Not dead yet: the car case and its importance

Prior to its launch in 1958, Henry Ford II shared his vision for Edsel behind a shiny table. "We hired the company's top talent; we support Edsel, a team with rich experience and high capabilities in the fields of management, marketing, engineering, styling and production," he said in front of the camera. Hank the Deuce later explained how Edsel allowed Ford to gain a greater share of the mid-price market. In many words, the former Ford president and CEO believes that Edsel represents the pinnacle of automotive success.

“The eyes of the American people will be on Edsel,” he famously said.

North Stars & Unicorns

Survey Says

Ballooning Figures

Money Talks

At-a-Glance Comparison Between SUVs & Sedans

Ford Makes The First Move

Sedans Create More Prospects (And Get Nominated For Awards)

Cars Matter

Sedans Can Attract Younger Buyers

Full Steam Ahead

Correcting The Misconceptions

All About The Love

North Stars & Unicorns

We know how the Edsel ends, but in the late 50s, Ford saw the need for a next-generation vehicle; something to capture and command the market’s attention. The Edsel wasn’t that car, rather the Mustang and the other Detroit hot rods that followed; or the Beetle at the other end of the spectrum. These cars, be it the ill-fated Edsel or the beloved Beetle, held great promise. Automakers set their compass to things like this, and have done so since the days of the Model T. Always looking for that unicorn; always believing it leads to gold at the end of the rainbow.

That unicorn became the minivan, became the sport utility vehicle, became the crossover. Today, the latter two carry the torch like never before. Automakers have responded in kind, releasing a plethora of SUVs and crossovers in recent years. According to a Bank of America study, as reported on by the Wall Street Journal, there are 96 different SUVs and crossovers on the market today, up from 70 in 2014. That same study finds we can expect nearly 150 models by 2023. The pattern suggests once that unicorn is found, the rest of the farm is put out to pasture. That’s why we hear things now like “SUVs killed sedans” or “crossovers were the death of cars.”

But is that true? Have sedans really gone the way of the dodo? Well kinda but not exactly.

“Cars as a percentage of all new vehicle sales likely will continue to decline,” explained Michelle Krebs, Cox Automotive Senior Director of Automotive Relations and Executive Analyst for AutoTrader. She notes that while sedan sales hit record lows last year, compact and midsize cars are still on consumers’ radar. “They continue to be in the top five of segments for shopping and purchase, still significant volumes.”

“Cars as a percentage of all new vehicle sales likely will continue to decline,” explained Michelle Krebs, Executive Analyst for AutoTrader.

Survey Says

The headlines have us believing trucks and SUVs alone hold the keys to our hearts, but that’s only part of the story. A recent survey from Nissan finds that among drivers who do not own a sedan, a majority would actually consider purchasing one now or in the future. Nissan surveyed vehicle owners (and non-owners) from around the globe between 18 and 65. The study finds 78 percent of U.S. non-sedan owners would consider one, above the worldwide average of 73 percent.

“Nissan is saying publicly what many consumers say privately,” said Phoebe Wall Howard, Business Writer, Autos Team, Detroit Free Press. “Fact is, people really do love sedans.”

“Anecdotally, I’ve heard more than a few young people say that because SUVs and CUVs are so popular with older consumers, they don’t want one,” added Steve Ferreira, Director at NissanPartsPlus.com. “My guess is that the study found younger people are starting to regard these vehicles as ‘old folks cars.'”

Ballooning Figures

According to Cox Automotive, the average payment on a new vehicle exceeded $530 in 2018 or about 10 percent of the median household income. As it concerns SUVs and crossovers, even compact versions are expected to rise 18 percent by 2025 according to Cox Automotive. In May, Kelley Blue Book noted the average transaction price for a new vehicle was $37,185, up four percent from May 2018. Krebs explains that in 2012, 54 percent of all new vehicles cost under $30,000 while only six percent were more than $50,000. Fast forward to 2018 and only about a third of new vehicles cost under $30,000 versus the 23 percent now north of $50,000.

“This is partly due to consumers opting for more expensive utility vehicles, and some automakers dropping less expensive cars from their lines,” she said. “In addition, interest rates on car loans are rising after four fed rate increases last year, meaning auto loan rates are at a nine-year high.”

Sedans are an optimal choice for younger buyers and others on a strict budget.

Money Talks

In Nissan’s survey, eight in 10 millennials who don’t own a sedan say they would consider one now or in the future. Generation Z isn’t far behind as seven in 10 say they would also consider a sedan for their next vehicle. According to the Pew Research Center, millennial households bring in a median income of $69,000, more than young adult households have at nearly any time in the past 50 years. However, the increase in pay may have more to do with the increase in employment versus salary. If younger generations are working longer hours and multiple jobs to make ends meet, it stands to reason they would be attracted to sedans based on price.

“Younger generations feel like things cost more than in times past, and their money isn’t going as far,” Howard explained. “Sedans are more affordable, easier to drive and park, and you can fuel up for less. For many, sedans just seem hassle free.”

