The US auto market is being reshaped by the growing trend of vehicles priced between $20,000-$30,000.
Auto analysts claim that a “shift in affordability” is occurring as more buyers reconsider paying the average $47,000 for new cars. This represents a 20% increase compared to the pre-pandemic price.
Edmunds.com data shows that a new car purchased at this price would cost an average buyer $737 per month if financed at 7.1% for six years.
This is too expensive for many people, and they are moving towards smaller, more affordable models.
But it’s not only buyers who cannot afford a $47,000 car that are looking for cheaper alternatives.
Many consumers can afford to pay the higher price, but don’t value it.
The US automakers are rethinking their strategies due to the changing mindset of consumers, as they see that new car sales have only increased by 1% compared to September last year.
If this trend continues, it could force car manufacturers to lower vehicle prices and increase discounts, putting pressures on profit margins in the industry.
Kevin Roberts is the director of market intelligence for CarGurus.com, a popular online automotive shopping site. He attributes this shift to economic uncertainty, and persistently high rates of interest, which have kept car prices high.
He told Associated Press that consumers are becoming more cautious due to economic uncertainty, high interest rates and the continued high prices of vehicles.
Budget-friendly vehicles are on the rise
Edmunds reports that manufacturers have responded to this by offering deeper discounts for many high-priced models. The average incentive has nearly doubled to $1,812 in the past year.
General Motors, as an example, kept its vehicle prices constant at around $49,000 from July to September, helping it achieve a $900-million increase in pretax profits. The automaker does, however, not expect to maintain these gains into the fourth-quarter.
In September, the sales of vehicles priced between $20,000.00 and $30,000.00 accounted for 43% growth in new car sales, the highest share this segment has seen in four years.
Cox Automotive reports the fastest growth in compact and subcompact SUVs and cars since 2018. Affordable models are gaining traction on the market.
In fact, the renewed interest in budget-friendly cars mirrors trends from before the pandemic.
In 2018, compact and subcompact cars accounted for nearly 35% of new car sales in the US.
The shortage of semiconductors during the pandemic forced automakers into prioritizing production of higher priced trucks and SUVs. This resulted in a decline in the share affordable vehicles to under 30% by 2022.
With the stabilization of the market, this share has risen to 34% in 2018.
Compact cars are on the rise
The sales of smaller cars have seen a significant rebound.
Sales of compact sedans have, for example, risen 16.7% over the past year. Sales of larger SUVs and pickups, on the other hand, have grown at a slower pace. According to CarGurus, big trucks have seen less than 6% increase and large SUVs barely increased at all.
Ford’s F-Series trucks continue to be the best-selling vehicles in the US, and have been for the past five decades.
The Stellantis Ram pickup, historically the third-best-seller, has fallen to sixth place. It’s been overtaken by cheaper models like the Toyota RAV4, Honda CR-V and Tesla’s Model Y which benefits from a US tax credit of $7,500.
Automakers were caught off guard by the shift towards affordability, as they found themselves with an excess of expensive trucks and SUVs.
Stellantis, the company that produces Chrysler, Jeep and Ram vehicles has warned that this trend could negatively affect its profitability in 2018.
High interest rates change buyer behavior
Chevrolet, for example, was one of the first companies to anticipate the trend towards budget-conscious vehicles.
The brand launched a redesigned Trax compact SUV spring 2023. This allows it to capitalize on this trend.
Mike MacPhee is the director of Chevrolet Sales Operations. According to him, Trax sales have increased 130% this year and it has become the top-selling subcompact vehicle in the US.
Despite this shift in the market, the future remains uncertain.
Charlie Chesbrough is the chief economist at Cox Automotive. He notes that a possible reduction in interest rates may eventually reduce auto loan fees, causing consumers to return to larger and more expensive vehicles.
“The trends are likely to start changing if interest rates start dropping,” Chesbrough said to AP.
Consumers will start to move into larger vehicles.
As a result of rising interest rates, increasing insurance premiums, and a cautious outlook, many buyers opt for smaller, more affordable cars.
It remains to be determined whether this trend will continue or fade with the changing market conditions.
This post Is affordability the driving force behind the future of America’s auto market? This post may be updated as new information becomes available
This site is for entertainment only. Click here to read more
