Home » Carmakers Could Start Making Cars More Affordable… If They Wanted To

Carmakers Could Start Making Cars More Affordable… If They Wanted To

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Alfred P. Sloan, the visionary leader of General Motors for the first half of the 20th century, used to look at his brands as a “ladder of success.” The concept was, as a young person you could afford a cheap and reliable Chevrolet. Then, maybe, you had a family and worked your way up to a nice Buick. Finally, when you reach the pinnacle of your profession and probably upper management, you can get that Cadillac. No matter where you went, GM got your dollar.

Unfortunately, the bottom of the rung of the ladder has disappeared. This could be the year it comes back, but only if automakers want to risk it.

Vidframe Min Top
Vidframe Min Bottom

Patrick talked earlier this week about how the price of cars was getting too damn high, and that even car dealers were not happy with being unable to offer affordable cars to their customers.  There are some very obvious reasons for this, mostly having to do with supply. If you only have enough microchips to build 100,000 trucks, do you build the bargain basement tiers with a 5% margin? Or do you build the big, fancy ones that net a 20% margin? It’s a no-brainer.

There are a couple of reports today that get into how this works and, specifically, how automakers could start building more affordable cars if they want to. I’m going to tie this into some profit reports and other data to evaluate whether or not that will happen.

NADA Report Shows Inventories Improving, So Build Some Cheap Cars Already

Spdata

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If you’ve read at least one of these Morning Dumps in the last year+ then you know that the main character in the new car market’s been scarcity. Not enough chips. Not enough delivery drivers. Not enough cars. For various macroeconomic reasons, the one thing there hasn’t been a lack of is customers.

The National Automotive Dealers Association (NADA) puts out a report twice a year that looks at the big trends in the automotive market. Not all of NADA’s data is publicly available, but Automotive News has the topline numbers and some helpful quotes.

Here’s the highlight:

New-vehicle inventory reached 1.7 million at the end of last year, up more than 50 percent from the near-historic low of 1.1 million at the start of 2022. The average number of new cars sold per dealership fell 8.5 percent to 819, down from 895 in 2021.

“Inventory was constrained and that had ripple effects throughout the whole market,” NADA Chief Economist Patrick Manzi told Automotive News. “It should be less constrained [in 2023] and we should be able to sell more cars, so it should be good for everybody across the industry.”

Cool, cool, cool. Here’s the key quote, with the key bits in bold:

Inflationary pressure throughout the supply chain and limited chip supply helped drive up new-vehicle prices, Manzi said, noting automakers in many cases chose to build higher-margin vehicles with the available chips.

“Looking ahead into this year, I think as the chip supply improves, we will see OEMs again able to build more affordable vehicles, more entry-level models, lower-trim vehicles,” he said. “Whether they do or not, that can still be up for debate, but I think the ability to do that will improve as the chip and other supply chain issues lessen throughout the year.”

So they could build more affordable cars. You can almost hear the ¯\_(ツ)_/¯ in his voice. What do I think is going to happen?

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As I’ve said before: There is no single normal, instead there are now multiple abnormals. No two automakers are going to be the same because supply constraints vary greatly across automakers. From quarter-to-quarter, month-to-month, automaker-to-automaker, expect to see a lot of divergence in pricing and customer experiences.

GM has weathered the supply chain issues better than most, and I suspect it’ll continue to make more affordable vehicles to fill in that lower rung of the success ladder. A good example of this is the 2024 Chevy Trax, which is affordable and nicely spec’d out, even in lower trims.

For further reading on this, S&P Global has a nice report about how GM’s ability to make cars across a wide spectrum of segments and have inventory means customer loyalty well above Hyundai Motor Group and Ford. That’s where the top graphic comes from and I think it’s a key point, especially as GM begins to streamline its sales operations.

