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American SUVs squashed the VW Beetle

·Senior Economics Correspondent at Yahoo Finance UK

It’s official. The SUV is king in America and it has squashed the Beetle.

Volkswagen Group (VOW.DE) announced this week it would stop producing its iconic Beetle compact car in 2019 as the company works to rejig its production to focus on electric cars and new, larger models.

“I think this is something that we’re going to continue to see,” said Michael Tyndall, an auto analyst at Street Analysts. “[Volkswagen has] to consider where the hot segments are and jump on those.”

Scrapping Beetle production at its Mexican factory “frees up capacity” for more SUVs, he said.

Analysts have pointed to Volkswagen’s newer SUVs – the Tiguan Allspace, Atlas and T-Roc – as examples of where the company is moving.

“It does feel like the SUV trend will run and run and run,” said Tyndall, noting that automakers can charge up to 30% more for an SUV compared to a similar car.

“SUVs have been the saviour of the industry because they have inadvertently allowed [automakers] to increase prices,” said Tyndall.

The tiny Beetle

The Beetle had become a dud for drivers, clinging onto a 0.1% share of the US car market this year, according to data from financial services firm, Jefferies.

Beetle sales were also falling in Europe and Asia, said Jonathon Poskitt, a director and sales forecasting expert at LMC Automotive.

“It was always a bit of a slow seller,” said Philippe Houchois, an analyst at Jefferies. “Sales volume has never been quite what it should be, and it was quite an expensive car.”

The retro-inspired Beetle simply didn’t connect with drivers anymore, and didn’t sell, said Benny Daniel, an auto sector consultant at Frost & Sullivan.

“A generation of people have changed,” he said.

Beetle production will stop in 2019. Photo: Reuters
Beetle production will stop in 2019. Photo: Reuters

Unlike SUVs and crossover vehicles, the Beetle is not particularly roomy, with limited space for bags and luggage, said Houchois. “The practicality of the car isn’t the high point,” he said.

Additionally, Houchois said Volkswagen did not want to spend any additional time or money updating the Beetle to comply with new emission requirements and safety standards.

“All companies are reviewing their portfolio and reviewing how they allocate capital … If you have a poor seller in a declining segment, then it’s almost a given that at some point that vehicle is at risk,” said Houchois.

Competitor Ford (F) announced earlier this year it would scrap most of its US car models – including the Fiesta, Taurus and Fusion – to focus on SUV production.

“Everyone is downsizing their exposure to cars in the US,” said Houchois.

The desire for SUVs

The American SUV trend has now spread internationally to Europe and Asia.

“In recent times, the general move towards SUVs has been loud and clear in all regions,” said Poskitt.

This presents an opportunity for automakers to boost their profitability.

“Volkswagen, like Hyundai, has never successfully profited from the SUV wave. They just hadn’t had enough portfolio,” said Daniel of Frost & Sullivan. It looks like that’s now changing, he said.

But why do drivers love SUVs so much?

Tyndall said these vehicles appeal to a wide segment of drivers who value the extra space and feeling of safety. Any parent who has struggled with a car seat knows it’s easier to reach their kids in an SUV, he said. Plus, car drivers can feel uncomfortable over time as they become surrounded by other towering SUVs, leading them to consider trading up.

VW’s new SUV, the T-Roc. Photo: Getty
VW’s new SUV, the T-Roc. Photo: Getty
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