Americans have fallen out of love with small cars – MarketWatch

Posted: Friday, April 08, 2016

The sedan may have run out of gas.

SUVs and crossovers have become more popular among consumers in the past four years, buoyed by low gas prices, better fuel efficiency and product variety. As these larger vehicles spend more time in the spotlight, the humble sedan, which has been historically central to car brands, is being left out in the cold. “It’s a market shift,” says Karl Brauer, a senior analyst at Kelley Blue Book. “And it’s making every car model [in the segment] struggle.”

This shift is highlighted in the recent failure of the midsize Chrysler 200 to attract new customers. On Wednesday, Fiat Chrysler Automobiles

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announced layoffs of 1,300 employees at its Sterling Heights Assembly Plant in Sterling Heights, Mich., where the Chrysler 200 is produced. The downscaling was attributed to a “slow market for small cars,” according to a statement by Norwood Jewell, the Chrysler Departement vice president for the United Automobile Workers to Automotive News.

The 200 was introduced in 2011 as an updated version of the brand’s flagship midsize sedan, the Sebring. With a freshened design and a high-quality interior with updated technology and luxe fabrics, the 200 was Chrysler’s answer to the success of the Toyota

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Camry and the Honda

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Accord, which have consistently seen high sales. However, the model fell flat — sales of the 200 tumbled 63% year-to-date in March, from nearly 50,000 units to about 18,000 units, according to FCA sales data. “The irony is that the 200 was the most competitive it’s been in the history of that model,” Brauer says. “It shouldn’t be struggling as much as it is based on the product.”

The 200 isn’t the only victim of declining demand for small cars. Both comparable to the 200, the Mazda 6 saw its sales fall by about 37% year-to-date in March and the Kia

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Optima saw a similar drop of about 18%. “Fringe players [like Chrysler and Kia] who don’t have a long history [in the segment] can be easily marginalized in this environment,” says Jessica Caldwell, director of industry analysis at

Sales of midsize cars were down 0.4% from the first quarter of 2015 to the first quarter of 2016, according to Edmunds data, though Caldwell says the drop is probably greater if fleet sales — cars sold in bulk to rental companies and similar services — are taken out of the calculation. Overall, the midsize car segment has experienced a fall in market share from 16% of industry sales in 2012 to about 13% in 2016, according to data from Kelley Blue Book. In the same period, the share of small SUVs has risen from 10% in 2012 to 14% in 2016.

Industry experts don’t expect the momentum of SUVs to stall soon. “People want something different…and with SUVs, you get something a little different from what you’ve been driving,” Caldwell says. Crossovers and SUVs currently on the market offer drivers higher ride height and more flexible storage space with fuel efficiency comparable to smaller cars at a lower price point than in previous years.

Though this trend is causing sedan sales to flag, it’s unlikely that auto makers will try to reverse it in the near future. “SUVs have a higher profit margin than cars,” Brauer says, adding that manufacturers can charge a higher price for those vehicles because of their size and capabilities. Despite structural reorganizations like the FCA layoffs that this shift has caused, in the end, it could prove beneficial to company bottom lines as they move away from the less-profitable small car segments and diversify their SUV offerings.

“We’re seeing a paradigm shift in shopper behavior from cars to SUVs,” Brauer says. “It’s hard to imagine it ever really swinging back.”


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