And the Japanese? Well…

Honda, Nissan Expecting Big Profits This Year

22.1 2023 Honda Accord Touring

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Toyota has had the worst experience of any large automaker present in the United States during the pandemic, in my view. It’s lost market share. It’s lost initiative. Things have been bad. I think the company will turn it around, but it’s been a bumpy two years. Honda and Nissan, as well, have suffered.

The Japanese automakers are announcing their profit forecasts this year and the news is much rosier if you’re an investor. First up is Honda, via Reuters:

Japan’s Honda Motor Co (7267.T) on Thursday forecast a 19.1% rise in operating profit for this business year, after it missed analysts’ estimates in the fourth quarter.

Japan’s second-biggest automaker forecast full-year operating profit rising to 1.0 trillion yen ($7.40 billion) compared with a 985.62 billion yen average profit expected by 21 analysts. It said it expected higher sales volume and to benefit from a strengthening supply chain.

And what about Nissan? Again, via Reuters:

Nissan Motor Co on Thursday flagged a better-than-expected 38% rise in profit this year on stronger sales, a rosier outlook for the Japanese automaker as it retools its often difficult alliance with Renault and faces headwinds in China.

The bullish forecast, which comes as Nissan (7201.T) is pushing to turn itself around after years of turmoil, was based on expectations of almost 30% sales growth in both North America and Europe. However, in the key Chinese market the forecast was far less upbeat, at just 8%.

My guess, and this is just a guess, is that both Nissan and Honda will probably be more on the profit-side end of the market than General Motors, at least for a while. Both automakers have ground to make up and I don’t see the Japanese as hungry for market share as they’ve been in the past. If the economy stays strong into the summer, this might shift.

The Lexus GX Is Coming Back

You know what kinds of products have good margins? Premium SUVs, and Lexus has two new ones coming out this year. Related: I feel like the most popular off-roader of the last three years has not been a Jeep or a Bronco, but instead a used Lexus GX.

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It’s basically a 4Runner in a business suit. People love these things:

That one is owned by filmmaker and buddy Douglas Sonders. It’s a great-looking truck and one of many out there these days. Will the new one be as popular in 20 years? No idea, but here’s a preview of it:

2024 Lexus Gx

Uh oh, it’s raining.

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Subaru Is Going To Make Four EVs By 2026

Subaru Solterra 2023 1600 1a
Photo: Subaru

Subaru, like Toyota, has been slow to adapt to electric vehicles. They make one, sort of, that no one talks about except when the wheels literally fall off of them. From Automotive News, it seems like that’s going to change soon:

Electric-vehicle latecomer Subaru expects to have capacity to sell 400,000 electric vehicles a year from 2028 by adding a second EV line in Japan, signaling a dramatic ramp up as it tries to get 40 percent of its global sales from electrified vehicles by decade’s end.

That’s great but, uh, Japan? In this market? You’re going to build your new EVs in Japan?

Subaru may also rely on leasing for its EVs, which may make them eligible for some incentives.

Nevertheless, outgoing Subaru chief Nakamura said Subaru’s loyal customer base would not be deterred by a lack of incentives for the brand’s EVs.

I wonder if American consumers choose their cars solely based on tax breaks,” Nakamura said. “Our U.S. customers are quality customers. We have a higher ratio of customers buying Subarus with cash, and we also have low loan and lease rates. We also keep our incentives at low levels.

“We will try not to rely only on the subsidy program.”

Shots fired! (Editor’s note: That’s real cute, Nakamura, but since our car choices are more expensive than ever and our wallets are being squeezed on every other front, we’re gonna go where the best deals are. -PG)

The Big Question

When we bought our Subaru Forester six years ago we got a “Premium” model with the cold-weather package, but no navigation and not much else in the way of fancy options. It doesn’t even have foglights. I’m a second-to-lowest tier kind of buyer.

For your most recent (or next) new car purchase, are you looking for a higher or lower trim? What’s your sweet spot?

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Photos: S&P Global, GM, Honda, Subaru

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Scorp Mcgorp
Scorp Mcgorp
1 year ago

big answer to big question: buy as many options as you can afford.

