Popularity of SUVs raises bar in emissions targets race | Reuters

GENEVA Automakers including Volkswagen's (VOWG_p.DE) premium brand Audi, luxury group Maserati and budget marque SEAT have flaunted their latest SUVs and crossovers at this year's Geneva auto show in a bid to win more buyers in Europe's fastest-growing segment.

But while low gas prices are helping push up demand for larger and more powerful cars, they leave carmakers scrambling for ways to make the vehicles more efficient to meet regulations without destroying margins in the profitable segment.

For the first time, sport utility vehicles took over as the best-selling segment in Europe last year, rising 24 percent to 3.2 million vehicles, said research firm JATO.

"People favour SUVs and that's a permanent solution, especially as mileage improves on utilization of those vehicles," Fiat Chrysler Chief Executive Sergio Marchionne told journalists at the Geneva auto show.

The carmaker recently shifted the focus of its growth plan even more towards its Jeep brand in response to that trend.

SUVs are expected to make up around a quarter of new registrations in Europe this year, rising to a third by 2020, according to forecaster LMC Automotive.

But pushing for SUVs needs parallel investments in new technologies to meet fuel economy levels set out by regulators and the cost to do that will be significant, analysts said.

Carmakers can develop hybrid versions, reduce weight - a move that began with aluminium bodies, make smaller engines and develop all-electric cars that qualify for special treatment.

Tougher emissions regulations have already led to carmakers moving down the SUV segment in terms of size and engines, said Felipe Munoz, an automotive analyst at JATO.

"Around 87 percent of the B segment SUVs sold in Europe in 2015 were moved by front-wheel-drive transmissions, making them just 'taller subcompact cars', and allowing them to be more fuel-efficient than larger SUVs," he said, adding that small SUVs will be the segment's main growth driver in coming years.

Audi's Q2 that debuted in Geneva is one such entry-level SUV targeting younger buyers.

Carmakers at the show pointed to efficiency improvements already achieved over the past five years. The average fuel consumption for SUVs in the UK market had dropped 16 percent in that time, Munoz said.

Manufacturers such as luxury group Bentley also benefit from being part of the VW group, which allows them to share developments in components, modules, platforms and technology across the 12 brands as they work to improve fuel consumption.

"We need to either produce more efficiently ... (or) if this doesn't work anymore, we need to increase the prices," Bentley Chief Executive Wolfgang Duerheimer said.

"With Bentayga, we realised it's possible to sell an SUV at a price of 200,000 euros, what nobody expected before. This shows the elasticity in the market."

Carmakers' ability to meet emissions limits will also depend on how quickly they develop alternative fuels, especially as using diesel to meet regulatory limits looks increasingly doubtful after last year's Volkswagen's emissions scandal.

The push into other fuels is already paying off for companies such as Toyota Motor Corp (7203.T) which has been advocating for the use of hybrids for years.

"The issue is getting easier for us and we can't keep up," said Karl Schlicht, Toyota's regional sales head, adding there was a six-month backlog for its RAV4 hybrid crossover in Europe.

While meeting new European regulations after 2021 will also be challenging for Toyota, having hybrid, plug-in hybrid, fuel cells and electric applications within its portfolio will make it easier than for some rivals, Schlicht added.

"We have those four technologies and we can mix and match, so we are comfortable," he said. "It will be a challenge for us, but it's doable."

(Additional reporting by Andreas Cremer and Gilles Guillaume, editing by David Evans)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date: Mar 03, 2016 04:45 AM

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