Affordability is key for the latest wave of car shoppers. Can carmakers keep up?
Affordability is key for the latest wave of car shoppers. Can carmakers keep up?
The market for new and used cars has been pretty wild for the last few years. There was the chip shortage, which led to a vehicle shortage. And more companies have announced they’ll stop making compact cars to focus on bigger and more expensive SUVs. But after years of high prices and interest rates, affordability is top of mind for a new wave of buyers. And companies like Toyota and Honda are benefiting.
A lot of people have been putting off buying a new car for years, since the pandemic chip shortage tanked inventory and drove up prices.
David Whiston, an auto analyst with Morningstar, says the market is starting to smooth out.
“Even now, though, a monthly car payment can be well over $700. Which is obviously a pretty large monthly expense for a household,” he said.
But everyone has their breaking point. Even Whiston himself.
“Family needs and whatnot, and me just getting tired of coordinating our one vehicle between my wife and I, I’ve decided that I want to get a second vehicle this year,” he said.
Consumers can only make do without a car, or keep an old one running, for so long, says Jessica Caldwell, head of insights at Edmunds.
“If people need a car, they need a car. There’s not any substitute for it,” she said.
And Caldwell says those necessity shoppers are willing to make some sacrifices when it comes to size and fancy features to avoid that massive monthly car payment.
“People want that basic, affordable, reliable transportation without a high price tag right now, because that’s what they can afford,” said Caldwell.
But that basic, affordable car is sort of a unicorn on today’s market.
“Something like a Honda Civic for example,” said Caldwell, or a Toyota Camry, or really any lower-cost sedan, “is pretty hard to get.”
This is a big change from what manufacturers and dealerships have been dealing with, says Sean Tucker with Kelly Blue Book.
“During the pandemic, what we saw was that higher income, better credit shoppers were the only ones who could car shop,” said Tucker.
So automakers built what those shoppers were willing to pay for — luxury trucks and SUVs — and cut production of budget vehicles.
“Now that everyone’s coming back into the market, their lineups are not very well designed for what the market is looking for,” he said.
Tucker says some manufacturers are ramping up production of smaller, more bare-bones options.
While others are waiting out what’s they expect to be a short term focus on affordability that’ll turn around when interest rates start to drop.
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