The SUV momentum is far from over but the healthy double-digit year-on-year (YoY) growth we have all become accustomed to over the past eight years is not going to last forever.

Indeed, worldwide SUV sales are predicted to slow markedly after 2020. Their compounded annual growth rate (CAGR) is tipped to be at just 3 per cent from 2020-2025 according to LMC Automotive’s Global Automotive Sales Forecast (Quarter 2, 2018) report.

The expansion of SUV volumes and share is a familiar story, driven by a shift in consumer preferences in conjunction with far greater product offerings in the recent past and in the near future.

“The real growth of SUVs is taking place among medium and smaller segments, generally replacing conventional equivalents of either the same size (segment), or the next size up,” explains Jonathon Poskitt, Director, Global Sales Forecasts, LMC Automotive.

Asia-Pacific on top

In 2017, nearly half of global SUV sales came from Asia-Pacific. China unsurprisingly accounted for nearly 80 per cent of the regional total, followed by India and Japan with a market share of five per cent each. Most of the SUVs sold in China are developed on the monocoque platform to provide a handling performance that is akin to a sedan model.

The Chinese brands account for more than half of SUV sales, bolstered by some clever marketing and highly competitive retail prices. Moreover, these brands have progressed quickly in research and development, procurement, production and marketing to narrow the gap with global OEMs. Vehicle manufacturers in India are also responding to the increasing demand for SUVs in a big way by designing and developing new products, forming new partnerships, and exploring ways to cut development costs of these vehicles. Indeed, more than 30 new SUVs were launched between 2013 and 2017; and a similar number is expected to be introduced through to 2022.

Product partnerships

Furthermore, the anticipated growth of SUVs has urged OEMs to form new partnerships specifically for the Indian market. Key among these is an agreement between Ford and Indian SUV specialist, Mahindra & Mahindra, to develop new models.

Plus, Toyota has signed a product-sharing deal with Suzuki to source the Vitara Brezza, which will be badged as a Toyota and sold under its retail network. It is also telling that the VW Group is betting its revival in India on two future SUVs. As such, this product segment is assumed to be the fastest-growing in India through to 2025.

SUV sales in North America equalled 30 per cent of the global volume last year, with the rest mostly coming from Europe. “While the US is the only major market where we expect SUVs to account for more than 50 per cent of all light vehicle sales, growth in most markets, emerging or mature, is set to continue,” says Jeff Schuster, President, Americas Operation and Global Vehicle Forecasting, LMC Automotive.

“But the growth rate does slow. This slowing and saturation will vary by market, with the mature markets that have the higher concentration of SUV sales slowing first. However, this has not happened yet,” he adds.

Nevertheless, the growth of SUVs (albeit a slow one) in the US urged both Fiat Chrysler Automobiles and General Motors to cancel several car programmes. And Ford made an even bolder decision to pull out of the Conventional Car business in its home country.

Looking ahead, SUV growth in the US is predicted to primarily come from the small premium and compact premium segments. Having said this, compact and mid-size SUVs are likely to remain the most popular in the distant future.

Demand for SUVs across Europe is likewise foreseen to slow in the medium term, with the additional risk coming from the move to WLTP (the Worldwide Harmonised Light Vehicle Test Procedure).

“As European countries move away from the old NEDC (New European Driving Cycle) test to the new WLTP test, this could effectively see a hike in car taxation (WLTP CO2 levels are not only somewhat higher than under NEDC, but so too are the correlated NEDC values that may be applied as an interim measure), and it appears that SUVs would be disproportionately hit in some markets,” says Poskitt.

He adds this “tax hike” differs by country in the European Union, as does its timing. However, there are examples of markets that may see a relatively heavier impact, such as the Netherlands.

Globally, the challenges to SUV growth also come from a possible economic slowdown that would squeeze household budgets to then convince buyers to choose less expensive vehicles. Rising oil prices and interest rates too pose similar considerations.

Growth limitations

And while SUVs are certainly forecast to expand in the next few years, it is also important to note that there are growth limitations to an overly optimistic scenario. What the alternative will be remains to be seen but it is equally clear that global mobility dynamics are changing rapidly with a host of challenges coming through in the form of autonomous cars and electrification.

In the case of India, it will be interesting to see what happens when the craze for SUVs begins to wane. The country has seen transitions happening already from the time of small cars to premium hatchbacks and now SUVs. Sedans have suddenly revived thanks to the success of models like the Dzire and the recently launched Amaze and Yaris.

For now, SUVs are going strong and perhaps will continue to do so longer than the rest of the world for reasons of age demographics. After all, India is the youngest country in the world and there are a huge number of professionals under the 30-year age group who are in the market for cars. They typically opt for SUVs, which fit in with their solo image or to the next level of DINKs (double income no kids).

India is also the world’s largest market for two-wheelers at over 20 million units annually and even if a minuscule percentage moves over to four wheelers, they may be inclined to consider an affordable SUV among the many choices. To that extent, the country may see a longer SUV boom even while it grapples with the challenges of urbanisation. It will be an interesting balancing act.

The writer is Senior Manager, LMC Automotive

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