{"id":53810,"date":"2023-11-29T03:49:52","date_gmt":"2023-11-29T03:49:52","guid":{"rendered":"http:\/\/www.spglobal.com\/mobility\/en\/research-analysis\/fuel-for-thought-the-vehicle-affordability-crunch.html"},"modified":"2023-11-29T03:49:52","modified_gmt":"2023-11-29T03:49:52","slug":"fuel-for-thought-the-vehicle-affordability-crunch","status":"publish","type":"post","link":"https:\/\/gamefootballmobileanimeiphone.com\/index.php\/2023\/11\/29\/fuel-for-thought-the-vehicle-affordability-crunch\/","title":{"rendered":"Fuel for Thought: The vehicle affordability crunch"},"content":{"rendered":"

LISTEN TO THIS FUEL FOR
\nTHOUGHT PODCAST<\/strong><\/a><\/h4>\n
Rising new vehicle prices in the US and Europe
\nare leaving cash-strapped consumers with limited options for cheap
\ncars – and the affordability gap is getting worse as premium-priced
\nelectric vehicles enter the market. But as legacy automakers depart
\nthe entry-segment, white space opportunity emerges for new,
\nlower-cost manufacturers to enter the fray.<\/h5>\n

In the past decade, it was possible to find an
\nentry-level new vehicle for less than $20,000. But pricing in the
\nUS market has recently increased dramatically to where $25,000 or
\neven $30,000 is the lowest possible transaction price for a
\n“low-priced” vehicle. Similar activity is occurring in the European
\nmarket, in the A- and B-segments.<\/p>\n

Based on S&amp;P Global Mobility analysis of
\nregistration data since 2017, the US market has seen a significant
\ndecline in the share of new vehicles registered below a $30,000
\nprice point. In just seven years, the percentage of vehicles
\nregistered with an MSRP below $30,000 has decreased from half the
\nmarket to barely one-quarter – with vehicles in the $41,000-$60,000
\nband taking up nearly the entirety of that vehicle count.<\/p>\n

\"\"<\/p>\n

For this analysis, S&amp;P Global Mobility
\nclassified an “affordable” vehicle in the US as one with an MSRP
\nbelow $30,000, compared to a $25,000 threshold in 2017. Even when
\nadjusting for inflation, comparing 2017 to 2023, the US market has
\na net 16 fewer affordable models.<\/p>\n

Notably, some vehicles that did not meet the
\n$25,000 threshold in 2017 are now considered affordable with the
\n$30,000 limit – including some trims of the Buick Encore, Chevrolet
\nEquinox, and Honda Accord. But that's based on raising the pricing
\nbar, while consumer take-home pay has not necessarily followed suit
\n– which is reflected in showroom traffic. (A word about
\nmethodology: S&amp;P Global Mobility's data is based on lowest
\navailable model trim MSRP, which in this case further substantiates
\nthe idea that vehicles have become less affordable.)<\/p>\n

It's more than last year's inflationary spike
\ndriving price hikes in the US market. Over the course of the last
\ndecade, many OEMs who played in the lower end of the market have
\nsimply eliminated their entry-level nameplates – examples include
\nthe Mitsubishi Mirage, Honda Fit, Toyota Yaris, Mazda2, Hyundai
\nAccent, Ford Fiesta, Dodge Dart, Chrysler 200, and Chevrolet Sonic
\nand Spark.<\/p>\n

Small car shortfall in
\nEurope<\/strong><\/p>\n

In Europe, the A- and B-segments were once
\nhypercompetitive hotbeds for entry-level buyers. Now those segments
\nare thinly populated and lightly marketed as automakers chase
\ngrowing margins in C-segment crossovers to meet growing consumer
\ndemand. The number of A- and B-segment vehicles peaked in 2014 at
\n190 models, but that has since slumped to 160 in 2023 and is
\npredicted to decline further to 124 models in 2024 – and will
\nlikely continue declining through 2035, according to S&amp;P Global
\nMobility forecasts.<\/p>\n

Although many automakers cite a struggle to
\nmake a business case with small cars, Ford had a long-time success
\nwith its Fiesta hatchback. Despite a 47-year history, more than 20
\nmillion units sold worldwide, and – prior to the pandemic – a
\nperennial place among the top-selling vehicles in Europe, Ford
\nnonetheless deleted the Fiesta earlier this year. Other low-priced,
\nstrong-selling vehicles departing the European scene include the
\nCitroen C1 and Volkswagen Up!, as well as Opel exiting the
\nA-segment in 2019 when it ceased production of the Adam and
\nKarl.<\/p>\n

Globally, sales of A-segment vehicles have
\nshrunk from nearly 6.5 million units in 2010 to a predicted 5
\nmillion in 2023. S&amp;P Global Mobility forecasts a continued
\ndecline for the next several years – with only the South Asia
\nmarket poised for growth through 2035.<\/p>\n

Decline of A- and B-segment cars in
\nEurope expected to continue<\/strong><\/p>\n

\"\"<\/p>\n

What prompted the exodus from
\naffordable cars?<\/strong><\/p>\n

Two years of significantly higher-than-average
\nnominal vehicle price growth has reduced the number of affordable
\nvehicle options, according to a proprietary study by S&amp;P Global
\nMobility. Price increases have been a factor of additional vehicle
\ncontent, as well as a focus on higher trim levels to maximize
\nprofit during the low-inventory pandemic years – coupled with
\nregulations addressing vehicle emissions and efficiency.<\/p>\n

