For years, the midsize sedan segment has been the largest in the U.S. and the de facto place where mainstream brands showcase new powertrains, safety features and design direction. The intense competition forces a compressed product cadence, typically five years or fewer between redesigns. The arrival of credible Detroit 3 entries, including the current Ford Fusion and Chrysler 200, has raised the stakes.
Midsize sedans are "the heart of what people think of a brand," GM product chief Mark Reuss said this spring after unwrapping the sleek '16 Malibu.
But the surging popularity of crossovers is changing the equation. Compact crossovers -- led by the Honda CR-V, Chevy Equinox and Ford Escape -- were neck-and-neck with midsize sedans through May, threatening to become the industry's top-selling segment.
Much of that growth has come from new, more affordable entries at the small end of the segment. The Honda HR-V, Jeep Renegade, Chevy Trax, Fiat 500X and Audi Q3 still offer versatile storage, all-wheel drive and up-high seating.
And consumers no longer suffer a fuel economy hit in exchange for functionality. The HR-V, which debuted last month, gets 35 mpg on the highway, comparable to the 38 mpg for its platform sibling, the Fit hatchback with a six-speed automatic transmission. The HR-V rang up more than 6,300 sales in just two weeks in May with virtually no advertising.
John Mendel, executive vice president of Honda's U.S. sales unit, told Bloomberg last week that he doesn't think higher gasoline prices would dampen demand.
"This is a small crossover that people will look at as the ultimate hedge against everything," he said.
Automakers are seizing the crossover opportunity to generate bigger profits from their smaller vehicles. Incremental profit on crossovers vs. their car counterparts tops $3,000 on average, industry insiders estimate.
By rule of thumb, the extra cost of building a crossover body vs. a car on the same platform is roughly $1,500 per vehicle, says John Krafcik, president of TrueCar and former CEO of Hyundai Motor America. The average transaction price of a small crossover in 2014 was nearly $5,000 more than that of its small-car platform mates, he says.
That could lead automakers to shorten the life cycles of crossovers, which typically have been left in the market for longer intervals than cars.
For example, the Ford Escape that was launched in 2012 replaced a predecessor that had been around for 12 years -- double the time Ford took to redesign the current Focus, which came out in 2011.
"We're very likely to see a complete shift, so that it's the crossover that hits first, not the sedan," Brauer says.
Meanwhile, already cutthroat competition in car segments has intensified. U.S. car sales slipped 1.3 percent through May after managing a 1.5 percent gain last year. Sales are dropping even as automakers ratchet up discounts.
The average incentive on midsize sedans in May hit $3,271, the highest monthly level since at least January 2010, TrueCar data provided to Automotive News show. The average incentive for compacts was $2,403 in May, also at least a five-year high.
And more cars are being sold as rentals. The Wall Street Journal reported last week that 21 percent of compact cars and 20 percent of midsize cars went to rental fleets in the first quarter, up from 17 percent for both segments a year ago. The paper cited IHS Automotive data provided by sources.