Two of Detroit's Big Three automakers have announced plans to discontinue some of their car models, reflecting a larger industry shift away from passenger vehicles in efforts to free up money for production of more profitable sport-utility vehicles, pickup trucks and SUVs, as outlined by The Wall Street Journal.
General Motors Co. (GM) has announced plans to halt production of its Chevrolet Sonic subcompact as early as this year, the WSJ reports, citing people familiar with the matter, who also suggest that GM is weighing the option of killing its six-decade-running Chevy Impala sedan over the next few years. Rival Ford Motor Co. (F) is also allegedly on track to stop producing its smaller Fiesta car for the U.S. market within the year and will discontinue its larger Taurus sedan. Its mid-size Ford Fusion sedan may also see the chopping block as executives consider the future of the model once praised as an answer to Honda Motor Co.'s (HMC) Accord and Toyota Motor Corp.'s (TM) Camry. (See also: Tesla Misses a Target, But Progress Eases Concerns.)
The strategic shift in Detroit is reflective of a lack of consumer demand in the U.S. for smaller cars. While automakers previously thought their lower-budget, more compact passenger cars were vital for competing against Japanese rivals and garnering the interest of more budget conscious and younger buyers, low gasoline prices and efficiency improvements in SUVs have kept them out of favor. In 2017, sedans, coupes and other car categories comprised 37% of U.S. sales, a sharp decline from 51% in 2012.
Automakers Double Down on Bigger Vehicles
On Monday, the Trump administration rejected an Obama-era plan to roughly double the average fuel efficiency in new vehicles sold in the U.S. by 2025. The Environmental Protection Agency's announced plan to roll back emissions standards should only accelerate a movement to placate Americans' love for pickup trucks and SUVs, as automakers have long argued that they could not justify making more compact, less-profitable vehicles amid falling gas prices.
While automakers have historically reaped a majority of their profits on pickup trucks and SUVs, the WSJ notes that focusing on these models can present a risk for companies. Ford, GM and Fiat Chrysler Automobiles NV (FCAU) have all suffered on rising gasoline prices, while their dealers can be left with a slim and dated selection of fuel-efficient offerings. Toyota, Honda and Nissan Motor Co. have all laid out investments to improve their sedans and coupes, despite the drop off in demand. (See also: Automakers Score a Win on Fuel-Efficiency Rules.)