend toward smaller cars also could be good signs for small electric cars ready to enter the U.S. market.
Think Global, which is scheduled to begin selling a tiny two-seater called Think City in Norway, Sweden and Denmark this year, has said it expects to begin sales in North America next year. It also plans to introduce a five-seater called Think Ox to the market by 2010.