Midsize Sedan Segment Race Heating Up

Nearly abandoned by domestic automakers a decade ago, the midsize-sedan segment has become one of the most hotly contested in the U.S. market, causing some competitors to rush model updates and hike incentives to stay in the game.

The latest evidence of this trend comes from General Motors, which is rolling out a refreshed ’14 Chevrolet Malibu after pulling ahead the launch of a completely redesigned model last year to get a jump on redesigns by rivals.

J Mays, Ford group vice president-design, says the all-new Fusion that hit the market last year has panicked competitors into quickening their midsize-sedan model cadence.

The “drop-dead gorgeous” Fusion has prompted “all the running around in the midsize segment,” Mays tells WardsAuto at a recent media event in New York. “It's tossed a smoke bomb into the middle of the room. The segment suddenly has a style leader causing (a lot of) rethinking (by competitors).”

Toyota plans to launch a refreshed Camry next year, according to a WardsAuto/Automotive Compass forecast. The model is coming sooner than initially planned, more evidence of the growing competitiveness in the segment. Additionally, Nissan launched a redesigned Altima last year.

Mays declines to say whether Ford will change its design cadence for the Fusion more frequently to stay ahead of the design curve.

Although the Fusion has made gains in the midsize-sedan segment, it still has catching up to do. Entering the fourth quarter, the usual suspects lead the U.S. sales race, with the Toyota Camry taking the top spot with 318,990 deliveries through September, followed by the Honda Accord (282,102), Nissan Altima (249,518) and Fusion (226,293), according to WardsAuto data. Malibu is a distant fifth with just 154,950 deliveries through September.

While the rankings largely are unchanged from past years, there has been some movement in the segment, particularly by the Fusion.

When the first-generation Fusion went on sale in 2006, it was badly outclassed by its Japanese competitors, outsold nearly 3:1 by Camry and posted less than half the volume of the Accord.

But U.S. market share for the four top midsize sedans is shifting, with the Ford model gaining ground. When first launched, Fusion controlled just 0.9% of the U.S. light-vehicle market, but its penetration has jumped a full point so far in 2013. Most of that gain has come out of the Camry and Accord.

Ford credits increased sales on the West Coast, particularly California, where the automaker traditionally has struggled.

Toyota, Nissan and Honda still control the vast majority of the California market, the largest in the U.S. But Erich Merkle, Ford’s top U.S. sales analyst, says the automaker is chipping away at the death grip the Japanese makes have in the state.

Merkle points to a 78% rise in Fusion sales in San Francisco and an 83% gain in Los Angeles.

“Those are some of our fastest growth areas in the country,” he tells WardsAuto. “You can’t grow there without conquesting Toyota.”

Merkle says Fusion would have performed better if not for low stock levels, which should be rectified when the automaker’s Flat Rock, MI, assembly plant starts shipping cars. Currently, Ford’s Hermosillo, Mexico, facility is the sole producer of Fusions.

However, the car’s days’ supply at the close of September was 65, above the industry norm of 60. In comparison, Camry had just 45 days of inventory. Accord stocks registered 64 days’ supply and there were 79 days’ inventory of Altima, according to WardsAuto data.

Toyota says the Fusion is not eating away Camry’s share, pointing to the model’s long-term dominance of the midsize sedan segment.

“Year to date, Camry has a 92,697-unit lead on Fusion,” Toyota spokesman Michael Kroll tells WardsAuto.  “Even if year-to-date growth rates for Fusion and Camry stay constant, Fusion wouldn’t catch Camry in sales until 2016, and that assumes no product updates on the Camry prior to then.”

Camry continues to set the pace in the segment, but has done so with hefty incentives and low transaction prices.

According to Truecar.com, the ’13 Camry sells for an average $24,442, with $2,812 in spiffs on the hood. In comparison, the Altima average transaction price is $24,757, with $1,995 in incentives. The Fusion sells for $26,653, with $2,155 in spiffs and the Honda Accord offers only $1,160 in incentives with an ATP of $25,406.

Bill Fay, general manager-Toyota Div. in the U.S., told WardsAuto in July the automaker is not concerned by the Camry's mild sales decline and the higher-than-usual incentives needed to move the car.

“We’ve increased incentives over the last year, but it's not out of line with where the segment is,” Fay said. “We’re still below where the industry is” on incentive spending.

Camry incentives should drop and transaction prices rise with the expected arrival of the refreshed model due next year.

– with Herb Shuldiner in New York

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