Perhaps it’s my Texas bias showing, but my assumption is always that pickup truck buyers are the most loyal segment in the car buying universe. They are not. Presumably, then, it’s the few people left who buy sedans? Again, not even close. Crossover buyers are about 50% more loyal than truck buyers and twice as loyal sedan buyers. That crossover buyers stick with their cars isn’t super surprising, though the extent of their loyalty certainly is. It gets even weirder when you look at what they buy next.
We’re going on a journey today, folks, through the mind of the average American buyer. We’re going to find out that, in fact, people aren’t just buying the largest thing they can get! While we’re at it, we’ll also look at Hyundai’s big investment plans, the craziness of the oil markets, and a Porsche recall that impacts at least one Autopian member.
Let’s do this.
Crossover Buyers Want Any Crossover Other Than The One They Own
Ok, look at this graphic below because it’s kind of interesting and is the basis for our big conversation today. It comes via market research firm S&P Global (you can read the mini-report here), which is a company that people in the auto industry pay a lot of money to understand what’s actually happening with cars. Up at the top we’ve got the overall trend of segment loyalty to the “utility” body style, which includes everything from Tesla Model Ys up to Range Rovers. On the lower half we’ve got loyalty to four major subsegments that make up the bulk of the utility market. Notice something weird?
People who buy utility vehicles keep buying utility vehicles. This graphic comes points out that the utility loyalty was 73% in Q1 of 2023, i.e., people who bought a crossover/utility bought another crossover/utility, even if it’s not the same brand or model. That’s a record high and shows that, basically 3-out-of-4 utility buyers are going back to the well. Compare that to trucks (48.8%) and sedans (35.6%) and you can see how massive a difference there is.
Where it gets weird is when you look at that lower half, which shows that compact (think HR-V or Model Y) and upper mid-size utility owners (think Tellurides or GV80s) are not going back to their same classes at the same rate. In none of these extremely popular categories does any segment even reach 50%.
What’s happening here? My guess is that there are three key factors and show that car buyers in the United States are potentially a little smarter than some give them credit for.
Factor 1: People Bought What They Could Find
It’s been hard to buy cars, especially with limited supplies. Assuming you have a BMW X3 and really want a new car and the X3 you’d like to replace it with isn’t available, maybe you’d be willing to look at a Kia Sorento. Data over the last three years on car buying preference is always going to be clouded by supply constraints.
Factor 2: Crossovers Are Where The Most Choice Is
Automakers like Ford and GM are decreasing their sedan choices and rapidly expanding their crossover and utility options. Saying “more people buy crossovers” is perhaps a little misleading when, frankly, every car is a crossover these days. If you’ve got two kids and a dog you could definitely get a sedan or a four-door pickup. People do that. However, if your family expands it’s not a leap to see you jumping from a Crosstrek to an Ascent. Crossovers make a lot of sense for a lot of people.
Factor 3: Crossovers Give People A Chance To Downsize
Probably the most important data in this graphic is the fact that compact utility vehicles and compact luxury utility vehicles both represent the most loyal part of the market. In fact, from Q4 2021 to Q4 2022, both upper mid size luxury utility and upper mid size utility buyers saw declines in loyalty while compact luxury buyers went the other direction (and regular compact buyers stayed more loyal than everyone else). For much of our history, more money meant buying as much car as you possibly could, but buyers seem to be rationalizing more and “right sizing” as opposed to “super sizing” their car choices. I’d like to see more data to confirm people aren’t just going out and buying Escalades, but even within these four categories the changes are obvious.
This is all good news, actually, because the efficiency of gas vehicles is going up and people are buying more efficient vehicles. The consumption of oil relative to GPD (this is called oil intensity) has steadily decreased over time, reducing our dependence on the stuff.
Did OPEC+ Blow It Or Did The Biden Admin?
Speaking of oil, last week, OPEC+ (the group of 23 countries that produce oil led by Saudi Arabia which is, basically, a price-fixing cartel) decided to surprise the world by announcing a cut in oil production by 500,000-1 million barrels per day. Why did this happen? Certainly, a move like this causes the price of oil to go up. It also created a bit of a short squeeze according to Reuters, meaning people who were short (i.e., betting on price decreases) were forced to buy futures (i.e. agreeing to buy oil contracts that have to be fulfilled at a future date) to cover their positions:
With its surprise announcement, OPEC+ successfully squeezed the shorts in crude petroleum, with bearish positions reduced to the lowest for 11 weeks since late January.
