Automakers are scrambling to adjust product plans and pricing in the face a consumer trend toward crossovers and SUVs -- and away from sedans -- that is gathering more steam.
BMW last week posted 2.5% lower operating earnings in the first quarter as the German automaker conceded it was forced to increase discounts in order to accelerate sales of large numbers of 3-Series and other sedans that were languishing in inventory. Accordingly, revenue and new pricing were lower for the period.
"We are adjusting our production plans and reallocating more SUVs to the U.S.," Friedrich Eichiner, BMW's chief financial officer, told analysts last week. A decision to shrink inventories in the first quarter meant that BMW was left with a 43-day supply, down from a 77-day supply with much lower numbers of 3-Series, 6-Series and i3 cars.
In the past five days, BMW shares have fallen nearly 5% compared with the DAX index of German stocks that has declined about 1.1%.
According to unnamed sources cited by Automotive News, General Motors' (GM - Get Report) Buick division plans to discontinue sales of its Verano compact sedan in the U.S. in the face of growing consumer preference for the brand's crossover models. When the Chinese-made Buick Envision goes on sale in the U.S. next month, about 70% of its sales will be crossovers.
Verano sales are down 9.4% this year. Meanwhile, Buick's Encore compact luxury crossover is leading its segment, according to Kbb.com. Last year, GM showed a new design for Verano in China.
No one is saying that sedans might actually vanish from the market. Planners are thinking long and hard whether to renew some sedan models as opposed to replacing them with crossovers of roughly the same length, width and height -- but with more volume and greater ground clearance.
The trend toward crossovers and SUVs has been evident for the past few years, yet automakers express surprise that it hasn't moderated, having watched enthusiasms in the industry ebb and wane. A few years ago, the decision to buy an SUV meant settling for a truck architecture that conferred rougher handling and higher seating position, along with decreased fuel efficiency.
But engineers and designers have found ways to provide the advantages of extra room, more utility and higher seating position without giving up fuel efficiency.
"One of the fundamental drivers of the American car industry is that, all other things being equal, people will always choose the most flexibility," said John Krafcik, a Google executive and former executive with Ford and Hyundai Motor America, last year.
In a market where the average age of a vehicle on the road is more than 11 years, it's possible that a new crossover actually delivers better fuel efficiency than an older sedan that didn't benefit from the latest light-weighting and engine efficiencies.
Even the automotive enthusiast magazines and Web sites, which once looked down their noses at SUVs as clunky or uncool are running stories such as this one from jalopnik.com: "The 2017 Jaguar F-Pace is proof crossovers don't have to suck."