In terms of trims and options, i will spec out a planned buy with the features i need, and then set a price i will not go over. then look for the best deals within that budget and that have the minimum specced options. condition and mileage of the vehicles being equal, if a given vehicle has more options under that price point, then that’s what i’m going with.

of course there’s always exceptions to that rule. if there a specific option i do not want, those vehicles that have that option are out. or if i can get the vehicle with the required options at a steep discount compared to more options, then that’s a whole different ballgame.

An actual example for my upcoming jump into a JK Wrangler: options i want are a Manual and hard top, and not an X or Sport with fewer than 100K miles, under $25K.

within 500 miles of me, i can find several Rubicon models, lots of Saharas, and a few other special editions. i’d most likely be looking for a Sahara, but the added residual value of a Rubicon would make it a good choice if i can find it for a similar price.

of course, condition and history are going to be a big factor too.

so, in the end, i guess it’s a complicated issue, but i’m never likely to buy a top trim level with all the options unless the price is right, and i’m definitely not a “base stripper model” buyer.

Daemoss
Daemoss
1 year ago

The Big Question: My next new car purchase will be a lightly optioned Maverick XLT Hybrid, assuming Ford can ever get my truck into production. I’m only eight months into my time on the waitlist so I figure I should take possession sometime around Christmas 2024.

Vetatur Fumare
Vetatur Fumare
1 year ago

It’s always odd to me when manufacturers respond to current economic trends with their long-term plans. Why do they think that the peculiar conditions that led to the current price spike will continue forever? Sure, the middle class is dying but even then there will be a market for well-priced cars left.

Vetatur Fumare
Vetatur Fumare
1 year ago

The Big Question:
For my next purchase, the sweet spot is 25 years or older and steering wheel to the right. That way I can drive something interesting which was decently maintained by its previous owners. I am thinking a Toyota Corolla Spacio – you should do a feature on the seating arrangement of this fantastic little car, except I don’t want prices driven up before I can get one.

JDE
JDE
1 year ago

Am I the only one that thinks Nissan should take advantage of the Fleet work truck market? they have an acceptably decent pickup truck that needs a few cab and interior changes to be pretty good basic work truck fodder. Nobody is buying their regular versions, so perhaps take that 5 to 10 percent profit, prove the trucks worth in the Beat Em Up truck market and basically give the workers driving them for work something to experience so they can keep the Titan Truck facility in business.

Dave Beth
Dave Beth
1 year ago

I don’t think I would ever consider buying a new car at all. My list of requirements in a vehicle is shockingly short. 4 wheels, a manual transmission, and a trunk is about all I really care about. I don’t even listen to the radio when I drive so “infotainment” is a complete waste of money for me. I don’t actually care about safety (though I know it’s required so it’s not an option to forego it). I don’t care what color the thing is, what the wheels look like, what sort of horsepower the thing put out, etc. For me, a car is “transportation” first and enjoyment second. What is that actually worth in dollar figures? About $200 a month, at most.

Scott
Scott
1 year ago
Reply to  Dave Beth

Your practicality and pragmatism is appealing. I’m being serious, not sarcastic btw. 🙂

21CenturySchizoidMan
21CenturySchizoidMan
1 year ago
Reply to  Dave Beth

That’s a pretty bold take for, you know, a car website…

LastNormalManual
LastNormalManual
1 year ago

My last car I bought new, and chose the lowest trim package because a) it had everything I needed already and b) was the only level that came with a manual transmission. I even asked told the dealer that I would be happy to pay more for a higher trim package if they would put the manual into that, but they told me it wasn’t possible.

Upward from here, I guess?

Lightning
Lightning
1 year ago

I’m not a new car buyer, but pretending I was, the stripper models in new cars are more to my liking in terms of features because I hate superfluous complication and weight adding gadgets. The main downside to base models tends to be uglier wheels (not that I’d want larger wheels, just better looking wheels) and uglier exterior details like black instead of body color parts.

