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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Pupmeow
Pupmeow
1 year ago

I want the highest trim with all the options. I want my steering wheel heated and cooled. I want a heads up display. I want my liftgate to open when I daintily yet proudly present my foot to the rear of the vehicle. I want it all.

Salaryman
Salaryman
1 year ago
Reply to  Pupmeow

Yes. The last thing I want is a bunch of blank buttons staring at me for the 15 years I’ll be driving my car reminding me that I could have had that feature if I just paid a couple of extra dollars.

Timohb
Timohb
1 year ago

Car makers are recording huge profits so there is not enough upside for affordable cars. Classic cast of class separation.

LactoseTheIntolerant
LactoseTheIntolerant
1 year ago

I went 4runner on my last purchase because the GX is much more ugly than the Toyota. I liked the non-hour glass Lexus front.

As for my next purchase. I have some screens, which I like, but I also have some buttons, which I like more. I’ve noticed that my creature comforts have moved up over the years. I’ve also been buying SUVs and trucks for the 20 years.

I want to go have another car experience in the next 4 years. A used base WRX from the previous generation has me intrigued, but I need to get rid of the camper that my 4runner tows before that can happen. I would get the ’86 if I didn’t live where it snows constantly.

Nsane In The MembraNe
Nsane In The MembraNe
1 year ago

You’d probably be alright with something front wheel drive with an LSD from the same class, especially if you’re keeping the 4Runner. A GTI, Civic SI/Type R, one of the Ns, etc. I had a GTI and now a Kona N and I’ve personally never had issues with them in inclement weather…although I’ve never driven either through a blizzard.

Cerberus
Cerberus
1 year ago

I live where it snows and have a GR86. It’s got a standard LSD and, with snow tires, it was more than fine and I didn’t even put weight in the back. I got the tires in two sizes taller sidewalls to gain about 3/4″ of ground clearance, which wasn’t necessary this year.

Sid Bridge
Sid Bridge
1 year ago

Not trying to criticize legislated safety, as it’s made cars safer and more efficient, but is it really that possible to build an affordable car? Catalytic converters, unibodies engineered for side impact safety/pedestrian impact safety, required rear-view cams to make up for lessened vision from pedestrian/rear impact safety, a full curtain of airbags surrounding you, lighter weight materials to meet fuel mileage standards leading to more carbon fiber and aluminum, plus higher-tech engines with turbochargers to make power and efficiency… and a bunch more things I’m missing – that stuff isn’t cheap. You can’t make a cheap car if you’re required to put expensive stuff in it.

Again, I think safety and efficiency are good things, but there’s only so mad we can get about cars being too expensive when cheap ones are nearly impossible to building and were crazy unsafe when we could build them.

Stig's Cousin
Stig's Cousin
1 year ago
Reply to  Sid Bridge

I think it is still possible to build (relatively) affordable cars. Vehicles like the Civic and Corolla meet modern safety requirements but can be purchased for the mid-20s. $25,000 isn’t exactly pocket change, but that is about what most buyers are paying for a used car today.

Sid Bridge
Sid Bridge
1 year ago
Reply to  Stig's Cousin

Your reply is true and terrifying at the same time. I feel like it wasn’t that long ago that a $25,000 car was not considered “cheap”.

Stig's Cousin
Stig's Cousin
1 year ago
Reply to  Sid Bridge

That is why I said *relatively* affordable. I think the average new car was $25,000 less than 15 years ago. I hope the econobox of 2040 doesn’t cost $48,000.

On the plus side, cars are lasting longer so those with limited budgets can still find relatively reliable cars for less money. I see a lot of ’90s cars on the road today (and regularly in shitbox showdown). Those are presumably very cheap. I wonder how many people were using a 25+ year old car for regular transportation in previous decades? I don’t recall seeing a lot of ’60s cars used as regular transportation in the ’90s.

