Market indicators already suggest discontinuing sedans and coupes was a questionable call for U.S. automakers. But will they be ready for the shift?

A pivot toward mostly discontinuing sedans and coupes in favor of crossovers and SUVs has been among the most salient themes in the U.S. domestic automotive industry for the past two years.

GM and Ford made this shift in a big way, with long-running models like the Ford Taurus, Ford Focus, Chevrolet Impala, and Chevrolet Cruze discontinued.

And recently, Buick sunk another nail into the passenger-car coffin, announing the discontinuation of the legendary Buick Regal, including the critically acclaimed Buick Regal TourX wagon. That means that, unless there is something yet-to-be announced in the wings, Buick will soon be selling only SUVs and crossovers.

Discontinuing sedans and coupes is an astounding change for Buick, a marque with such a long and storied history of making inspiring passenger cars, from luxury land yachts like the Buick Roadmaster sedan and Riviera coupe to breathtaking performance models like the GNX that let you “go fast with class.”

But is this shift toward mostly discontinuing sedans and coupes and creating an almost all-crossover and SUV lineup in the U.S. domestic market really a good business decision?

It depends on whether you’re looking at the issue from the myopic perspective of the next quarterly earnings report, or taking the long view of the reality of changing consumer interests as generational demographic groups age into different life stages, and as younger generations come of age.

While there once was a time when, as a rule, trucks were cheaper than cars, today it is an almost an a priori premise that, on a per-unit basis, there is more profit margin for automakers in selling a truck, crossover, or SUV than in selling a sedan or coupe.

So especially in a market in which new car sales are soft overall, the temptation is understandably strong to gerrymander a product lineup that offers fewer lower-margin choices to buyers.

And yet, even though discontinuing sedans and coupes has yet to come fully to fruition as dealer inventories shift from the 2019 to 2020 model year, statistical indicators that make the decision look questionable are already showing up.

Take, for example, a recent report from Edmunds that shows, among other findings, that brand loyalty among current owners of small sedans like the Ford Focus and Chevy Cruze is already dropping as they look toward trading in for a new-vehicle purchase.

Think about it. If I own a Chevy Cruze and love it, but have arrived at a point where I think it’s time for a new car, and I don’t want a crossover, SUV, a sports coupe like the Ford Mustang or Dodge Challenger, or a large sedan like a Dodge Charger or Chrysler 300, where am I going to go?

I would probably go to one of the import marques, like Honda, Mazda, Toyota, or Volkswagen, who are continuing to see the value of maintaining products in the small and mid-size passenger car segments.

According to the Edmunds data, that is exactly what’s happening:

A heavy proportion of Focus and Cruze trade-ins go toward the purchase of another car—42% for both the Focus and the Cruze. The declining availability of in-brand car models has necessitated that many shoppers intent on buying a car turn to alternative brands. Segment leaders in the compact car segment have benefited from the termination of these models, with the share of trade-ins going toward the purchase of Honda Civics and Toyota Corollas rising sharply—Cruze trade-ins for Civics and Corollas nearly doubled from 2016 to 2019.

That’s a lot of perfectly good, green money going straight to the pockets of import automakers that could be going to the pockets of GM and Ford. It’s a sad outcome for the U.S. automotive industry.

What’s worse, though, is that GM and Ford aren’t even doing very well, after mostly discontinuing sedans and coupes, at transitioning their car owners who do want crossovers and SUVs into owners of GM and Ford products in these categories. Again according to Edmunds:

However, even though Ford and Chevrolet have fielded models in the compact and subcompact SUV segments that have kept shoppers in the fold, the owners of the majority of Focuses and Cruzes that are traded in for SUVs still defect to other brands.

Perhaps this will turn out to be just the latest of a long series of lessons that the market has handed to the U.S. automotive industry after its many miscalculations over the years. And if the industry is so cynical that they think that they can prosper just by squeezing out extra profit per unit while producing uninteresting lineups of nearly indistinguishable compact and subcompact crossovers and SUVs, then maybe that lesson is well-deserved.

The question that comes to mind, though, is whether they will indeed get away with such a seemingly cynical strategy, especially in the long run. Are the sales and profitability numbers telling us a story about that yet?

Maybe.

In the case of Ford, Reuters reported on October 23 that the automaker had to cut its operating profit forecast for 2019 “after a disappointing third quarter.”

GM, an automaker bruised by a strike this year, also “lowered its full-year guidance” after reporting third quarter results, according to the Detroit Free Press.

GM can point a finger of blame toward the strike, and Ford cites declining China sales as a factor in disappointing results.

But how much could those challenges be rectified if the automakers were producing product capable of truly capturing the American consumer’s imagination?

Meanwhile, as domestic automakers continue to cut cars from their product lines, forward-thinking industry executives are apparently seeing change in the air that will revise the apparent GM and Ford visions of a brave new world in which only pickups, crossovers, and SUVs occupy the American highways.

Consider, for example, the following nugget from Todd Deeken, speaking during the November 26 edition of the Everyday Driver podcast:

Meanwhile, at the LA Auto Show this past week, the CEO of Volkswagen was quoted as saying he expects the tide to turn, that he thinks there’s going to be a refusal to get an SUV in the same way we’ve talked about happening to station wagons and minivans, where the next generation coming up is going to look at those and go, “Ew. That’s what parents drive.” And they’re going to want a small car, and Volkswagen is counting on it. In spite of the fact they’re making SUVs, they’re counting on their small car lineup to stay because they think the turn is coming.

It’s all about demographics. The oldest Millennials are now hitting their late 30s, which for the most part will mean the end of their Baby on Board years with which SUVs and crossovers go hand in hand. Conversation among demographers and market researchers is already shifting toward Generation Z as the next juicy target market, with its oldest members just hitting their 20s.

Change is inevitable.

The oldest Millennials—who are part of a cohort that now outnumbers the Baby Boom, and many of whom now have kids well out of booster seats—are just a few short years away from the shift in automotive interest that can come with the midlife crisis stage and entry into peak earning years.

At the same time, Generation Z is entering the early adulthood stage where they will want to enjoy what remains of their relatively youthful years and eschew much of their parents’ tastes in consumer goods, quite possibly including crossovers and SUVs.

In a heavy industry like automotive, it’s almost a requirement to bet big on the future. It takes incredible amounts of money, resources and time to plan a product line and tool up for production. Factory space has to be allocated, parts and raw materials purchased, equipment configured, personnel hired and trained. Regulations have to be complied with, crash tests conducted. And so on, and so on.

It’s understandably tough to get the timing right. It can take so long to adjust to a market shift that, once the adjustment has been made, the market may have already shifted again. Consumer preferences are a constantly moving target, no matter how much effort marketing teams in various industries may put into shaping them.

That’s why being wrong, by acting on incomplete information or taking a short-sighted view of the market—or sometimes simply leaving good old common sense out of the assessment—is so costly. You can make a strong case that shortsighted, head-buried-in-the-sand decision making has been the primary factor that has led to the need for multiple government bailouts of U.S. automakers over the decades.

If overseas competitors like Volkswagen are making the right call on a coming shift, it won’t be the first time the import automotive industry has done a better job than domestic automakers at reading the U.S. market and understanding the dynamics of American demographics and culture.

But if that’s what it will take to shake things up so that interesting product once again starts coming out on the other end, from any automaker, then bring it on.

Change is good.