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updated 5/12/2005 2:39:30 PM ET 2005-05-12T18:39:30

Michael Lewitt, a portfolio manager in Boca Raton, Florida, no longer uses his gargantuan Hummer H2 for everyday driving. Most days, he prefers a Mercedes-Benz convertible.

"I love my Hummer, it's great for the hurricanes," says Lewitt. But with a tank of petrol costing $70, "I can't justify the gas mileage." Lewitt is thinking of buying a Lexus sports utility vehicle with a hybrid petrol-electric engine when the Hummer lease expires in August. Lewitt's changing preferences are typical of many North American SUV owners, with profound implications for carmakers.

The shift in buying patterns has severely eroded profits at General Motors and Ford Motor. Standard & Poor's cited weak SUV demand as a major factor in its decision to downgrade the Detroit carmakers' debt last week to junk status.

The shake-up in the SUV market poses a challenge not only for the Detroit giants but also their Asian and European rivals.

Overall demand for SUVs remains relatively stable, in spite of surging fuel prices. According to IRN, a Michigan-based consultancy, North American sales were 1.155 million vehicles in the first quarter, only slightly lower than January-March 2004.

The weakness is in the large and mid-sized segments, which are also the most profitable for manufacturers and parts suppliers. GM and Ford have taken the hardest knock because they are most heavily exposed to the high end of the market, and several of their flagship vehicles are nearing the end of their product cycle.

Sales of the Ford Explorer and the even bigger Excursion were down 23 per cent and 29 per cent respectively in the first four months. With the exception of the F-series truck, the Explorer is Ford's top-selling vehicle. GM's Yukon, Suburban and Tahoe have each slipped more than 30 per cent.

The damage is not confined to GM and Ford. Sales of Toyota's big Sequoia were down 12 percent in the first four months of 2005.

Analysts see the soaring fuel price as only part of the cause. "The gas price situation of itself is not having a significant impact," says Jeff Schuster, director of global forecasting at JD Power & Associates. According to Schuster, most large SUV owners are either wealthy enough to shrug off high fuel costs, or have an essential use for the vehicle, such as transporting a large family or towing a boat.

George Pipas, Ford's sales analyst, believes high fuel prices have exacerbated long-term decline in demand for big SUVs caused by aging baby-boomers and growing competition from smaller "crossover" vehicles, which look like SUVs but are built on smaller, more flexible car frames.

Erich Merkle, senior analyst at IRN, says the days of Ford Explorer sales of 445,000 units a year, as in 2000, are over. "Ford is never going to see those volumes again," Merkle says. "That has nothing to do with gas prices, it's got to do with competition." Ford sold 339,300 Explorers last year.

Japanese carmakers led the introduction of crossovers in the late 1990s, using existing car platforms to gain a quick foothold in the then-booming SUV market.

Crossovers' share of total SUV sales has ballooned from 15 percent in 2000 to 41 percent in 2004 and 46 percent so far this year. "We might see a roughly 50-50 split by 2006," Pipas predicts. Sales of Nissan's Murano crossover jumped 48 per cent in the year to April.

Although GM and Ford arrived late in the crossover market, several of their vehicles, such as the Chevrolet Equinox and the Ford Escape, are also selling briskly. But profit margins are slimmer than on the Yukon or Explorer.

GM plans a dozen new crossovers over the next five years. A platform known as Lambda will be used for new Buick, GMC and Saturn models. Ford's CD1-3 platform, which forms the basis for two new mid-sized cars due to go on sale this year, is likely to be adapted to the crossover market.

Merkle says that the Lambda products will be "every bit as important" for GM's future financial health as the much-publicized T-900 platform for larger SUVs and pick-up trucks.

But a ferocious battle is shaping up for a slice of an increasingly crowded and fragmented market. "I don't see Toyota, Honda and Nissan sitting still while the domestics launch their products," Schuster says. Still, he concludes, "there is more risk involved for the Asian brands than there was five years ago."

© The Financial Times Ltd 2013. "FT" and "Financial Times" are trademarks of the Financial Times.

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