Regardless of the sector, innovation plays a key role in all businesses.
For technology companies, innovation drives the development of new state-of-the-art gadgets. In health care, its spurs the creation of new devices and drugs. And in the automotive sector, innovation gives consumers a bevy of new options that range from changes in styling and interior options to improved mileage and engine power, just to name a few features.
Introducing new vehicles and then watching them fade away years, or perhaps decades, later is nothing new for auto manufacturers. With the exception of very few car brands, such as the Ford (NYSE:F) Mustang and Chevy Corvette, which have been in production consistently since their inceptions, most car brands have a finite shelf life and will wind up being discontinued.
Consider for a moment that this isn't necessarily bad news, even if you've fallen in love with a car model that's been discontinued. Automakers are constantly introducing new technologies and designs that only improve consumers' safety (OK, get those recall jokes out of the way now) and boost efficiency in terms of better fuel mileage and a more comfortable ride.
This year we witnessed close to a dozen well-known models kick the bucket, including the Cadillac Escalade EXT, the Nissan (NASDAQOTH:NSANY) Altima Coupe, the Toyota (NYSE:TM) Matrix, and even the beloved FJ Cruiser which, if you recall, topped the list of vehicles with the highest resale value after five years. The good news is if you really must have an FJ Cruiser, Toyota will be manufacturing them throughout the remainder of 2014. Going forward, though, we're going to see plenty more car brands drift into nothingness, perhaps to never be resurrected again.
Today, I'm going to put my speculative cap on and, as an auto industry enthusiast, offer up three vehicles that I believe may soon be discontinued within the U.S. Keep in mind that these vehicles may wind up thriving in other markets outside the U.S., but I would suggest that -- based on my arguments -- these three vehicles have overstayed their welcome.
The first vehicle that I believe could be on the chopping block is Ford's crossover, the Flex, which it introduced in 2008.
As you can see from the sales figures above, the Flex actually performed quite well through 2010 considering how difficult it was to get consumers to spend following the recession. The Flex provided a unique styling that allowed it to compete with the Honda's Pilot, and at the time provided superior gas mileage to the Ford Explorer, which made it the perfect trade-down option Ford needed to keep consumers within the Ford family.
However, I believe times are changing and the Flex's run may soon come to an end. Despite offering consumers plenty of comfortable seating capacity and truly unique styling, the addition of the EcoBoost engine, which sips gasoline under normal conditions but kicks in turbochargers for those instances where drivers need a bit more power, to the Explorer might mean the Flex's extinction.
Explorer sales rebounded in May to cross the 20,000 vehicle mark for the first time since July 2005, and frankly it offers better fuel economy than the Flex (with slightly less horsepower) for what is essentially the same starting price point. Removing the Flex from Ford's lineup would encourage buyers to step up to the Explorer which has been a margin powerhouse for Ford in the past.
Would losing the Flex hurt? Overall Ford sold 2,493,918 vehicles, so Flex accounted for just 1% of total sales last year. While not negligible, I would predict that if even half of those consumers jumped up to the Explorer it would net Ford better margins and extend the longevity of the Explorer brand even further.
Toyota Land Cruiser
Next up is Toyota's luxury SUV, the Land Cruiser, which Toyota pretty much vowed to continue building back in 2013.
Known more for its reliability, the Land Cruiser helps Toyota fill a void in its lineup by catering to a more affluent customer. The allure in attracting families and upper-income earners to the Land Cruiser is that individuals who earn more tend to be less affected by cyclical downturns in the U.S. economy. In other words, the Land Cruiser acts as a downside hedge to Toyota's bottom-line, as well as provides it an inroad to upper-income earners.
Yet, similar to the Flex, I'd suggest that the Land Cruiser is merely running on fumes at this point. Perhaps the biggest knock against the Land Cruiser is its starting price point relative to its peers. Based on MSRP information directly from the manufacturers, Toyota's Land Cruiser essentially starts at $80,000 while for $2,000-$3,000 more consumers can purchase a Range Rover or a Lexus LX570. All three vehicles get generally comparable fuel economy, but the Land Rover and Lexus brands are often synonymous with luxury, whereas Toyota's are best known for being economical more than anything else.
If you think I'm blowing smoke with this assumption, have a look at large luxury SUV sales for the month of April:
The Land Cruiser is pulling up the caboose behind two different classes of Mercedes, the Land Rover Range Rover, Lexus LX's, qualifying versions of the Cadillac Escalade, the Infiniti QX56, and even the Lincoln Navigator.
The Land Cruiser saw its heyday with unit sales above 6,600 between 2002 and 2004, but since then sales have soured. Based on its current monthly sales, Land Cruiser sales may struggle to top 3,000 units this year. Furthermore, based on total Land Cruiser sales of 3,082 last year and Toyota's total U.S. sales of 2,236,042 units in 2013, it accounted for a paltry 0.14% of Toyota's total production.
I would suggest that neither Toyota nor consumers would hardly miss the Land Cruiser in the U.S. -- its few buyers likely would either shift over to a competitor's offering or simply drop down to the more affordable Sequoia. Toyota should consider shelving the Land Cruiser and focusing its efforts on the bread and butter economy vehicles that fuel its sales.
Lastly, we have the 370Z, Nissan's attempt to connect with younger drivers that were looking for an affordable car that packed some power as well as aggressive styling. The 370Z is among one of only six cars that consumers can purchase for under $30,000 that'll kick out at least 300 horsepower. For a younger thrill-seeking generation this price and power combination can be a strong allure.
The 370Z had its best years for Nissan between 2003 and 2006, selling between 24,635 and 36,728 cars each year. However, as you can see below, the recession took a serious toll on the 370Z:
While Nissan hasn't given any indications that it plans to discontinue the 370Z, with sales down more than 80% since 2003, it's evident that sport car buyers have begun to turn their attention elsewhere.
More than likely the reasoning behind this shift is that the same price and power combo that made the 370Z attractive in the mid-2000s has now made American muscle cars more appealing in the eyes of consumers. To be clear, the 370Z isn't a muscle car, but it does pack quite the punch. Yet, improvements in styling and the creation of more efficient engines that deliver impressive power but also better fuel economy have allowed vehicles like the Mustang, Chevy Camaro, and Dodge Challenger to gobble up younger consumers that the 370Z had traditionally been able to compete for.
In 2013, Nissan 370Z sales tumbled nearly 11% from the previous year to just 6,561 total units. As a comparison to Nissan's total U.S. sales in 2013 (which were up 10.8%, by the way), the 370Z made up less than 0.6% of sales.
Similar to Toyota, Nissan has found incredible success in the U.S. by focusing on the reliability of its vehicles. A resurgence in Altima and Sentra sales, a focus on building up its all-electric LEAF brand, and impressive double-digit growth in its Rogue crossover sales have been the primary drivers to Nissan's recent success. The loss of the 370Z, while disappointing to enthusiasts, probably wouldn't be but a blip for Nissan as consumers could likely slide into the Altima which has taken on a more aggressive look as time has passed.
Nissan has shown few signs of its growth slowing, but cutting the 370Z from its product lineup would appear to be a smart move that should allow it to focus on continuing to build up the Sentra and Altima.
Sean Williams is short shares of Tesla Motors, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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