Forget SUVs, Here’s Why Automakers Love Selling Minivans
With the advent of SUV-van mashups like the Ford Flex and the continued saturation of the compact crossover segment, minivans have been struggling to keep up their numbers as families shy away from the traditional suburban transport in favor of sportier, more fuel efficient, and generally cooler vehicles that still offer the versatility and capability that they need.
Nonetheless, manufacturers are still finding it worthwhile to continue producing them, since the margins generated by the vehicles are considerably substantial and largely offset the huge volume drop that minivans have experienced over the past decade. Brian Heney, the director of operations for the Danvers, Massachusetts-based Kelly Automotive Group, told Automotive News that minivan buyers often become a dealership’s loyal customers, even more so than during the minivan’s heyday, more than a decade ago.
Buyers tend to opt for feature-endowed models that can run well over $40,000 and beyond. A nicely loaded Honda (NYSE:HMC) Odyssey can surpass $50,000, as can a Toyota (NYSE:TM) Sienna after a fruitful shopping trip through Toyota’s package and accessory aisle. However, for prices that are usually seen on luxury vehicles, the vans come with no small amount of stuff: rear-seat entertainment systems, a built-in vacuum (on the Honda only, for now), high-end audio, and every tech gadget like rearview cameras and heated mirrors that one could wish for.
This market proves to provide exceptional padding on automakers’ bottom lines, similar to how trucks and SUVs are the profit engines for major companies. As long as minivans are able to command $30,000, $40,000, and $50,000 price tags, they’ll just keep on making them. “It’s a good transaction and a loyal customer,” Heney said to Automotive News. “You start loading up a [Chrysler] Town & Country and they sell for $45,000. We like selling them.”
That pricing power was made evident when Sergio Marchionne, the CEO of Fiat Chrysler Automobiles (FIATY.PK), revealed in his layout of the five-year plan for the company that the Dodge Grand Caravan — once a powerhouse in the minivan market — would be put to rest in order to minimize inter-brand competition with the Chrysler Town & Country, which enjoys far higher prices and will be getting a plug-in hybrid variant. The 2014 Grand Caravan starts at $20,595, while the T&C commands $10,000 more at base.
Minivan sales have fallen to 532,357 units for 2013, down from a peak of 1,371,234 units in 2000. Generally, minivans have established a reputation for being frumpy, numb to drive, and overall pretty bland. SUVs, which can accommodate the needs that a minivan addresses, don’t have the same stigma attached to them, and even now, Automotive News reports that companies are marketing vehicles as being different from the minivan.
Kia, which recently debuted its new Sedona minivan (which prior to this redesign was suffering heavily from corporate neglect), is marketing it as a “multipurpose vehicle.” Ford’s (NYSE:F) Transit van was pitched as “the unminivan,” further using the segment’s homely reputation as a means of distancing itself.
However, a loyal squad of minivan enthusiasts have made sure that demand for the vehicles is still there, and as long as the profit margins for the automakers stay high, the segment won’t be disappearing anytime soon. Today’s minivans are more sleek and athletic than ever before, and buyers are willing to pay Lexus dollars for a Toyota badge simply because the cars are so capable.
“I sold more Siennas than Camrys last month,” George Girjel, who owns Toyota of Cool Springs in Franklin, Tennessee, told Automotive News. “I’ve got 11 on the lot right now and wish I had a few more. They’re good moneymakers, and the more loaded they are, the faster they sell. The Sienna Limited retails for about $49,000, and we can’t keep any in stock. They come in and they’re gone.”
The margins, which are ample, to say the least, really started to pick up after other contestants fell out of the running, Automotive News reports. General Motors, which made vans under the Chevy, Pontiac, and Saturn brands, took the vehicle off the market after its bankruptcy in 2009. Hyundai, Kia’s sister company, took its Entourage van off the market in 2009. With so many entries in the market, companies were making less money — now that there are fewer, those still in the race are doing exceptionally well.
What’s interesting is that overall, minivans haven’t changed a whole lot on a fundamental level since their inception. They serve the same purpose as the originals, carting around kids and cargo within a small and manageable footprint. They’re now safer than ever and include more gadgets than ever before, but nothing has come along to really shake up the segment, though Chrysler’s hybrid Town & Country may change that. The minivan isn’t nearing the end of its life like many thought given the proliferation of SUVs, but merely evolving to adapt in its new environment.