Utility vehicles print money. Especially body-on-frame models like the Ford Expedition and Chevy Suburban. Those vehicles, just like their pickup truck siblings, are critically important to delivering a steady stream of revenue for the automakers that sell them. Even companies like Volkswagen are relying on utility sales to finance their future. Investment towards future product isn’t by any means a contemporary phenomenon. That being said, the switch to electrified vehicles is clearly a budget buster for the entire industry. Fortunately, General Motors and Volkswagen have their crossovers and SUVs to help them get through this transitional period.
2020 will see the introduction of the redesigned Chevy Suburban, GMC Yukon, and Cadillac Escalade. These are very important vehicles for the company because they dominate the body-on-frame segment while simultaneously being quite profitable. GM has a 54 percent share of the non-luxury SUV segment and a 47 percent share of the luxury body-on-frame category. According to Automotive News, Barclays estimated that 72 percent of GM’s operating profit in America comes from pickup trucks and SUVs, which average around thirty percent profit per vehicle.
Obviously, developing new body-on-frame vehicles and selling them are two different things. The recently redesigned Ford Expedition and Lincoln Navigator are eating into GM’s share in their respective segments. Ford isn’t exactly about to usurp GM as the segment leader, but they’ve been steadily improving their numbers since they introduced the new models. To counter this new threat, GM made their trio pretty big, and will debut segment-exclusive tech like optional air suspension and Magnetic Ride Control. The new models also gain an independent rear suspension for the first time ever.
“Profitable utilities now, EVs later” is basically how GM and Volkswagen are tackling things. GM’s $4 billion investment in EV development is chump change compared to Volkswagen, but it’s something.
Volkswagen is doing things a bit differently than GM, but the cadence is the same. The German automaker is spending about $12 billion dollars on EV development over the next five years and another $8 billion on other alternative energy advancements during the same period. Their crossovers have helped with their bottom line too:
VW faces heavy investments into cleaner and self-driving technologies and has increased sales share of higher-margin utility vehicles to help fund an industry-wide shift toward low-emission vehicles.
VW’s core brand gained market share this year and has increased its operating profit substantially, VW brand COO Ralf Brandstaetter said at a press event here. The brand is on track to post a record operating profit this year, he said.
Dieselgate? What Dieselgate?
GM and Volkswagen’s current situation is a picture into how pretty much every automaker will cope with the next decade. Internal combustion vehicles are vitally important in the short term. A mass market for electric vehicles is down the road, but until the industry gets there, traditional models will have to carry the water.