Cheap by Comparison: The Rise and Fall of the Minivan

For those with a family and an active lifestyle, minivans are, by comparison to frame-rail pickups, large vans, and SUV's, cheap and practical. Offering car-like ride and handling, and two rear sliding doors, the miniature van's main detraction was that it wasn't hip.

So why are sales falling like a brick?

Let's investigate the minivan market and compare values before embracing the possibly overpriced SUV segment.

In the 1960's sedan-based station wagons were the people and cargo haulers.

Volkswagen introduced a diminutive van in the late 1950's: the Type Two microbus. Built on the Beetle platform, the microbus was cheap, underpowered, unstable, and unsuited for climate extremes. Despite the drawbacks VW's microvan was highly economical and extremely hip.

General Motors saw fit to copy it with the unsuccessful 1964 Corvair Greenbriar wagon.

But the modern mini-van concept traces back to a vehicle introduced by Chrysler in the '80s. This is the origin of the phrase "Chrysler invented the minivan."

Ford lost the minivan race before it started, when Henry Ford II fired Hal Sperlich and Lee Iacocca, basically for being a threat to the family dynasty. These guys weren't about to quit and went to Chrysler to build the designs Henry had blindly rejected: front wheel drive mini vans and K-cars. These men, and their minivans, saved Chrysler Corporation.

When the minivan was conceived, Chrysler was doing well in the full-sized van market. Some of these big vans, while suited for commerce, were large compared to the average garage.

A downsized van for families, which would draw sales from Ford and Chevy station wagons without hurting the big vans, was put on paper.

As a result of the 1970's fuel crisis, Corporate Average Fuel Economy (CAFE) standards were legislated. These rules ostensibly required carmakers to improve gas mileage of their fleets as a whole, thus mandating smaller cars. To sell one profitable luxury car, two or three break-even econoboxes needed to be built.

But congress craftily provided a loophole: CAFE had lower standards for pickup trucks and vans. In those days light trucks and vans were concentrated in rural areas or used for business purposes. They represented a smaller fraction of vehicles than today's SUVs.

This left the door open for SUVs and minivans, which could draw comparatively high profit margins without the legal shackles of minicars.

As the fuel crisis of the '70s slipped from the public mind, CAFE's loophole allowed the SUV and minivan to emerge.

By the mid-80's, the segment was established, attracting competition from Honda and Toyota.

Modern minivans feature front-wheel drive unibody architecture, which offers better crashworthiness, lighter weight, and a more comfortable ride in comparison to a body-on-frame chassis.

Minivans now cost between $25K and $40K, seldom exceed 26 mpg, and are pretty big relative to a small garage.

SUVs offered a macho image on the increasingly road-rage dominated highway. By comparison, the relatively smaller vans were identified with parenting, the antithesis of bad. Industry insiders privately shared the politically incorrect, but technically accurate, wisdom that you could sell a man's car to women but not vice-versa. And thus the "soccer mom" image became associated with the thrifty, versatile, family friendly "mini" van.

Minivan hate sites have appeared on the web, which stereotype all drivers of small vans as "minions."

Like a Rock, A Falling Rock

As fuel prices spiked and an eternal war for resources dragged on, the SUV fad began to run out of gas. Carmakers followed Honda's lead and began building new "crossover" vehicles on car chassis platforms.

The emerging crossover segment, composed of comparatively high margin (not cheaper), flashy-looking practical vehicles, draws sales from traditional frame-rail SUVs and minivans.

At the same time the mini-van demographic began to shrink.

The US target customer is a married couple between the ages of 35 and 45 with at least two children, with a median household income around $80,000. Sixty five percent of buyers are college graduates.

The aging baby boom generation, drivers of the mini wagon boom, now empty-nesters, are looking elsewhere.

Global appeal is lacking, these cars are too big for anywhere but the American suburbs. Smaller vans sell overseas. These cab forward designs are a bit awkward for platform sharing: few other vehicles have the same profile.

A few years ago, minivans captured 8.5% of the US car market.

US minivan sales peaked at 1.37 million in 2000, since 2004 the downtrend has accelerated.

For 2006, production fell to 990,596 units. 2007 looks even worse, with minivans represented just 5.3 percent of total new-vehicle sales.

Sales are down 20.4 percent, year over year, to an annualized rate near 750,000 vans. The withdrawal of General Motors and Ford hastened the fall.

Buick Terraza minivans, and their platform mates Chevrolet Uplander and Saturn Relay, are disappearing.

2007 is the last year for the Ford Freestar and Mercury Monterey.

Mazda's MPV minivan was discontinued after the 2006 model year.

Market Leaders

Chrysler remains the minivan sales leader, with maybe 38% share among its two products.

Honda Motor has 18 percent of U.S. minivan sales, and Toyota Motor about 16 percent.

The top three therefore own 72% of the US minivan market. With GM and Ford relinquishing their combined 17%, the other players are scrambling to compete. Kia Sedona and Hyundai Entourage sales account for 5%, Nissan Quest does 3%.

Once relatively fat profit margins in the shrinking sector have also declined.

Incentive spending for minivans rose to an average of $3,900 in 2007. For comparison, the industry average was $2,500.