Since March 21, funds have purchased a total of 174 million barrels of crude, the fastest rate since December 2019 and before that September 2017.
Was this smart? The sudden rise in gas prices in the last couple of years led President Biden to release fuel from the Strategic Petroleum Reserves (America’s big pot of backup oil) to push prices down. Now that those reserves have been reduced, in theory, it means that oil producers are in a better position to threaten the global energy economy and drive prices up. That’s the premise of this Forbes piece entitled “OPEC Is Back In The Driver’s Seat.”
These events highlight the risks of using the SPR for purposes other than emergency. Last year’s price rise was politically problematic, but it wasn’t a real emergency. But now that the SPR is substantially depleted, OPEC has been given far more pricing power than it had a year ago.
The U.S. can’t respond to the OPEC cuts in the short term, which means that oil prices in the intermediate future will be dictated by OPEC’s decisions. That is a consequence of last year’s decision to deplete the SPR.
Perhaps. But is this short-sighted? My favorite energy economist is a guy named Philip Verleger and, to be honest, he comes off as a nut sometimes. Still, he’s my kind of nut, and his instincts over the last decade have been pretty good. He’s got a paper out that says the opposite.
In this paper, Verleger says a bunch of stuff about how energy journalists are in the pocket of Saudi Arabia and calls Crown Prince Mohammed bin Salman a tyrant, which I’m not gonna touch. He also thinks the Crown Prince is mad that Biden basically took $100 billion from Saudi coffers through the SPR release. Maybe!
Here’s the key bit from his paper, however:
The organization’s decision is also a stupid mistake. The global financial system is facing contagion. Central banks are under pressure to cut rates. At the same time, the European Central Bank has warned that core inflation is far too high. The increase in consumer prices that follows OPEC’s output reduction will force central banks to boost interest rates higher. Banks will cut lending as more depositors move their cash to money market funds, which, in turn, will engage in reverse repos with the Federal Reserve. The likelihood of a severe recession has increased.
You know what’s good for oil producers? Oil consumption. While GDP and oil production have started to diverge as cars become more efficient and electric, net consumption still tends to improve as economies warm up. Risking that at a time when banks are considering lowering interest rates to spur growth is short-sighted. Again, more from Verleger here:
OPEC’s stupid action should be welcomed by those who want a rapid transition away from fossil fuels. Two tyrants, MBS and Vladimir Putin, have united in an effort to boost their income from fossil fuels. Putin led by cutting gas supplies to Europe, expecting a quick capitulation. Instead, Europe has since ended its reliance on Russian gas. Russia’s economy will be decimated, frustrating the dream he postulated in his doctoral thesis for St. Petersburg State Mining University. The Saudi action will have a similar effect on the oil market unless other oil exporters realize that MBS is hastening the stranding of a large part of the world’s fossil fuel reserves.
I think we’re a long way from stranding the Saudis, for various reasons, but it does make the Biden Administration’s approval of that Alaska oil project make a lot more sense, doesn’t it?
Hyundai’s Gotta Spend Some Money In Korea
While the Inflation Reduction Act has encouraged the production of electric cars in North America, non-American automakers (and American automakers, actually) still have to build cars elsewhere. In particular, Hyundai and Kia have to make it rain won (their currency) in their home market.
Hyundai Motor Group said on Tuesday it planned to invest 24 trillion won ($18.14 billion) in South Korea’s electric vehicle (EV) industry through 2030, bolstering its presence in a segment that is set to dominate long-term global automotive demand.
The investment plan by the group, which includes Hyundai Motor Co (005380.KS), Kia Corp (000270.KS) and Hyundai Mobis Co Ltd (012330.KS), came as President Yoon Suk Yeol attended a groundbreaking ceremony for Kia’s first designated electric vehicle plant.
Attention Doug DeMuro
Autopian Member in good-standing Doug DeMuro, please note: Your car was maybe recalled?
This was first noted by Car And Driver, which pointed out that 489 cars out of about 1,300 made were being recalled. What’s going on here?
Porsche issued a recall for 489 Carrera GTs over an issue with the suspension components, which could increase the risk of a crash. According to a recent filing with the National Highway Traffic Safety Administration (NHTSA), the spherical joints that connect the wishbone suspension components on the front and rear axles can fail due to damage from mechanical stress and corrosion.
“The material used does not provide sufficient resistance to inter granular stress corrosion when exposed to salt and mechanical stress over service life,” Porsche’s defect notice reads. “This could result in cracks or fractures in the spherical joints, and possible [sic] the wishbone.”