“Many consumers see that sedans offer nearly every feature you find on a crossover, but at a much lower price with lower operating costs,” Ferreira added. “Younger people like sedans because they’re usually 20 to 40 percent less costly than a similarly-sized SUV or CUV. If you’re looking at a pre-owned sedan that’s a year or two old versus an used SUV or CUV that’s the same age, the price difference is even greater.”

At-a-Glance Comparison Between SUVs & Sedans

Entry-Level SUVs/Crossovers vs. Entry-Level Sedans – Starting MSRP

Sedan

Starting MSRP

SUV/Crossover

Starting MSRP

Percentage Jump

Chevy Spark

$13,220

Chevy Trax

$21,300

61%

Ford Fiesta

$14,260

Ford EcoSport

$19,995

40%

Honda Civic

$19,550

Honda HR-V

$20,620

5%

Hyundai Accent

$13,995

Hyundai Kona

$18,990

35%

Nissan Versa

$14,730

Nissan Kicks

$18,640

26%

Toyota Yaris

$15,600

Toyota CH-R

$21,145

35%

VW Jetta

$18,745

VW Tiguan

$24,295

29%

*As of August 2019, per each automaker’s website. Destination and other fees excluded.

Ford Makes The First Move

The funeral procession for the modern sedan most likely started here. Ford stirred the discussion in April of last year, announcing plans to cut their sedan lines in favor of trucks and SUVs. By that fall, we were learning of GM’s intentions to drop the Chevy Impala, Cruze, and Volt; Cadillac CT6 and XTS; and the Buick LaCrosse. The news came to a boiling point as GM announced the closures of Lordstown and Detroit-Hamtramck Assembly. While billed as restructuring efforts to make both companies more competitive and lean for the future, it underscores a long-held belief that American automakers struggle with sedans.

“Japanese automakers, particularly Toyota and Honda, built their reputations on cars and car quality. They are still known for that as they have also expanded their utility vehicle offerings,” Krebs explained. “The Detroit Three never really had as good a reputation for building fabulous cars and consumers remained skeptical about their quality. And their costs to make cars are generally higher than those of the Japanese and Koreans.”

“The Detroit Three take great pride in their sales of SUVs and trucks, but it is missing the mark to suggest that sedans aren’t a highly lucrative area,” Howard said. “It’s why the CEO of Volkswagen said during the North American International Auto Show that they have no plans to cede the segment.”

Ford stirred the discussion in April of last year, announcing plans to cut their sedan lines in favor of trucks and SUVs.

Sedans Create More Prospects (And Get Nominated For Awards)

Despite conducting this study on sedans, Nissan does have a growing portfolio of trucks and SVUs. However, sedans are essential to Nissan’s core business, serving as a means of winning over younger buyers. As an example, the 2020 Nissan Versa starts below $15,000 and remains under $20,000 even in its top trim. The little car comes with a fuel-sipping four-cylinder, Siri Eyes Free, and a host of new safety technologies. Given its price and content, the 2020 Versa is an ideal car for younger buyers or anybody else on a strict budget.

“We see great opportunity in the sedan segment, which is why we’re continuing to launch all-new and refreshed products,” said Rob Warren, Director and Chief Marketing Manager, Nissan North America. “Sedans are still extremely popular with our customers, so as our competitors exit the category, they’re creating even more prospects for Nissan.”

The Nissan Versa is among the nominations for the North American Car, Utility and Truck of the Year awards (NACTOY). The Versa joins 18 other cars along with 22 SUVs and five trucks from 23 different manufacturers. Panel jurors will conduct driving evaluations in October in Ann Arbor, Michigan, and three finalists in each category will be announced at the LA Auto Show in November.

“With all this talk of consumers abandoning cars in favor of SUVs and crossovers, someone appears to have forgotten to tell the product planners,” said NACTOY Vice President Chris Paukert. “This year’s eligibility list for Car of the Year includes nearly 20 candidates, from affordable everyday models like the Mazda3 and Hyundai Sonata to sports cars like the BMW Z4 and Chevrolet Corvette Stingray. It’s a diverse bunch.”

2020 Nissan Versa. Photo: Nissan North America.

Cars Matter

Honda’s mantra of “Cars Matter” is supported by their own experience. For example, Civic and Accord are the two most popular models with first-time buyers across the industry. Like Nissan, Honda is doubling down on their commitment to sedans. “We all know the narrative: cars are dead, or are dying,” said Henio Arcangeli, Jr., Senior Vice President, Automobile Division, American Honda Motor Company. “That’s certainly true for some, but not for us.”

Today, nearly one out of every five passenger cars sold is a Honda. The company says they are tracking towards sales of more than 600,000 coupes, sedans, and hatchbacks by year’s end. According to Honda’s data, the Civic remains the top choice for first-time millennial and Generation Z buyers. Furthermore, Honda says the Civic, currently the best-selling car in the U.S., out-retails every SUV and crossover on the market, second only to the brand’s own CR-V.