Ideally, being able to spec a car out how I want a la carte, and with no concern to regulations, I’d get the manual trans, A/C, heater, nice but not oversized alloy wheels (or good looking steelies depending on style of car), stickier tires, delete TPMS, delete driver assistance things that rely on cameras (including backup camera), delete large screen. Automatic door opening/closing? Get that stuff out of my car. Even better would be al la carte performance options like LSDs, performance manual seats, and chassis improvements like the draw stiffeners (like S209 STI), strut tower brace, and (dreamland) factory option for stitch/seam welded unibody and carbon roof for your factory rally station wagon build. I faintly remember the Volvo options brochure from the ’70s, and they had some neat performance options that you could buy.

Last edited 1 year ago by Lightning
Vetatur Fumare
Vetatur Fumare
1 year ago
Reply to  Lightning

Your dreamland factory option is very dreamy, indeed… I am with you on everything except I would probably not kick out the backup camera as I have to park in NYC and the Bronx – braille parking comes with consequences there.

Ranwhenparked
Ranwhenparked
1 year ago

Established automakers have no reason to build cheaper cars again, unless and until the lack of lower priced offerings starts impacting their bottom line. It may happen on its own eventually, or it might happen if some new upstart comes in and spooks everyone by quickly grabbing some market share, either way

Bongo Friendee Harvey Park
Bongo Friendee Harvey Park
1 year ago
Reply to  Ranwhenparked

Chinese and Vietnamese brands are coming to do just that.

Drad
Drad
1 year ago

I tend to go mid-top. Provided I have adaptive cruise and heated seats I’m a happy camper really. I prefer “leather”, only because my children like to put their dirty feet everywhere, its just easier to clean

David Mason
David Mason
1 year ago

Companies will profit maximize. Period. The prices aren’t coming down.

Vic Vinegar
Vic Vinegar
1 year ago
Reply to  David Mason

And sales are still up over all right? People can’t afford the cars, but they are selling more of them? Maybe it is through 84 month loans, but the manufacturers don’t care. A sale is a sale.

86-GL
86-GL
1 year ago

To be fair to Subaru’s CEO, I think he knows his market.

Subaru has never had any issues selling uncompetitive vehicles, as long as they’re ugly, underperforming and poor quality.

I don’t see any reason why that should change with the switch to electrification.

Mr Sarcastic
Mr Sarcastic
1 year ago

For gods sake beau get someone with a knowledge of economics proof read articles. Yes more chips available so more cars available so prices slowly tick down. But Bidens federal bank moron has kicked interest rates up over 2% for banks, the new buyers are not quite as rich so good prices but bad interest rates so prices arent going anywhere but up. You guys despite being car guys are falling for the payment trap. Hey its only 300 a month for 560 months you can pull that down right?

Bongo Friendee Harvey Park
Bongo Friendee Harvey Park
1 year ago
Reply to  Mr Sarcastic

Powell was installed by Trump, not Biden.

Max Headbolts
Max Headbolts
1 year ago

My sweet spot seems to be out of reach based on my current financial goals, I’d really like a base trim Maverick but I can’t justify the monthly spend for it right now; so I’ll keep my two 20year old vehicles chugging along for a few more years. I’m fortunate that I can afford two reliable old vehicles.

Mr Sarcastic
Mr Sarcastic
1 year ago
Reply to  Max Headbolts

Can afford 2 old cars or cant afford a new one. Let me tell you prices and deals will never be this low again. I got a sweet little Maverick coming in noone knows about about. But Max I like you. That Maverick will dissappear the second it hits the lot. But i want you to have hit. Those 2 old jalopies aren’t going to run much longer then it is too late. Trust me you don’t jump on this deal right now you’ll regret it. I am just looking out for you. So give me a check for $50,000 and if anything is left i will bury you in cheap hats shirts and swag. You trust me Max?

