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Why the 2015 Chevy Suburban Is a Big Deal

By John Rosevear - Sep 16, 2013 at 6:58PM

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The SUV boom may be long gone, but there's still a big market for the big beasts -- and GM's new Suburban and Tahoe look set to dominate it.

GM unveiled the redesigned 2015 Chevy Suburban last week. The new Suburban and its Chevy and GMC siblings will arrive at dealers early next year. Photo credit: General Motors.

We all know that about 10 years ago, big SUVs were hotter than hot. And we all know that market has since faded.

Changing tastes and economic factors like rising gas prices have led many former SUV drivers to choose more efficient, more car-like vehicles instead.

That's why the automakers now push "crossovers", vehicles that have some of the utility of an old-school SUV, but that drive more like a car, and get more car-like gas mileage.

So with that said: How big a deal are the latest old-school SUVs, the all-new Chevy Tahoe and Suburban?

They're a bigger deal than you think
Let's put it this way: If General Motors (GM 2.65%) spun them off in a separate business, just those two Chevy SUVs plus their GMC and Cadillac cousins, that business would be a member of the Fortune 400.

As Bloomberg noted, this business is roughly the size  of a company like Campbell Soup or Hershey's – all by itself. It may not be 2004 anymore, and GM has put a lot of money and effort into more fuel-efficient offerings in recent years, but those big SUVs are still a big moneymaker for the General.

GM's chief financial officer, Dan Ammann, said last week that the U.S. market for full-sized SUVs is still around 250,000 vehicles a year – and GM controls almost three-quarters of it. Through August, GM has already sold about 125,000 Tahoes, Suburbans, and GMC Yukons in the U.S. – and these all-new models could help sales pick up.

After all, it's not like the competition in this segment is as fierce as it was a decade ago.

The biggest players in a still-sizable market
The main competition for the Tahoe and Suburban and GMC's Yukon twins comes from Ford (F 2.21%), just as it always has – but Ford's Expedition hasn't had an update in almost seven years, and fewer than 25,000 have been sold this year through August. (Ford is expected to release an all-new Expedition for the 2015 model year.)

Toyota (TM 1.71%) and Nissan (NSANY 0.01%) have entries in this segment, the Sequoia and Armada – but those sell in even smaller numbers than Ford's Expedition, and neither has had a recent update.

The loaded 2015 GMC Yukon Denali will likely be one of GM's most profitable vehicles. Photo credit: General Motors.

So who is buying these big SUVs nowadays? People who need them: Folks with big families, folks who tow big trailers (think boaters, or horse enthusiasts), folks who live in areas where the off-road capabilities of a big SUV are important, and even some government agencies. Tahoes are a favorite of some rural police departments.

That's a stable, sizable market for a group of vehicles that are fairly pricey. Edmunds estimates that the average transaction price for a Tahoe, Suburban, or Yukon is over $52,000. It's likely that $4,000 or more of that is pure profit for GM -- making these SUVs among GM's more profitable vehicles.

The upshot: These new SUVs are important
These new SUVs will replace models that represent a sizable part of GM's North American business, at least from a profit standpoint. That makes them pretty important – and early signs are that GM took a solid if somewhat conservative approach with the redesign, making a whole bunch of incremental improvements that should add up to a big boost to the overall ownership experience.

That's exactly what GM did with the new Chevy Silverado and GMC Sierra pickups, and it should be just what GM needs to hold on to its commanding lead in this still-important market segment, and it might even gain ground for awhile. While Ford is sure to contest GM's entries with a strong new Expedition (expect big emphasis on fuel economy gains from the Blue Oval), GM appears to have done more than enough to hold its ground with its SUV's current fans.

Fool contributor John Rosevear owns shares of Ford and General Motors. You can connect with him on Twitter at @jrosevear. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Ford Motor Company Stock Quote
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Nissan Motor Co., Ltd. Stock Quote
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