Sid Bridge
Sid Bridge
1 year ago
Reply to  Stig's Cousin

Totally true. When I was in high school my father would take me car shopping and he wouldn’t even look at the Beretta GTU that caught my attention because it had 43k miles on it and that was too much (pretty true, sadly). 70s and 80’s cars disappeared quickly and it was unheard of back then to keep a car past 80-100k miles. I drove my ’68 Olds to work today – a car I’ve had since 1995 so I’ve driven it long enough to remember when it wasn’t totally weird to drive it to the grocery store. Now it’s as weird as it must have been to drive a Model A in 1985. I don’t mind the attention, so all good tho.

EXL500
EXL500
1 year ago
Reply to  Sid Bridge

$20K in 2014 is $25K today.

Bongo Friendee Harvey Park
Bongo Friendee Harvey Park
1 year ago
Reply to  Sid Bridge

And my grampappy used to pay a nickel for a gallon of milk and a pack of Marlboros.

$25k today was <$20k just 7 years ago, which is as long as many people wait between car purchases.

Stig's Cousin
Stig's Cousin
1 year ago

The only features I can’t live without are air conditioning, cruise control, and a radio that can be used to play music from my iphone (either bluetooth or plugged in somehow). I think almost all vehicles sold in the US have those features. I don’t like most modern driver assists or upgraded stereos (things with carplay or similar systems) so the lowest spec usually is my preferred product. I often go aftermarket for wheels and tires, so whatever comes with the base model is fine.

Nsane In The MembraNe
Nsane In The MembraNe
1 year ago

The Lexus GX has been a well kept secret for a long time. It’s essentially a 4Runner without the painful compromises that a 4Runner forces you to make. Unfortunately, like the 4Runner, it’s been an ancient car from a bygone era for a long time now. I’m personally excited about seeing a new one, which I assume will come with more modern powertrains. We’ve considered looking at a GX for my wife but the horrific fuel economy of the Mesopotamian V8 is a non starter for her. If the new one offers a hybrid powertrain color me interested.

When it comes to trims for normies I’m an advocate of getting the nicest trim of a regular car, especially over an entry level luxury vehicle, which they tend to lust after. It usually offers a luxury car experience without the badge tax and higher maintenance costs that come with it. When it comes to driver focused cars I tend to favor lower trims. The less between me and the driving experience the better. My GTI was an S that had no options other than the DSG and floor mats and while my Kona N came fully loaded it’s still an econobox on the inside.

Which doesn’t bother me to be honest, I want to focus on driving. I don’t need a bunch of weird tech doo dads and gimmicks like the Germans are obsessed with fluffing their cars up with these days. Obviously the same goes for a car like a Miata, Toyobaru, etc…although the N division is smart and offers upgraded seats and audio in all the cars. I wish manufacturers would let you order a la carte because that’s probably my ideal spec for the type of cars I like. Give me leather/supportive seats and a nicer sound system. I couldn’t care less about all the other stuff.

Bigger screen? Sunroof? Memory seats? Some form of autonomous driving? Don’t care.

Adam Bernhardt
Adam Bernhardt
1 year ago

Entry-level (inexpensive) vehicles used to be key to manufacturers’ strategy. Get people in, establish brand loyalty, then work to keep that customer as they move up the product range. I owned new Dodge Neon (1st new car), used Gen I Dodge Intrepid, new Gen II Dodge Intrepid, loaded, new Ram Rebel over the years among other vehicles.

ToyotaTaxPayer
ToyotaTaxPayer
1 year ago

The lowest level that has seat memory position. My wife and I share one vehicle. When we bought our RAV, we did the pinky swear that it was our one non-negotiable item. There was a beautiful dark blue 2019 with every item but that button. Also discounts as it was December. There was a 2020 with the button. Grey. Discounts? More like bend over. We bought it. Those buttons are a major reason we are quite happy holding onto it and have no plans to trade anytime soon. We just flipped 30k miles on it at 3.5 years. And we haven’t been bitching for that long about having to move seats when we swap drivers. All the other stuff that came with the top trim is nice but not required.