Jesus Helicoptering Christ
Jesus Helicoptering Christ
1 year ago
Reply to  Mr Sarcastic

Plus $500 for the TruCoat.
They install that at the factory, you know. Not much we can do about it.

Last edited 1 year ago by Jesus Helicoptering Christ
Chris with bad opinions
Chris with bad opinions
1 year ago

I’m pretty simple with my car. It gets me to work and back. For road trips and weekend driving I use my wife’s car. The only “need” I have is bluetooth. I do prefer leather seats (which I have) and a sunroof (which I don’t) but neither is mandatory. My base level Mazda 3 has served me very well for almost 5 years now with at least that many more to go.

JDE
JDE
1 year ago

Honestly with literally everyone having an up to date sat nav in their pocket these days, is Navigation even relevant? Same with foglights considering Brighter than the sun LED headlights literally standard on most vehicles these days.

Chris D
Chris D
1 year ago
Reply to  JDE

The funny thing about LEDs is that they are super bright when new, then slowly get dimmer as time goes on. I replaced my kitchen fluorescents with LEDs and it was too bright in there. Now it’s just right. In another year it will be too dark.

SteveR
SteveR
1 year ago

Outside of the last three years, I think the decreased affordability of new cars is more a symptom of the overall economic situation than it is about the cars themselves. Adjusted for inflation, it’s not really so absurd that there is almost nothing available new for $20k anymore. And the average new car price rising so quickly is more a function of the popularity of giant trucks and SUVs than it is of an apples-to-apples increase; for the people still driving sedans, it’s not like the Camry or Accord now start at $40k.

SteveR
SteveR
1 year ago

Outside of the last three years, I think the decreased affordability of new cars is more a symptom of the overall economic situation than it is about the cars themselves. Adjusted for inflation, it’s not really so absurd that there is almost nothing available new for $20k anymore. And the average new car price rising so quickly is more a function of the popularity of giant trucks and SUVs than it is of an apples-to-apples increase; for the people still driving sedans, it’s not like the Camry or Accord now start at $40k.

The real problem is that wages have not kept pace with inflation and productivity gains for decades. Someone for whom a $20k new car was affordable a decade ago should easily be able to afford $30k or more now if they’ve been compensated fairly for their labor. Too often that is very much not the case.

Cerberus
Cerberus
1 year ago

Base with the more powerful engine if available, the less options the better, but not if it means a Fisher price interior vs something decent in the next trim up. I bought a base GR86 for a lot of reasons, but a big part of the appeal is the lack of electronic crap and none of the “safety” nags (they apparently can’t even instal that shit in a car with a manual, which would make me choose that transmission even if I had to use a cane to operate the clutch). If I could write a Terminator sequel, I’d have them send the machine back in time to take out whoever invented the safety harassment equipment.

Baron Usurper
Baron Usurper
1 year ago

Cheap cars are going the way of cheap houses. You have a quarter-acre lot, you have set costs regardless of the house size, you have banks that hand out cash to builders like it’s the flu. Are you going to build the house that has 50k in profit or 250k?

SteveR
SteveR
1 year ago
Reply to  Baron Usurper

In my area at least, if they have a quarter acre lot then they’re going to build two houses on it and still charge through the roof despite the fact that at that point you might as well live in a townhouse.

In my area you can walk several miles and gradually go from houses built in the 1960s to today as the city has expanded. Comparing roughly apples to apples (say, your average 3-4 bedroom, 1500-1800 sq ft house – neither a mansion nor a tiny starter house), the lots go from well over half an acre in the ‘60s down to maybe 5000-6000 sq ft if you’re lucky for new builds. And of course the new builds are in little subdivisions with literally nothing in walking distance and they’re by far the most expensive.

I would love a new house just to not stress so much about maintenance or repairs for a while but I’d move back into an apartment before I’d buy a house that has both a tiny lot and is in the middle of nowhere.

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