First The Dodo, Now Full-Size SUVs

- Steve Miller

The full-size SUV is dead. Long live the full-size SUV.

Although sales are off 37% this year and indicators point to a further decline, Ford isn't about to let go of the Expedition. A new version of its full-size SUV is now hitting showrooms.

"There could be a better time to launch a product with this capability," acknowledged Mark Kaufman, SUV marketing manager at Ford. "And there are changes in buying habits. But the people who are buying SUVs are still buying big, and we want them."

Ford knows the grim numbers all too well: The Expedition moved more than 181,000 units in 2003, but is tracking to sell 80,748 this year, a 55% drop, per Ford. More negative information from Ford research shows only 3% of people now in the market for a new vehicle are looking for a full-size SUV, down from 6% just three years ago. Which spells doom for what would have been the massive launch that the Expedition previously commanded.

Of course, Ford is not alone in this full-size SUV quandary.

The Chevy Tahoe, the No. 1-selling full-size SUV in the U.S., is down 3% to 110,000 through August. Overall, the full-size SUV market is down 30% this year, per Global Insight, Waltham, Mass.

"We recognize we won't sell as many [full-size SUVs]," said Sudhir Sahay, manager, Lincoln SUV and truck marketing. Instead, Lincoln is positioning its 2007 Navigator SUV as part of the Lincoln fold. "We are going back to building the brand."

Even that might not stop the bleeding. "Consumers are now separating the wheat from the chaff when it comes to full-size SUVs," said Rebecca Lindland, a senior auto analyst at Global Insight. "When you look at the functionality of full-size SUVs, we are getting away from the consumer who wants to intimidate their neighbors and more toward those who really need them for towing or for taking the kids around. There is a legitimate need for some people."

One major problem, Lindland said, is that vehicle rollouts are locked in years ahead—five in most cases—and there is almost no turning back. "The best thing they can do is cut back production," said Lindland. The Big Three have each cut their overall production for '06: Chrysler will pull back 16% for Q4, Ford's Q4 production will drop 21% and GM said it will cut production across the board upward of 8% in Q3.

Lindland said that cutting marketing budgets is also key to reducing losses. Which is exactly what Ford is doing. It spent $63 million on advertising in 2004 behind the Expedition, per Nielsen Monitor-Plus, but have indicated it will not come close to that figure for the upcoming campaign. Full-page print ads, for example, are not in the mix.

"This will be a highly targeted campaign," Kaufman said. "The launch budget for a regional campaign is clearly less than a full national campaign for three-to-six months." The focus will be outdoor, and even that will appear only in key SUV markets, including southern California, Texas, Oklahoma, Georgia and Florida.

Putting any money into campaigns for large SUVs these days is like "feeding the stud," said Erich Merkle, an auto analyst at IRN, Grand Rapids, Mich. "You have to have it, but it is a small part of the overall picture now as opposed to the late 1990s or early part of this decade. [That's] when automakers were making big money off those big vehicles. Pretty soon, crossovers will be the big money maker."

Built on car frames, crossovers are closing in on SUV sales, with about 1.4 million sold through August compared to 1.6 million SUVs. But full-size SUV supporters still exist within the industry. "There still might be some shrinkage of the SUV market because of fuel economy," said Dave Rooney, Chrysler marketing director. "But the segment is still strong from our standpoint and we're not backing off from any advertising."

The full-sized Aspen hits showrooms this month, with a full-fledged campaign. The Aspen is built on the same platform as the Dodge Durango. The company spent $145 million on Durango media in 2004 and $59 million in 2005. "There are still people who don't want to give up anything," said Rooney.

The bottom line is that, even with the end of the full-size SUV road trip in sight, automakers continue to spend big marketing dollars on SUV launches, said John Casesa, managing director at Casesa Strategic Advisors, New York. "Ford may be spending less, but they are still spending competitively," he said. "And they have to spend enough to maintain awareness. The segment will never go away, but companies all have to have lower volume expectations."