8 ms·
It's pretty simple (in the US, can't speak for elsewhere). There are 2 big factors at play: 1. Margins. Manufacturers make huge margins on expensive vehicles
by snovymgodym 1y ago
It's pretty simple (in the US, can't speak for elsewhere).
There are 2 big factors at play:
1. Margins. Manufacturers make huge margins on expensive vehicles and very slim margins on cheap vehicles. The numbers differ, but I think even in the lead up to the 2008 crisis automakers had to sell 5-10 "econobox" cars to make the profit they made on one luxury car, SUV, or truck.
2. Normalization of debt. For many Americans, having a monthly car payment in perpetuity is considered acceptable. Car loans have their place and can be used responsibly, but due to marketing, sales tactics, and cultural sensibilities what often ends up happening is that people start from a monthly dollar amount and then work forwards to buy the most expensive vehicle they can, even if it means taking the loan term out to 72 or 84 months. It's also very normal for people to never pay off their car, instead trading in the vehicle after 3-5 years and rolling equity in the loan over to their next car. Obviously, this consumer habit is great for dealers, manufacturers, creditors and buyers of consumer debt, as well as the US Government and investors -- it's just not ideal for the consumers themselves if they're trying to preserve wealth and build savings.
These two factors create an environment increasingly hostile to the cheap entry level car. Consumer demand is low since most don't spend responsibly, and automakers don't really want to make or sell them because the margins are so slim.
- autobodie 1y agothe interest on those loans is maddening
- nradov 1y agoWhy? Auto loan interest rates are currently below the historical average.
- msgodel 1y ago>having a monthly car payment in perpetuity is considered acceptable. I think that really depends on what part of America. At least where I grew up around a bunch of middle class conservatives listening to eg Dave Ramsey (who has other problems IMO) most people think of you as reckless/irresponsible for doing that sort of thing.
- aprilthird2021 1y agoI grew up around a bunch of middle class conservatives in the Southern USA and almost all of them were into debt on house, car, often even taking loans to pay for kids private school. And you'd never know until the family divorced and their lifestyle drastically decreases. Dave Ramsey has to be relatively new because debt was extremely extremely common among conservatives in the US (no idea about liberals didn't live among them)
- SJC_Hacker 1y agoHouses are debt, but are generally and appreciating asset Cars are a depreciating asset. It usually does not make sense to go into debt to get one
- whycome 1y agoIt’s interesting how the language allows a weird cognitive out. It’s not debt, it’s a mortgage and they ‘own’ the home.
- milesrout 1y agoNobody said it isn't debt. The difference is that it is debt that makes sense: you can't realistically buy land without it, and houses tend to appreciate so the interest costs are less of a problem - they just represent the time value of money. Most other debts people incur personally are to buy things they could save for, which go down in value. Like cars.
- whycome 1y agoThat’s the out. I’ve seen many people explain what their debts are and don’t think of their mortgage as one.
- tim333 1y agoIt's not a weird cognitive out, there are major differences, legal and financial between say credit card debt and a mortgage on a house.
- JKCalhoun 1y agoI think the cost of a car is a huge drag on the upward mobility on the lower income earners in the U.S.
- roxolotl 1y ago100%. And it doesn’t help that large cars as a cultural touchstone/status symbol really took off. Even if a $25k car existed most people wouldn’t buy it(even if they “should”).
- kevin_thibedeau 1y agoThe base Ford Maverick just edged over $25K for 2024. Now it's $26K. It's not a "real truck" but considerably larger than any econobox.
- usefulcat 1y agoMaybe it's the exception that proves the rule?
- zoklet-enjoyer 1y agoI'll have my 2020 Subaru Impreza paid off in a couple months. That was just under $24k. I don't think the price has gone up much on the Impreza in the last 5 years.
- JKCalhoun 1y agoArticle suggests the Maverick was selling quite well when it was below $25K. Dealers marked it up.
- Marsymars 1y agoIt’s still selling quite well.