Frugal Toyota and Honda have even resorted to discounting their popular Sienna and Odyssey minivans.

Most telling, about 30% of minivans are sold to fleets. They make great taxis.

Survivors

But reports of the small van's death have been greatly exaggerated.There is a base demand, and the industry is consolidating around it.

Honda's Odyssey minivan has smooth ride, crisp handling and the high residual values typical of Honda. While outsold by the Chrysler twins, Odessey is the segment leader. But it is not cheap.

Toyota's upgraded Sienna minivan has gained on the Honda, now getting the same mileage as the Variable Cylinder Management (VCM) equipped Odyssey. Sienna offers all-wheel drive, an advantage in northern states.

Hyundai has hurried to fill all market segments, bringing the very similar Kia Sedona and Hyundai Entourage, built on the same platform, to market.

Hyundai's minivans are Top Safety Picks at the Insurance Institute for Highway Safety. While the Korean cars still don't match Japans handling and refinement Sedona and Entourage are relatively inexpensive.

The Nissan Quest saw major upgrades to the interior, which includes a striking horizontal console, for 2007. Built on a modified Altima platform, and using the award winning Nissan VQ35 series motor, Quest is sales disappointment.

Chrysler's Last Stand

Chrysler has sold 12 million minivans since 1983 and is loath to quit the sector that saved it.

For Chrysler, emerging from the shadow of Mercedes under the ownership of Cerberus Capital Management, everything is riding on the redesigned for 2008 minivans.

This is Chrysler Group's bread-and-butter.

DaimlerChrysler minivans last received major revisions in 2001, and compare styling-wise to vans introduced in 1996.

For model year 2008, a fifth generation of Chrysler minivans is promised. Changes are not revolutionary, but comparatively cosmetic. Most striking are swivel seats with a removable table in between. This allows the second row seats to face forward or back, recreational vehicle style.

Chrysler knows it will be difficult for Honda and Toyota to ramp up production to fill the void left by Ford and GM, so they are going all out for market share.

Chrysler Group will reduce sticker prices on 2008 Dodge and Chrysler minivans by an average of $2,000. Maybe the 2008 vans’ increased standard options and lowered MSRPs will end dependence on exorbitant incentives.

VW to the Rescue

With a the number of minivans being dropped, one must wonder why Volkswagen wants to enter the segment. But VW has left analysts shaking their heads before.

Volkswagen decided an in-house mini bus wasn't an economically viable project. A deal with Chrysler to use the Caravan/Town and Country minivan platform as the basis for a 2008 VW van was the answer.

VW assures us that the new minivan won't be a badge engineered Chrysler.

I'll believe that when I see it.

The collaborative effort will be built exclusively for North America, by Chrysler.

Yeah, but it's a Volkswagen.

Chrysler makes minivans in Windsor, Ont., and St. Louis, but 400,000 vehicles a year is not enough to keep two plants running full time. The St. Louis plant is in the most danger, adding the VW production will keep it open.

Long Live the Mini Van

My main objections to the not so mini vehicles is that they could not be sold cheaply, or exceed 26 mpg hwy.

They need to stay comparatively cheap, and be frugal on fuel, without sacrificing function.

Marketers are gambling on a Generation Y baby boom demographic echo, a childbirth surge between 2010 and 2015, to revive the mini van segment.

Generation Y is just moving into the traditional child-bearing years and birth rates are expected to rise.

This new boom may not materialize, as Gen Y has shown little interest in the "Modern Bride" culture which permeated the 1950's. Since the baby boom the average age of first childbirth has risen from 22 to 25. A majority of Generation Y are children of at least one divorce.

Would new families automatically produce rising minivan sales?

The basic reasons for the success of the minivan have not changed: few vehicles can compete with minivans for pure utility and overall value.

I believe minivans remain better choices than SUVs for many families, with roomier interiors and gas mileage more economical than similar sized SUVs.

Minis are cheaper to buy, insure and maintain. Budget-conscious shoppers also can find minivans at significant discounts, while the hot crossover fad builds steam.

For contrast, Saturn replaced its Relay minivan, MSRP $21,570, with the Outlook crossover, try $27,255. That's a 26% premium.

Minivans are some of the safest vehicles on the road, less prone to rollover accidents.

"Crossover?" I know a station wagon when I see one.

I beleive the segment's survival depends less on demographics and more on aerodynamics. These boxy cars must become more fuel efficient to persist. Toyota closed the fuel economy gap on Honda partly by lowering Sienna's coefficient of drag to .32. Frontal area and weight need to be reduced.

Higher profits mean Toyota and Honda can evolve this space: new engines, transmissions, and safety and infotainment systems.

Chrysler officials have considered putting a diesel engine in a minivan in 2010.

The recent furor over revised CAFE regulations has died down in Congress, but the issue will return.

If the government eventually tightens CAFE standards, automakers will be unable to build minivans and SUVs to today's comparatively large expectations.

Can the Japanese leaders and/or Chrysler slick these boxy vans and tweak drive-trains to attain at least 30 mpg?

If this is not the case, long-term no amount of DVD systems or swivel seats will save the mini-van.

In the meantime, consumers with families should consider if looking cool is worth 25% more cash.