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  • There are about 40 different car brands in the United States, there are

  • American brands and imports, trucks, SUVs, sedans, sports cars and of

  • course, lots of crossovers.

  • There are pricey cars and perhaps more affordable cars.

  • But one kind of car that appears to be disappearing is the cheap car.

  • Auto industry analysts say sales of very inexpensive cars these days,

  • meaning any new car with a starting price somewhere below 20000 dollars

  • are declining. In fact, they have fallen off a cliff.

  • Historically, about one fifth of new vehicle sales would have transacted

  • below 20000 dollars.

  • But in the last few years, those have completely dried up.

  • New cars are becoming more expensive, and it's unlikely those cheap cars

  • will ever be back.

  • Buyers who love them may be left out in the cold.

  • The nascent years of automotive manufacturing were dominated by what we

  • would today think of as coach builders, basically shops that hand assemble

  • vehicles one at a time.

  • This was the way horse drawn carriages or coaches were built and

  • automotive manufacturing adopted both the assembly line and the name.

  • As such, early cars were expensive.

  • Industrialists such as ransom olds and Henry Ford changed all that by

  • introducing assembly lines and interchangeable parts, dramatically

  • reducing the price of a car.

  • Ford's Model T was one of those early vehicles in Europe.

  • There was a movement to develop inexpensive cars for the masses, which

  • many proponents dubbed people's cars.

  • In fact, German automaker Volkswagen's brand name translates to people's

  • car making and selling.

  • Practical, affordable and dependable cars has long been a key goal of

  • automakers. Affordability was a key ingredient in legendary and extremely

  • strong selling cars, such as the original Volkswagen Beetle, the Ford

  • Mustang and countless others.

  • Japanese automakers penetrated the U.S.

  • market in the latter half of the 20th century, in part by selling

  • affordable and dependable vehicles.

  • Typically, the most affordable cars are the smaller ones that would fit

  • into the so-called compact and subcompact categories.

  • Some midsize vehicles can also start at prices below twenty thousand

  • dollars in 2020.

  • The subcompact segment in the U.S.

  • included cars such as the Honda Fit, Hyundai Accent Aryo

  • and Nissan Versa.

  • Vehicles in this segment are typically priced below twenty thousand

  • dollars, a cutoff point for what auto industry analysts consider the

  • cheapest cars available.

  • The 2020 Nissan Versa, for example, starts at a price of around fifteen

  • thousand dollars. Cheap cars have a problem that might seem rather

  • obvious, they don't make a lot of money.

  • Automakers, like any company, have certain fixed costs built into their

  • business models. They have to build factories, keep the lights on, pay for

  • product development and pay workers and executives.

  • Many of these basic costs exist whether the product they are selling is

  • cheap or expensive.

  • So an automaker basically has two choices sell a little of something

  • pricey or a lot of something cheap.

  • The problem for automakers is that relying on volume to make money can be

  • hard. Margins can be razor thin, and any challenges or missteps can eat

  • into already slim profits.

  • Automakers can try to protect against this, in part by spreading costs

  • across a range of vehicles, a pricey car might share some parts with a

  • cheaper one. Obvious examples of this or the Ford Mustang, Dodge

  • Challenger and Chevrolet Camaro, the cheapest versions of the start in the

  • mid 20000 dollar range.

  • But the most expensive versions, which share a lot of the same basic

  • parts, can cost more than 90000 dollars.

  • But at least in the U.S., the overall market appears to be moving away

  • from the cheapest price points.

  • So who buys cheap new cars?

  • Why do they matter? Well, the short answer is young people, mostly younger

  • buyers, are usually not loaded.

  • They can be people as young as teenagers, but also folks in their 20s and

  • even 30s. Most of the consumers that are in the subtree space tend to be

  • younger consumers and first time buyers.

  • And so it's a very critical demographic for getting new customers into the

  • industry in general, but into your brand in particular.

  • So as consumers get their first jobs, establish a career going to family

  • and they're looking for a new car, they're in that twenty thousand dollar

  • space. In spite of the fact that cheap cars are less profitable,

  • automakers are still keen to lure younger buyers who likely have many car

  • buying years ahead of them.

  • Selling cheap cars creates the possibility of building brand loyalty in a

  • consumer over a lifetime.

  • Even luxury makers such as BMW and Mercedes have moved into the lower end

  • of the market in recent years in the hope of boosting volumes and getting

  • younger buyers in their vehicles.

  • So there's a lot of risk here in that first time buyers now are having to

  • wait many more years to get a new car.

  • And so now you're kind of allowing the risk there that these first time

  • consumers will rely more on Uber, will live urban life and not even need a

  • car. So we as an industry could be making a lot of long term actions here,

  • long term implications from moving the first time buyers either back or

  • into something more expensive.

  • Despite the risks of selling cheap cars, they historically made up a

  • considerable share of the new car market.

  • This appeared to be the case even in recent years, as the U.S.

  • economy recovered from the financial crisis of 2008 and 2009.

  • Cheap cars made up a good sized slice of the auto market prior to 2018.