3WiperB
3WiperB
1 year ago
Reply to  ToyotaTaxPayer

I totally understand this. Luckily my wife and I have very similar seating positions, but now that I have kids driving that don’t have similar seating positions, I really appreciate the cars in the fleet that have memory settings.

Uncle D
Uncle D
1 year ago
Reply to  ToyotaTaxPayer

I am 6’4″ and my wife is 5’2″ so seat memory is essential. However, when we got her a new car in 2020 and we honed in on an Outback Onyx XT. It has everything, but seat memory. We keep cars for 10+ years and will be lamenting the lack of seat memory for everyone of of those years.. I’m still happy ’cause it’s one of the few wagons you can still get.

Duke of Kent
Duke of Kent
1 year ago

When I was a kid, my parents bought a Chevy and brought me along to the dealership. Buying a car takes a long time, and that’s boring for a little kid, so I passed the time by scoping out the cars on the lot and in the showroom. I was surprised that a max-specced Cavalier’s sticker price could exceed the sticker price of a stripped-down bare-bones Beretta one class higher. “Why would anyone buy the expensive version of the cheap car when they could afford the next one up?” I asked myself.

Today my philosophy is the other way around. I want the top trim. I want every feature. I don’t care about the prestige of the brand or the class of the model. I want to be comfortable and happy when I drive. I will eagerly take the maxxed out version of a “regular” car over a luxury stripper model.

Adam Bernhardt
Adam Bernhardt
1 year ago

I would rather drop down a level in the product range and go fully loaded than get a top-of-the range stripper.

Stig's Cousin
Stig's Cousin
1 year ago
Reply to  Adam Bernhardt

I’ve always found top of the range strippers very appealing.

Last edited 1 year ago by Stig's Cousin
Rollin Hand
Rollin Hand
1 year ago

With respect to options, I like them, but I thought the original Accord Sport was just about right. Six speed, decent power while great on gas, 18-inch rims, V6 brakes, no effing sunroof, manual seats, cloth interior, but with the nav system, reverse camera, et al. Just the stuff to make it great to drive, but none of the excessive stuff. Perfect.

Automotiveflux
Automotiveflux
1 year ago

I’m also a just up from the bottom package kind of guy.

My wife has a RAV4 LE which is the base model but optioned with AWD and Hybrid, the perfect combo in my opinion.

My RAM 1500 is the express model (base) but with a few added options including the crew cab, V8, 4×4, midnight package (which includes the larger screen) and a few other small things. Still got cloth seats and a bench but its extremely practical and good value in my opinion.

I can’t justify the markup for things like leather seats in cars that don’t need them, going up to that for my truck would add $10k+ for no real reason….I use to daily an Infiniti with a black leather interior and on summer days I could barely sit in the seats they got so hot in the sun, couldn’t touch the arm rest with short sleeves. It looked great but just wasn’t practical.

Last edited 1 year ago by Automotiveflux
Timothy Arnold
Timothy Arnold
1 year ago

I usually buy off the lot, which can mean getting more options that I want, but my last 2 new vehicles have been Grand Cherokees (V6 1st, then V8), and in both cases they were oddly spec’d so they had been languishing on the lot for months which meant I got substantial discounts on both. Both were Limited’s, which was the 2nd lowest trim, but was the highest volume trim level. Given the choice, I tend to go for mid-range specs.

SoWontLetMeKeepMyManual
SoWontLetMeKeepMyManual
1 year ago

I used to be a base level guy, my previous car was absolute cheapest trim level possible no extras checked, but then i wanted something with moar power. Top 2 trims had 90 hp over the lower levels. Yes please. The very top trim had fun color interior and a HUD. Yes please.

Michael Beranek
Michael Beranek
1 year ago

The best choices are the second-from-bottom and the second-from-top. In the new home market, these are the best sellers.

