An “affordability revolution” is beginning in the US auto industry, according to auto analysts.
The trend is being led by people who feel they can no longer afford a new car that would cost them around today’s retail price of more than $47,000 US – a jump of more than 20 percent from the pre-pandemic average.
However, there are some buyers who can handle the financial burden but decide that it is not worth the cost. And the trend is forcing automakers to reevaluate their marketing and production strategies.
If she wanted to, Michelle Chumley would buy an expensive new SUV loaded with options. But when it came time to sell his Chevrolet Blazer SUV, for which he had paid nearly $40,000 US three years ago, Chumley opted for something smaller. And it costs less.
With his purchase of the Chevrolet Trax compact SUV, Chumley joined a growing number of buyers who have made cars in the sub-$20,000 to $30,000 US range the fastest growing range of the new car market in the US.
“I just don’t need that big car and to pay all that gas money,” said Chumley, a 56-year-old nurse in Ohio.
There are other buyers, like Chumley, who can handle the financial burden but decide it’s not worth the cost. And the trend is forcing American automakers to reevaluate their marketing and production strategies.
As consumers grapple with higher prices and higher mortgage rates, US new car sales rose just 1 percent in September over the same period last year.
If the trend toward lower-priced cars proves permanent, more discounts could lead to lower average prices and industry profits to slow.
“Consumers are getting smarter as they face economic uncertainty, high interest rates and ever-higher car prices,” said Kevin Roberts, director of market intelligence at CarGurus, a car shopping site.
“This year, all the growth is happening in what we would consider the most affordable price buckets.”
Under pressure to downsize their expensive models, automakers have been slashing prices on such vehicles, mostly by offering steep discounts. Over the past year, the average incentive per car has nearly doubled, to $1,812 US, according to Edmunds, an online consumer car service.
The shift in consumer thinking about affordability has come quickly this year, catching many automakers off guard, with fewer cars available at lower prices. One reason for this shift, analysts say, is that many buyers who are willing to drop nearly $50,000 US for a new car have done so in the past few years.
People who can’t – or are less willing – to spend a lot of money often hang on to their existing cars for years. The time had come for them to take their place. And many of them don’t seem to like spending more than they have to.
With mortgage rates still high and auto insurance rates up 38 percent in the past two years, in the US, “the public just wants to save on it,” said Keith McCluskey, CEO of a dealership there. Chumley bought him a Trax.
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