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Can U.S. Carmakers Survive the Declining Demand of Sedans?

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Fiat Chrysler Automobiles N.V. (FCAU - Free Report) reportedly plans to open a new vehicle plant in Detroit. The automaker plans to make a sports-utility vehicle at the new factory in an effort to expand its iconic Jeep brand. The news follows General Motors Company’s (GM - Free Report) announcement last week to shut three assembly plants, including Detroit and Ohio that are involved in the production of a series of slow-selling sedans.

U.S. carmakers have been suffering for a while now with auto sales declining on slowing demand for passenger cars. However, demand for SUVs and crossover vehicles have been on the rise. This has led a number of foreign carmakers, who so long were focusing on capturing the passenger car market, to introduce SUVs in the United States.

Fiat Plans New Plant

Fiat, reportedly, plans to open a new assembly plant in Detroit. The new plant is likely in an effort to expand its iconic Jeep brand. This will also be the first U.S. assembly plant to be built by a major domestic automaker in nearly a decade.

The company also plans to produce more trucks and SUVs as buyers continue to move away from sedans. In June, Fiat had shared a five-year plan with investors, wherein the company said that it would add a range of SUV models to the Jeep lineup.

The news follows General Motors’ decision last week to shut three of its assembly plants, including Detroit and Ohio, which have been making slow-selling sedans. The decision has been blasted by Trump and other elected officials, as it would result in almost 6,700 factory job cuts. Domestic automakers have been struggling for a while now as a result of slowing demand for sedans.

Focus Shifts to SUVs, Pickup Trucks

Sales of new vehicles once again slumped in November as buyers continue to shun sedans and passenger cars. This has been hurting automakers’ profits for some time. Till a decade ago, sedans and passenger cars accounted for more than 50% of the new vehicle market.

However, per a recent report from research firm HIS Markit, through November, this fell to 30.5%. General Motors’ decision to close three of its plants is a reflection of this. At the same time, General Motors plans to expand production of its SUVs and trucks.

Ford Motor Company (F - Free Report) has already planned to abandon all passenger cars, except Mustang, and ramp up production of its SUVs and trucks. The company sold 19.5% fewer passenger cars in the United States compared with November 2017 whereas its F-series trucks topped 70,000 units for the ninth straight month.

Japanese carmakers, Honda Motor Co., Ltd. (HMC - Free Report) and Toyota Motor Corporation (TM - Free Report) , also reported weaker demand for sedans in November. In fact, Honda plans to roll out a new utility vehicle for Los Angeles. General Motors and Honda each carries a Zacks Rank #2 (Buy), while Ford, Fiat and Toyota each carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Understandably, the shifting preference for SUVs and crossovers is slowing killing the market for passenger cars. This is significantly hitting the profits of carmakers thus making them restructure their lineup. 

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