The good news is, Porsche will let you borrow a suitable vehicle in the interim. I recommend a Dakar.
Are You Segment Loyal?
Are you going to buy a car that looks basically like your car? Or are you going to buy something else?
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Photos: Hyundai, S&P Global
Had a Cx-9 as a family car for the five of us. Was such a useless pain in the butt. Kids in car seats make no sense in a 3 row crossover. Nothing fit once they were all put in because you can’t fold seats anymore. Getting to 3rd row was a pain. Putting luggage in the tiny space with the 3rd row up was impossible. Had to get a roof box for trips. Loading/unloading that thing is a treat with a tall car, even more so if it’s raining or snowing.
That thing did nothing right, I should have gotten a minivan. I don’t for the life of me understand why anyone would go back for another helping of these dumb things. They’re not fun to drive, they get meh fuel mileage, they’re big to the point where they are a pain to park, but not big enough to fit everything. They are nothing but a compromise with wheels. Either get a van or a Suburban, crossovers are just such a waste. If you don’t need anything big, then get a daggone sedan.
I feel you. Have a Honda Pilot because of the 3rd row, but unless the kids are smallish, that 3rd row just sucks cargo space and is hard to get to. Roof rack and/or hitch carrier are required when the 3rd row is used on trips.
Now would a minivan solve all the issues, not really. Minivans don’t have much cargo area either when all the seats are in use, but as you said, reaching the roof cargo carrier wouldn’t be as difficult.
At the end of the day, I’d still go with the Pilot. 1). It can and does tow more than a minivan. 2) The Pilot doesn’t have driveway clearance issues with a hitch carrier. 3) AWD. 4)…well that’s about it.
The Oddy is a nicer highway cruzer than the Pilot by a small margin. As my neighbor once said, he could drive naked down MoPac in rush hour and no one would notice him in a minivan.
I’m segment loyal because I drive compact cars and don’t want anything larger, but also subcompacts are too small for me. I landed on a size that fits me personally.
(Though if you start counting doors, it gets murkier. I went from an SW2 wagon to an Ion quad coupe to a Volt sedan/liftback.)
Have been segment loyal- previous 2 cars were what we call ‘superminis’ here in the UK. A Skoda Fabia and a Seat Ibiza. Prior to that I had a Peugeot 306 (a stopgap), a Ford Focus estate (a complete POS that died hence needing the Peugeot), and a VW Polo.
I’m now driving a Polestar 2. I’d consider that a liftback, rather than a saloon/sedan or hatchback. The Polestar is slightly crossovery, but in the Audi Allroad style rather than a full on crossover. I certainly don’t want anything taller than it. TBH, at the end of the lease, I might go for another Polestar 2, but with the dual motor setup! Mine is a single motor.
Whatever I get, it needs to be vaguely dog friendly, which means hatchback/liftback type body style.
What do you think of the Polestar 4 that was just unveiled? Smaller and quicker than the P2 for close to the same price.
Zero loyalty here, went from a roadster to a wagon to a 4-door sedan to a 2-door sedan. Now that I’ve tried them all, I can safely say I belong in a roadster, and am looking for one.
Same. If I may be so bold as to make a suggestion? Daily the ultimate itteration of impractical roadster. . . a Cobra replica. There’s just nothing quite like having something so over the top to take to the grocery store, plus simple mechanicals and no distractions.
I am not WILLINGLY segment loyal. I feel like I have been forced into SUVs by the lack of wagons and hatchbacks in the market.
In spite of my preferences, three out of the last four cars purchased have been SUVs. Any or all of those three would have been hatchbacks or wagons if suitable options were available.
I love wagons but went electric so I got a sedan. I would love an electric Dodge Magnum.
As for OPEC+ and raising gas prices, it will drive hybrid and electric adoption. It has in California. Electric car prices will become more affordable over the next 5 years. A Bolt can be had for $26k and sure it’s not great for road trips but as a second car it’s good enough. Hybrids have much better electric range and with higher fuel costs the payback period shortens. New battery chemistry is leading to faster charging, better range, and energy density which we will see mature in the market over the next 5 years.
Part of energy independence means alternative fuels. If it’s electric for passenger vehicles, hydrogen for semis or if companies are successful with efuels the path away from fossil fuels is one we must go down.
Because we are weird and contrary people our first crossover is likely to be our last. I am more likely to replace my pickup with another pickup the buy another crossover. My wife is very short and hates the high belt line so its replacement will be a car, unless she gets a smoking good deal on a Ford Maverick or a Suzuki Vitara