European Carmakers Launch Assault on U.S. SUV Market

DETROIT – European automakers pulled the wraps off a wide range of high-end sport utility vehicles and models that blend traits at the Detroit auto show this week, targeting their next assault on the lucrative U.S. market.

Volvo, the Swedish unit of Ford Motor Co. , Germany's Volkswagen AG and General Motors Corp.'s Saab unit all unveiled sport utility vehicles or so-called crossovers, while others, including sports-car maker Porsche AG, have rival products in the pipeline.

The Big Three U.S. carmakers, General Motors, Ford and the Chrysler unit of DaimlerChrysler AG , are struggling to make money amid an onslaught from foreign carmakers, and many analysts think the Europeans could compound the problems of U.S. companies already under fire from Asia.

In recent years European carmakers, including those owned by Ford and GM, have built up their share of the world's biggest auto market to about 8 percent mainly by tapping into luxury car demand. Americans bought 17.1 million cars and light trucks last year, the second-highest year on record.

Global Marketing Information firm J.D. Power & Associates estimates the European share could rise to 10 percent to 11 percent in the next five years, with the Europeans denting sales of the Big Three and the Asians alike.

The huge success of sport utility vehicles launched in the United States by the Mercedes-Benz unit of DaimlerChrysler AG and more spectacularly by BMW AG in the form of the X5 have drawn attention to the potential of the 3 million unit per year U.S. SUV market.

``I think they are well positioned to increase their market share in the U.S., and I think they will do so mainly by going into the SUV and crossover market,'' said Bernd Gottshalk, head of the German auto association VDA.

A recent KPMG study found that auto executives envisaged a 40 percent increase in U.S. market share for SUVs in the next five years, and 58 percent growth in crossover vehicles. So-called crossover vehicles are those that blend the traits of an SUV and other vehicles such as station wagons.

QUALITY, SAFETY ARE KEY

Analysts say that with pressure from Asian rivals in the volume market, the Europeans will need to offer products that reaffirm the premium or luxury status that has worked for them in the past.

European automakers will also aim to trade on their reputation for good safety and quality which is an increasingly important factor for U.S. consumers, who were worried by the crash deaths linked to Firestone tires on Ford vehicles.

No company can hope to benefit from that more than Volvo, which debuted its flagship SUV, the XC90, at the Detroit show. Due to come to the U.S. market in the second half of the year with expected annual sales of around 35,000, the vehicle could pose a threat to both U.S. and Asian makers, say analysts.

``Volvo has come up with a very well made product, and I think it will do well here.... Safety is what the Volvo brand is all about, and that bodes well for the product,'' said Jeff Schuster, director of North American forecasting for J.D. Power.

Land Rover's new Range Rover, which was also unveiled in Detroit, will be available in North America from summer 2003. Analysts said it had some German hallmarks, but with a price tag around $70,000, some thought sales would be slow. The company is now owned by Ford after BMW sold it in 2000.

VW, determined not to be left off out, launches its Touareg SUV later in the year. At the show it displayed a ``Magellan'' crossover vehicle, which some analysts see as an even greater opportunity. The company is still considering building the mini-bus Minivan it unveiled last year.

GM-owned Saab of Sweden also showed a concept crossover vehicle in its 9X series, expected to go into production.

Other upcoming products include Porsche's Cayenne SUV in the second half of the year, and BMW is working on a small version of its successful X5, to be called the X3.

NEW DEMAND?

Some analysts wonder if there is room for so many new European SUVs and crossovers in the U.S. market.

``The Europeans have realized that there is a big and important market in SUVs in the U.S., and they are right to move into it, but there will be limits to how much that market will grow,'' said one analyst.

The good news for the Big Three is that the Europeans will pose as much competition to Asian carmakers, especially the more upmarket brands such as Lexus, as they will to U.S. players.

Porsche Chief Executive Wendeline Wiedeking said the Europeans would have to create new demand as well as take market share away from U.S. players and Asian companies.

``We will probably hit some of the Asians, but the U.S. market is big enough for (the European automakers) to be successful as long as they have good products,'' he said.