- SJC_Hacker 1y agoBecause they are buying new and financing it
- BLKNSLVR 1y agoMy reptilian-brain logic prevents me from even considering getting a loan for car. Houses increase in value, therefore it makes a certain amount of sense to get a loan / mortgage for the purchase of a house (but mainly because no-one - in the world in which I live - can afford to buy one cash). Cars decrease in value, very quickly. Getting a loan for a car is throwing more money away than buying a car in the first place. Having said that, I'm immune to a lot of 'social norms' so I've been fine driving my tired-looking 20-year old Outlander soccer mum car or our 10+ year old grannymobile Nissan Leaf. There are situations in which a loan for a car may be necessary, but I'd have to be a really tight spot to consider it, and I'd be absolutely minimising the size / length of it.
- vel0city 1y agoLots of loan rates out there for <1% APR. Easy to get savings accounts at 4%+ these days. I could pay off my car tomorrow. But I'll have more money in the end keeping that cash in the bank. Why would I pay it off early?
- lewisleclerc 1y agoI thought this was the main reason to take the loan given an opportunity. The longer the money is with me, I could use it as an investment(mostly S&P 500)
- jameshush 1y agoYour logic works out fine if you don't mind a dash of risk (e.g. from a job loss). But when I ran the numbers from my perspective it didn't seem worth it. (I might be doing my math wrong). Let's say I get a car that costs $30k, I put $10k down, and I take a loan out using the numbers above rounded up just for napkin math (1% APR, 4% savings account). After one year: ``` $30,000 x 0.04 = $1,200 from savings account interest $1,200 x 0.33 = $396 in TAXES from the interest (assuming you earn over $145k/year in California) $30,000 x 0.01 = $300 in loan interest Total earned = $1,200 - $396 - $300 = $696 ``` Don't get me wrong, $696 isn't _nothing_ but I personally would rather have the feeling of not owing people money then an extra $696 at the end of the year. Add in depreciation from getting a new car and it's almost a wash.
- deleted 1y ago[deleted]
- TulliusCicero 1y agoThe solution to number one is more competition: a new company willing to take smaller margins to gain market share.
- DangitBobby 1y agoSeems like all the new entrants would rather compete at the high end.
- TulliusCicero 1y agoThere's often companies willing to compete with small margins. For example, grocery store business is already known for small margins in the US, and one of the recent winners that's been expanding a lot is Aldi, which is known for its consistently low prices, so it's unlikely their margins are any better.
- jazzyjackson 1y agoEconomies of scale says before you can build a cheap car you must first be a large company
- TulliusCicero 1y agoOne possibility is companies that are already established overseas entering the US as a new market for them.
- jcmeyrignac 1y agoIn Europe, the average age for buying a new car is 50. This means that most of the cars sold are second-hand. Most people think that the car is a luxury and prefer to focus on their home first, then their family, and after that, their car.
- DanielHB 1y agoI am from Brazil and although most cities are 100% built around cars, public transportation IS an option and mostly works and is (somewhat) affordable. Unlike the US, if a place is 1km away as the eagle flies you can get there by walking ~1.5km max. And there are bus services and although often overcrowded or with low service, they do run and you can plan your life around them. Yet everyone still buys a car as soon as they can afford one (or often if they can't). And they use it for commuting to work every day. To get to the point that Europe is in where even rich people don't want cars or if they have one it is for weekend trips. You need to do a lot better than this. Unfortunately getting the US to be like Europe in this regard is not really viable, but it could get to the point where Brazil is where the poorer people can afford to not own a car. In some big cities in Brazil they do a lot of low-cost things like dedicated bus-lanes that actually make some high-demand trips shorter by bus. Progress in this area needs to be incremental, there is little point in investing crazy amounts of money in one big project. Instead the investing should be lower and constant. sometimes one big project can make a big difference, like a new rail-bridge or metro. But in general getting people into busses is more efficient even if that means rich people still won't want to get into that bus.
- tuna74 1y agoYeah, getting rich people in buses is probably impossible. But making 90 % of all journeys cheaper and more convenient for 90 % of people is pretty doable.
- trinix912 1y ago> To get to the point that Europe is in where even rich people don't want cars or if they have one it is for weekend trips. You need to do a lot better than this. It's not like that in all of Europe either, the further you go from Western Europe, the worse the public transit gets. The Balkans are probably the worst, you need a car if you live outside a city as rail and even busses are slow, unreliable, or just not an option in your place.
- carefulfungi 1y agoThis is partly contrary to the article - which claims that demand for inexpensive cars is high enough to cause their price to increase over MSRP.