We all like to get a good deal and spend as little as possible – or do we? In America, people love a range of different vehicles, like SUVs, luxury sedans, pickup trucks, and lots and lots of crossovers. But while there are a lot of expensive and even affordable cars, there are fewer and fewer really cheap cars. While one of the main factors is that cars are just more technologically complex now, that is not the only reason.
It would seem obvious to everyone that as more vehicles have more sensors, infotainment and voice activation systems, as well as comforts like heated seats, the costs will go up. All of this drives up car prices, but it’s still not the complete picture. And surprisingly, the cheap car market in the United States is now dominated by Japanese automakers. These are the reasons why cheap cars are gone.
What is a cheap car?
An inexpensive car in the United States is a car priced under $ 20,000 new. Historically in America, about 20% of new car sales have been cheap cars or less than $ 20,000 in today’s dollars.
However, sales of these new, inexpensive cars appear to be on the verge of waning, and industry analysts believe these inexpensive cars will never return to the US market again. Incidentally, it’s the plan of automakers like Tesla to be able to make electric cars for just around $ 25,000, which could end up being the new cheap vehicle.
Fall in the number of inexpensive cars
In 2013, 2014 and 2015, new car sales under $ 20,000 (and therefore classified as inexpensive cars) accounted for about 20% of new car sales in the United States. However, since then the proportion of new cheap cars has dropped sharply.
The proportion of new, inexpensive cars rose from 20% to 15% in 2018, and then fell further to only around 9% in 2020. The trend is very clear. This is a sharp drop as industry analysts predicted small cars would fare well after the Great Recession of 2008.
Cheap cars are cheap
One of the main and most obvious problems with cheap cars is that they are cheap, being cheap means they don’t make a lot of money for the car company at all. One of the most lucrative segments of the automotive market in the United States today is the more expensive pickup trucks.
It is very difficult for automakers to recoup their huge overhead costs by selling cheap cars with such low profit margins. It is therefore not the preferred strategy of car manufacturers to sell cheap cars. It is better to sell SUVs and pickup trucks rather than cheap cars.
Sell a lot, but sell cheaply? Or sell little, but sell dear?
Automakers have a very simple economic decision to make – whether to sell a lot of cheap cars to cover their costs or sell only a few more expensive cars but enjoy much higher profit margins. There are issues and difficulties with relying on volume, although it can still be worth it.
One of the main problems is that with very thin profit margins almost any misstep or miscalculation can directly undermine profit margins and there is little room for error. A major recall in the line can greatly spoil the profitability of the sale of these cars.
Who buys cheap cars?
In the United States, it is usually young people who buy cheap cars. They are usually in their teens, twenties or even thirties and are still in the relatively cash strapped stage of life.
They are also normally first-time buyers. It’s a demographic that automakers are also keen to win over their brand of car – they want business back. This is why many automakers have been happy to make inexpensive cars in the first place, with the aim of buying brand loyalty from these young buyers.
Impact of the Camry and the Accord
A significant portion of the decline in inexpensive cars was due to the Toyota Camry and the Honda accord. They are two very popular family sedans and were sold at very low rates of less than $ 20,000. They have both been very popular vehicles for American buyers.
But when they released new vehicles in 2017, Toyota and Honda drastically increased the prices of these two new vehicles. So that meant that cheap car sales were actually down for years, but the Toyota Camry and Honda Accord were holding back cheap car sales.
Much of the decline in cheap cars (and even the Fiat failure in America) can be attributed to the rise and popularity of the SUV. The SUV has not only grown in the United States, but also around the world. Fiat bet on the popularity of small cars over a decade ago, but they were wrong.
SUV sales have grown from 29.9% of sales in 2009 to 51.5% in 2019. While it’s clear that American buyers love SUVs, so do automakers. SUVs are consistently more expensive than their counterparts and profit margins are higher.
Consumers willing to pay more for SUVs
Even though some SUVs can be built on the same platform as their sedan or other cheaper cousins and therefore don’t cost much more to produce, consumers feel like they have more for them. their money. Car manufacturers can capitalize on this impression of added value and drive up prices.
The larger space, taller shape, slightly higher ground clearance, and greater perceived utility combine to persuade consumers that they offer great value for their money and therefore consumers are willing to part ways. more money. For the industry, SUVs are profitable and excellent.
In summary, it would appear that in the United States, cheap cars have had their day, and now cheap cars will be less of an option in the future.
Even those on a tight budget can afford one of these cars. But in reality, it might be better if they bought a better quality used car.
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