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.
Don't you see, young people, you should expect to pay a huge premium for overpriced garbage tech in your vehicles. Stop being so impatient. The auto industry and exorbitant prices for tin can cars aren't the problem, YOU are.
So millennials are killing the cheap car industry, expensive car industry, motorcycle industry.
Seems like millennials are either: Commuting via public transport Commuting via driver apps Working those same driver apps Not going anywhere(me)
If Millennials had money, they would buy more cars. The millennials that actually have money are buying better cars. If you want millennials to buy more cars, pay us more money.
Maybe stop rolling out the same overpriced and overtrimmed models with features nobody needed or wanted. I don't give a fuck about leather or mahogany, but I do want rear/front cameras, decent display that isn't buggy crap, and a durable interior. I don't need my electric car or hybrid to be $100,000 and have Ludi-Incredi-Retardotron Mode, I just need to be able to carry groceries and a reliable charge. I don't need my truck to be able to pull a blue whale up Everest, I need a fucking workhorse that I can beat up and pay off in a reasonable time, with inexpensive and accessible parts.
My father bought a new Chevy Nova with his high school savings. I bought a 30 year old Subaru with mine. The problem ain't millenials.
This is yet another way desperate boomers are to blame everyone but themselves for their massive failure.
All of the "tech" she described can be added to any car with an aftermarket car stereo that costs a few hundred bucks for a nice one. Millennials know this.
What millennials don't want is base model disposable trash cars. That goes beyond what boomers think is "tech".
Are millennials the only ones buying cars? The millennials I know are buying used. It's the people older than them who are splurging.
Why would any millenial buy a new cheap car when thy could pick up a used few year old vehicle for MUCH cheaper. I don't plan to ever but a brand new car unless I was to win a HUGE amount of money and even then I'd still hesitate
Cheap cars [that aren't either 100K+ or beat to shit] haven't existed in my lifetime. The days where a high schooler can work a summer job and go buy a new sports car are long long gone.
From some little research I've done, it seems the problem isn't the price of cars going up, as their cost is relatively in line with inflation. The problem is that we're not paid for the same jobs as our parents in the 80s and 90s and even before them, adjusted for the same inflation. Probably preaching to the choir though.