2006 PreviewDecreasing sales of many midsize luxury cross/utility vehicles are tempering perceptions that the segment is home to some of the industry’s hottest products.

Of the 12 vehicles in Ward’s midsize luxury CUV segment, seven were running behind year-ago’s sales pace eight months into 2005. Leading the way were the Porsche Cayenne and Volkswagen Touareg, which were down 22.9% and 33.8%, respectively, during January-August vs. like-2004 results.

Sales slid 10% or more for four models, while only one product – the BMW X3 – was up more than 10%.

Lexus RX 330

Overall, the midsize luxury CUV segment rose slightly eight months into 2005 from year-ago’s 252,672 deliveries to 272,419 units. But the 5.4% increase indicates the segment’s growth potential may be overrated. For example, that upsurge was nearly equaled by the 5.3% year-to-date increase recorded by the non-descript large-van segment.

Sales of large pickups were stronger, running 8.5% ahead of like-2004 through January, even though their popularity was perceived to have peaked, and the cheap gas prices of the late 1990s have long since vanished.

In total, nine vehicle segments posted larger sales increases through August.

Furthermore, if the Chrysler Pacifica is included in last year’s data for midsize luxury CUVs, sales through August ran 12% behind like-2004 results.

When demand sputtered at its debut in 2003, the Pacifica’s price was lowered, dropping it into Ward’s middle CUV segment – possibly another indication of the luxury middle CUV sector’s frailty.

“It’s quite deceptive what’s going on there,” Rebecca Lindland, sales analyst for Global Insight, says of the midsize luxury CUV segment’s performance.

“It’s clear that it’s not quite as good as you think it would be, particularly considering that these should be customers that are not affected by rising gas prices. What’s sparking this?”

That is what auto makers want to know.

The theory goes something like this: Consumers trading in a broad array of cars and trucks for midsize luxury CUVs are exacerbating the already difficult process for auto makers learning a new segment.

“You’re selling this product to a wide-range of people coming in from entry-luxury cars to midsize (SUVs) to fullsize (SUVs),” says Cadillac SRX Marketing Manager Jim Van Kirk. “You get a lot of different people in this segment.”

With average transaction prices on the rise, consumer preference seemingly shifting away from the body-on-frame trucks popular in the 1990s to unibody CUVs and baby boomers beginning to downsize their vehicles as they become “empty-nesters,” the luxury middle CUV segment tempted auto makers like gold for a treasure hunter.

The number of entries in the segment has doubled since 2001. Even Porsche AG, a Germany-based niche producer of high-performance sports cars, felt compelled to enter the segment with the Cayenne.

BMW AG, Volkswagen AG and Volvo Cars – all European, previously car-only brands – used their midsize luxury CUVs to change their image and broaden their appeal. Subaru of America Inc., known for its boxy wagons and offbeat persona, is shooting for mainstream luxury with its recently introduced B9 Tribeca.

But consumer interest can lag quickly if auto makers struggle with demand for accessory packages, engine size and seating capacity. The Touareg, SRX, Infiniti FX and Cayenne all are relatively new on the market, debuting in 2003, but deliveries during the first eight months of 2005 trailed like-2004 results.

The mix of well-heeled customers and CUVs is proving to be a difficult combination. Their expectations are high and vary more than most segments.

“I think there is some confusion when you say: luxury crossover vehicle. What does that mean?” says Scott Fessenden, marketing director for Infiniti. “It was a new segment not so many years ago. I think people shopping that segment are surprised by what (CUVs) mean sometimes.”

For example, sales of the Touareg are suffering because it lacks a third-row seat. “It’s a very big limitation,” a VW of America Inc. spokesman says.

Meanwhile, Cadillac usually sees V-8 engine penetration for its products in other segments run higher than industry average. Cadillac assumed that trend would continue with the SRX. The forecast was wrong and sales suffered at launch because Cadillac was in short supply of V-6-equipped models. Infiniti gambled with the FX’s aggressive styling, and sales were down 6.4% January-August even though the CUV just hit the market in 2003.

“You can easily lose this segment before you even realize it,” says Global Insight’s Lindland. “Gen Xers are usually very subtle, and most of the vehicles in this segment are not subtle. And it can be really hard to recognize what baby boomers want. You miss on that, and you’re left with under 25-year-olds who can’t afford these vehicles and over 60-year-olds who aren’t your target.”

While the segment is frustrating, it hardly is discouraging investment. Ford Motor Co. is switching its midsize Lincoln Aviator from a body-on-frame SUV to a unibody CUV in 2006, a shift executed this year by DaimlerChrysler AG’s Mercedes M-Class. VW is considering a 7-passenger Touareg, and the FX and SRX are in line for upgrades.

The segment juggernaut is Toyota Motor Corp.’s Lexus RX 330. January-August sales of the RX 330 totaled 72,717, up from year-ago’s 69,741 deliveries and nearly double its closet competitor, Honda Motor Co. Ltd.’s Acura MDX (40,176).

“It’s definitely still a growth segment because the demographics favor premium-price vehicles,” says Lindland, “It’s just a matter of understanding the consumer more. If they do it right, then you have the volume vehicle like the RX 330. It’s still a third of that segment. It’s unbelievable.”

bcorbett@primediabusiness.com