  • The segment was about 20 percent of the industry pretty consistently and so

  • on. On the retail side, we're talking in excess of about two million sales

  • annually in the space, just below 20000.

  • But something strange happened in 2018.

  • Sales of some 20000 cars seem to suddenly plummet.

  • And a closer look at sales numbers shows that cheaper cars were

  • disappearing faster and earlier than it seemed for some of those years

  • following the recession.

  • Two of the cars that made up a considerable portion of sales transacting

  • below 20000 dollars were the Toyota Camry and the Honda Accord.

  • Neither the Camry nor the Accord are compact or subcompact cars.

  • They are slightly larger and are usually grouped in the mid-sized car

  • category. They typically sell at or above 20000 dollars, but both were

  • selling at very low prices for several years due to incentives dealers

  • were offering on them.

  • It is worth noting that the Toyota Camry and Honda Accord are two of the

  • most popular cars in America and among the most popular of all time.

  • In 2017, both manufacturers were scheduled to release new versions of the

  • sedans, and when they did, the prices of each car shot up past the 20000

  • dollar mark, causing sales numbers in these sub 20000 category to cut in

  • half. So the reality is that the cheapest tier of cars had already been

  • shrinking for years in the wake of the recession, even though it looked

  • like sales were a steady fifth of the total new car market.

  • But why were sales of these cars shrinking?

  • Why were dealers offering steep incentives on these strong selling and

  • practically iconic Camry and Accord nameplates?

  • The all too familiar answer is in three letters SUV.

  • Sport utility vehicles have taken over the auto market in the United

  • States, as well as a growing share of the global market.

  • SUVs went from twenty nine point nine percent of sales in 2009 to fifty

  • one point five percent in 2019.

  • They are found in practically every segment, size and configuration.

  • Consumers appear to love them, but so do automakers.

  • The smallest SUVs sell for higher prices than comparable cars, even cars

  • built on the same platforms as the pricier SUVs.

  • For example, four years Ford sold the subcompact car called the Fiesta in

  • the United States. When Ford released its subcompact eco sport SUV, the

  • brand's smallest utility, the carmaker, said U.S.

  • average transaction prices for eco sport were 4500 dollars higher than

  • Ford would get from the Fiesta, even though the SUV and the car share the

  • same basic platform.

  • So now you have consumers wanting SUVs, automakers making almost for the

  • first time the cheapest SUVs you've ever seen, coalescing at the same

  • moment so that we saw consumers lose that 20, some 20 thousand dollar

  • vehicle, but then very quickly have that SUV there for the first time.

  • I mean, that subcompact space, which used to be somewhere in the range of

  • about two percent today is is well over eight percent and outsells both

  • mid car and compact car.

  • Individually, consumers are willing to pay higher prices for SUVs,

  • primarily because they feel they are getting more with their taller shape

  • and more spacious cabins.

  • SUVs are seen as more flexible.

  • Many of them have slightly higher ground clearance, making them a bit

  • better to drive off road and thus use recreationally.

  • But the SUV is not the only reason auto industry analysts think car prices

  • are rising. Another key piece of the puzzle is technology.

  • Today's cars are packed with it and customers want more of it when they

  • drive off the lot. This includes safety features and driver assistance

  • technology, like cameras and blind spot monitoring systems.

  • But it also includes robust infotainment systems compatible with Android

  • Auto and Apple car play, voice activated commands and comforts such as

  • heated and cooling seats.

  • Consumers today, even young ones, don't seem to want to wait for those

  • features. There isn't as much appetite for a base level vehicle.

  • Why, lots of reasons, I think that if you look at a general attitude of

  • of a of a younger buyer, whether you're looking at a Gen Y millennial in

  • that space, there there's more impatience and there's an expectation of

  • being able to have all of the technology now and being able to have

  • whatever it is that they want.

  • Now, the expectations that is I want Bluetooth in my car.

  • I want Apple complain that there's no reason why I shouldn't have it.

  • There is not a reason you shouldn't have it, but there is no reason you

  • should not expect to pay for it.

  • You've got a push on the younger side of the market of people being

  • willing to pay for features that they want.

  • And then on the on the flip side, in the older demographic, you've got

  • people who are willing to pay for features because they feel like they've

  • earned it. The trouble is that consumers are paying more for these cars.

  • Loan terms have grown in length in twenty twenty.

  • The share of loans spanning seventy two to eighty four months has grown

  • considerably from where they were decades ago, and some consumers are

  • increasingly faced with fewer options at the lower end, more likely to

  • shell out more for a new car or turn to the used car market.

  • The U.S. market is massive.

  • At their peak, new car sales reached about seventeen point five million

  • units in 2015, but the used car market is more than twice the size of that

  • at about 40 million units per year.

  • The good news for buyers is that cars last longer than they used to, so

  • buying used often does not come with the risks it might have in the past.

  • And it means that consumers shelling out more than they ever have for a

  • new car may at least get to hold on to it for a while longer.

There are about 40 different car brands in the United States, there are

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B1 US cheap market selling suv auto cheapest

Why Cheap Cars Are Disappearing

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    joey joey posted on 2021/05/14
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