Automakers have all but abandoned the budget market

Automakers have all but abandoned the budget market(morningstar.com)

26 points by SQL2219 3 years ago | 16 comments

rapjr9 3 years ago |

There seems to be a growing trend for companies to favor rich buyers. When companies start losing customers they raise prices instead of reacting to the market and lowering prices (it's almost like they think they have a monopoly or something). There are way more new products that only the rich could afford ($150,000 camper vans) than there ever used to be. The EV makers have totally ignored the under $20,000 market. This seems doomed, the eventual result will be no sales since the market will saturate quickly due to few buyers while the economy (which is 70% just people buying things) will collapse because no one can afford anything any more and the companies will no longer be able to make their numbers no matter how high they raise prices.

vinyl7 3 years ago | |

I wonder how much of it is business strategy and how much of it is just how the economy has been moving over the past several years. Between every other car on the road where I live being a tesla and housing almost doubling in price, maybe companies are raising prices because a lot of people have that kind of money?

And it makes sense, interest rates have been 0...tech company valuations are absurd, with insane tech salaries and RSUs...the stock market reaching all-time high in 2020. People gambling money on crypto, NFTs, wallstreebets, etc. It feels like the economy has been in turbo mode and it reached a peak where people had so much money that they were willing to put it into beanie babies and tulips because they had nothing else to do with it.

Businesses are going to keep raising prices until their numbers start to go down. Despite the inflation we've been seeing, people are still spending money [1].

I think it's easy to blame business strategy, but I think it's worth looking at other economic factors that are causing business strategy...like the decade of free money due to the never-ending QE policy of the fed.

Eventually we'll run out of other people's money and we'll enter a recession. Or we'll just enter into a period of extreme class divide where the middle class doesn't exist anymore...there's either extremely wealthy or poverty.

[1] https://www.cnbc.com/2023/02/15/retail-sales-january-2023-.h...

the_shivers 3 years ago |

I wonder if this is actually bad.

There's an argument I see in favor of building luxury condos and apartments. If they're built, the richest people will vacate their current residences to live there. The next richest people vacate their current residences to move into the now empty residences of the richest people. The third richest group also upgrades to the now empty apartments of the second richest, and so on. At the end of the line, we see that everybody has upgraded, and I don't think this upgrade guarantees people pay more, at least in theory (supply increased while demand remained constant, after all).

Could this happen with cars? Seems like we're moving into a world where instead of the options being nice-new and shitty-new, the options are nice-new and nice-old. Maybe that's not so bad.

(As an aside, their analysis seems pretty flawed by not adjusting for inflation.)

mikestew 3 years ago | |

The flaw in your comparison is when I move out of my bottom-end house to move up the housing ladder, a developer comes in and buys my affordable house, and proceeds to put a 4500 sq. ft. monstrosity on the 7500 sq. ft. lot, thereby pricing out the bottom-end. I see this constantly in the Seattle suburbs of Redmond and Kirkland. Especially Kirkland; at the rate they're going, there won't be any "starter homes" in Kirkland in ten years.

And, yeah, the "2017->2023" comparison irked me as well, with not a single nod to the highest inflation we've seen in over a generation in those intervening years.

Red_Leaves_Flyy 3 years ago | | |

These logical errors are rampant in any discussion regarding housing, healthcare, education, taxes, social services, and everything else that might inconvenience a billionaire ever so slightly.

TexanFeller 3 years ago | |

Traditionally higher end housing is better built, while traditionally economical cars like Corolla and Civic have been among the most long lasting with the lowest maintenance. Luxury cars typically require vastly more maintenance to keep going which is why they depreciate like stones after the warranty period. This is a big part of why I drive a basic car even though I make SWE dollars, I value durability. More luxury cars is probably bad for the common man and for the environment.

mint2 3 years ago | |

But Will they? Why would everyone choose to pay more just because large housing landlords wish it so?

Flatcircle 3 years ago |

Either electric bikes will pick up the slack or some manufactures will offer sizable rebates. Either way, there will be new options coming online for less than $20k at some point. It's probably residual effects from the supply issues of the pandemic.

If car makers have limited chips etc, they'll probably only use them in their high end cars.

olyjohn 3 years ago | |

Why sell 20 $20k cars that make $2k in profit each ($40k profit), when you can sell one $80k car that makes $40k in profit? That's the reason they're all ditching budget cars. The thing is that the budget cars aren't actually gone, they've put 2 inches of lift on them, jacked up the price, and then called them crossovers.

prng2021 3 years ago | | |

Yep, plus the shift to selling lower volume but higher profit products is accelerated when you have supply chain constraints preventing you from pumping out units in high volume.

FrontierPsych 3 years ago |

Non-issue for me. I buy only used Corollas, Civics, Accords, and Camrys.

They last forever. My last car was a Corolla and lasted me 17 years. I bought it for $4500, it comes out to about $20 per month when amortized. Never had a problem with it - no major repairs. It also looked very stylish and great during that time.

I just purchased a used Civic about 5 years ago for $5,500 and I expect it to last another 15 years.

mixmastamyk 3 years ago |

Not a great article as it ignores the ~40% inflation of the last few years. Counting sales numbers would be a better metric.

I have seen budget/economy cars being discontinued in the US, such as the Honda Fit. But it has a lot to do with emission rules pushing folks to buy larger truck platforms. That still needs to be fixed I think.

Georgelemental 3 years ago |

First published https://www.marketwatch.com/story/are-we-witnessing-the-demi...