No Kids, Just Bikes
No Kids, Just Bikes
1 year ago

Next new car purchase? lolololol

Steve Lee
Steve Lee
1 year ago

Went for the base spec for my Alltrack, mainly because I didn’t want a sunroof. Of course it meant having to go aftermarket to get decent headlights, but that’s doable. Having to potentially deal with a leaking roof on a car that doesn’t sit in a garage is not doable.

Newcarpetsmell
Newcarpetsmell
1 year ago

Lower trim since I trash my cars hauling gear and on dirt roads. I don’t want to feel bad about getting my car dirty or worry about some feature giving me issues miles from phone service. The latter is probably not rational, but I like simple cars.

Last edited 1 year ago by Newcarpetsmell
Garageless
Garageless
1 year ago

The GX is based on the 4Runner, not the Land Cruiser. That would be the Lexus LX.

Arch Duke Maxyenko
Arch Duke Maxyenko
1 year ago
Reply to  Garageless

No, it’s based on the Land Cruiser Prado, which is very different from the 4Runner

Drew
Drew
1 year ago

For my next new/newish car, I’ll probably stick with a fancy trim like I have now (preferably without a sunroof, but it seems they are becoming less optional if you want anything nice). I like ventilated seats. Alternatively, if the price difference is significant enough, I might go base model. If I can’t get ventilated seats, I want cloth. No unvented leather for me.

I also might look at replacing the seats in something base with katzkins or something to get my cooled leather. Could get custom color and make the car more interesting.

Really have to see what’s out there when I go for it. I tend to evaluate my options and make decisions from there.

Last edited 1 year ago by Drew
V10omous
V10omous
1 year ago

The highest trim without a mandatory sunroof is where I usually end up.

Honestly, as long as it has heated and cooled leather and the best stereo available, I’m probably happy.

Also:

Then, maybe, you had a family and worked your way up to a nice Buick. Another promotion may even mean an Oldsmobile.

This is wrong, Buick was above Olds in the Sloan ranking.

Chevy, Pontiac, Oldsmobile, Buick, Cadillac was the traditional order.

Last edited 1 year ago by V10omous
Shooting Brake
Shooting Brake
1 year ago
Reply to  V10omous

“A car for every purse and purpose”

Alfred Sloan

Man With A Reliable Jeep
Man With A Reliable Jeep
1 year ago

Cheap, easy financing made the “ladder of success” obsolete. When an assistant manager at Dollar General can roll in a light-up-badged Mercedes C-Class, you know that the concept of aspirational automotive ownership is dead and buried.

Icouldntfindaclevername
Icouldntfindaclevername
1 year ago

I’m a lower trim type buyer. Today’s lower trim models are like the top trims of the 90s. As for GM’s car prices, weren’t they the one that idled a few shifts to constrain the output of vehicles to keep inventory tight?

Usernametaken
Usernametaken
1 year ago

Ford – requires highest trim to access heated steering wheel

Hyundai/Kia/Stellantis(somehow)/Subaru – a trim level higher than fleet? Here you go bud.

Michael Beranek
Michael Beranek
1 year ago
Reply to  Usernametaken

I know of several places where you can access a pair of gloves.

Pupmeow
Pupmeow
1 year ago

yay gloves! now I can’t use 90% of the car’s features, since they are on a touchscreen!

Arch Duke Maxyenko
Arch Duke Maxyenko
1 year ago

Personally I would prefer less trim level exclusive options, like having to jump up a base price by $5-10k just to unlock the ability to then buy a package for another few grand just to get the one option that I want is fucked. Bundling sucks for everything but profit margins, so yeah à la carte options aren’t ever coming back to mainstream models.

Drew
Drew
1 year ago

I’d love to choose my options without all the bloat. But you are right, that’s not where the profits are, so it isn’t going to come back to the sorts of vehicles I look at buying.

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