“So even as we’ve realized major growth in light trucks, we’ve also been steadily picking up shares of the passenger car market, which still accounts for around five million units annually,” Arcangeli, Jr. explained. “We took the crown as the number one retail passenger car brand in America for all of 2018, and are holding the lead again through April of this year.”

2019 Honda Civic. Photo: Honda North America.

Sedans Can Attract Younger Buyers

Like Nissan, Honda believes the key to attracting younger buyers is with affordable and fuel-efficient sedans. “More than half of first-time new-vehicle buyers buy a car, not an SUV, minivan, or pickup,” Arcangeli, Jr. continued. “Why would we turn our back on those customers which represent the future of our brand? You can understand why we remain committed to cars as an indispensable part of our strategy to attract and retain the next-generation of customers.”

“Yet the Detroit Three have decided to throw in the towel on sedans, basically,” Howard added. “They just have.”

One potential concern are the gaps now left in Detroit’s car lines. For example, a Fiesta owner looking to trade up will no longer have the Focus or Fusion. Unless they want a Mustang, they won’t have a car option. Although the Malibu remains for now, Chevy’s nixing of the Cruze leaves Spark and Sonic drivers without their next step up. When examining the product offerings of manufacturers like Honda and Toyota, or BMW and Mercedes-Benz, the next steps upward for car buyers are more clear.

“The danger for the Detroit Three is that they abandon the lower end of the market and are unable to lure in the very large populations of millennials and Gen Z,” Krebs said. “It would be an uphill battle to then attract buyers who have purchased other brands early in their new-car buying phase.”

2019 Chevy Cruz. Photo: Chevrolet.

Full Steam Ahead

Despite evidence sedans still hold favor with consumers, it’s full steam ahead for Ford who sparked the entire conversation to begin with. And their position is not without merit. According to Ford, truck and SUVs totaled 83 percent of the automaker’s 2019 second quarter sales, four percentage points higher than a year ago. Total pickup sales were up seven percent during the second quarter, the blue oval’s best overall performance since 2004. Second quarter 2019 also saw the transaction price for an F-Series hit $47,500 per truck, $1,200 higher than a year ago.

“When you consider that we normally get stronger seasonality for trucks in the second half of the year, and with full availability of the Ranger, we are well on our way to selling one million pickup trucks in the United States in 2019,” said Mark LaNeve, Ford Vice President, U.S. Marketing, Sales and Service, during the company’s Q2 2019 Sales and Revenue Call. “That’s a number incidentally we haven’t eclipsed since 2005, so it’s a significant number and one our team is really looking forward to running at.”

It’s a similar story with Ford’s SUV business, according to LaNeve. “We continue to see strong sales momentum with all of our newest SUV models,” he explained. “Collectively, Expedition, EcoSport, and Edge made strong sales gains in the second quarter with over 76,000 of those three models sold; up about 14 percent compared to a year ago when you combine the three.” Ford is banking on their newly redesigned Explorer and an all-new Escape to keep them in front of the competition.

“We will see inventory in sales continue to accelerate in the months to come on Explorer, and then later in the year with Escape,” LaNeve said.

2020 Ford Explorer. Photo: Ford Motor Company.

Correcting The Misconceptions

While every automaker can justify their market strategy with great proficiency, perhaps Nissan’s survey points to a misconception about younger generations in general. The narrative seems to tell us cars are nearly extinct, but that’s okay because younger generations don’t care about them anyway. Yet that might be misleading, as Nissan’s recent survey suggests. Or the Hagerty study that finds Americans of all ages – even younger generations – still enjoy driving. When it comes to younger generations and cars, there is always another side to the story.

It’s also worth noting how younger generations tend to favor experiences over objects. When spending money, creating a memory is more important than acquiring things. For example, in Nissan’s survey, 71 percent said they are passionate about travel, while 62 percent said they enjoy exploring nature and the outdoors. For younger generations, spending less on a smaller sedan means they can pursue these passions more easily.

All About The Love

Like generations past, younger folks have a special bond with their vehicles, even if they are nominal sedans. In Nissan’s survey, 42 percent said their car has its own personalty while 31 percent give it a name. This suggests even as these younger generations age and can afford higher-end vehicles, they won’t forget their first car. While it’s admittedly easy to enjoy the comforts of a large luxury SUV, or the torque of a modern pickup, there’s something about your first car; the one you paid for by eating Ramen noodles. For this reason alone, the humble sedan is still worth our admiration.

“My first car was a Nissan Stanza,” Howard said. “I loved that car.”

Carl Anthony studied mechanical engineering at Wayne State University, is a board member of the Ally Jolie Baldwin Foundation, and a big fan of the Detroit Lions. Before returning to school, he also held product development and experiential marketing roles in the automotive industry.