Average vehicle prices began to rise above
\ninflation rates in 2019 as consumer demands have evolved. The
\nmarket shifted away from low-cost sedan and hatchback models toward
\nrelatively more-expensive SUV body styles.<\/p>\n

In the period of 2020 through 2022, supply
\nchain constraints pushed OEMs to prioritize higher-profit
\ntop-trim-levels with higher content. This shifted the way OEMs
\noperate – including the elimination of base trim levels for
\nC-segment vehicles in the US – including the Ford Bronco and Honda
\nCivic DX (the new “base” Civic LX starts above $25,000, including
\ndestination charges).<\/p>\n

CAFE regulations are actually making
\nvehicles larger<\/strong><\/p>\n

Manufacturers began to phase out sedans as CAFE
\nregulations in the US became more stringent. The sleeker silhouette
\nof a sedan is subject to higher, more challenging targets, while
\nSUV-shaped crossovers – even if mounted on the same platform with
\nthe same front-drive running gear as their sedan cousins – are
\ntypically categorized as light trucks and thus given easier targets
\nto hit in fuel economy regulations.<\/p>\n

That is a key reason sedan models such as the
\nChevrolet Cruze and Ford Fusion were dropped from portfolios, while
\ntheir platform-sharing siblings Chevrolet Equinox and Ford Edge
\ncrossovers remained.<\/p>\n

What's more, increasingly stringent regulations
\ndrove rising vehicle prices as manufacturers implemented Stop\/Start
\nor hybrid technologies to meet emissions compliance and attain CAFE
\nstandards. Thus began the phasing out of pure ICE powertrains while
\nincreasing the market share of more expensive hybrids and
\nbattery-electric vehicles.<\/p>\n

\"\"<\/p>\n

EV affordability an issue<\/strong><\/p>\n

As the global market electrifies, finding
\ninexpensive EVs remains a challenge. Most OEMs are building
\npremium-priced EVs to better amortize costs before aiming for
\neconomies of scale. Fully-electric offerings only have three
\naffordable options (under $30,000 before incentives) currently in
\nthe US market – the Chevrolet Bolt EV and Bolt EUV, and Nissan Leaf
\nS. And while the BEV market still represents a small fraction of
\noverall registrations, the lion's share of BEV registrations
\nresides in the $41,000-$60,000 MSRP range – with few registered
\nbelow $40,000.<\/p>\n

Consumers are already pushing back on the
\naffordability of electric vehicles. A recent S&amp;P Global
\nMobility survey<\/a> of 8,000 EV owners and intenders worldwide
\nshowed “affordability” to be the No. 1 reason against purchasing an
\nEV – more so than concerns about range anxiety and the charging
\nnetwork.<\/p>\n

\"\"<\/p>\n

Opening the door to mainland Chinese
\nautomakers<\/strong><\/p>\n

This exiting of the entry segment by legacy
\nOEMs could open the door for low-price models to enter the US and
\nEuropean markets via non-traditional channels. In the US market,
\nthose vehicles could be designed by mainland Chinese automakers,
\nbut built in and imported from Mexico – thereby exempting them from
\nthe 25% tariff levied on vehicles assembled in China.<\/p>\n

The same applies to the market situation in
\nEurope – not only with affordable, internal-combustion vehicles,
\nbut also in the nascent affordable electric vehicle niche. While
\nEuropean automakers scramble to find profitable ways to build
\naffordable EVs, mainland Chinese OEMs have already started
\npenetrating the market.<\/p>\n

So far, low-cost EV offerings are limited –
\nwhich could open the door in the EV space to brands such as NIO
\n(from mainland China), VinFast (from Vietnam), and others planning
\non entering the US market. Some Chinese EV brands have already made
\ninroads in Europe – including the familiar MG brand that SAIC
\nacquired in 2007 and since leveraged.<\/p>\n

That scenario may soon change, however, as
\nlegacy automakers deliver entries such as the Kia EV3 and
\nreimagined BEV Renault Twingo – the latter coming in below
\n\u20ac20,000.<\/p>\n

Despite the temptations of the US market,
\nmainland Chinese OEMs may prefer easier markets to penetrate with
\naffordable cars, said Caroline Hu<\/a>,
\nconsulting principal for the APAC region for S&amp;P Global
\nMobility.<\/p>\n

“Political issues and IRA regulations are not
\nbeneficial to foreign brands. Also, the hot overseas areas (for
\nmainland Chinese automakers) are the European, Southeast Asian, and
\nMexican markets,” Hu said.<\/p>\n

S&amp;P Global Mobility research of the ASEAN
\nmarket currently shows same-model prices in Thailand and Indonesia
\nare 1.8 to 2.2 times that of the selling price in mainland China,
\nbecause it includes import taxes and logistics fees. The same
\napplies to the European market. But as mainland Chinese brands
\nstart building factories in overseas markets, vehicle prices will
\ndecrease accordingly.<\/p>\n

“Chinese brands are trying to build a brand
\nimage for intelligent, high-quality, high-performance vehicles –
\nnot just cheaper,” Hu said.<\/p>\n

A quick comeback?<\/strong><\/p>\n

Forecasts aside, the A- and B-segments in
\nEurope tend to be relatively cyclical, and there could be a slight
\nsales rebound for opportunistic players, said Calum MacRae<\/a>,
\ndirector of research and analysis for S&amp;P Global Mobility
\nAutomotive Supply Chain and Technology.<\/p>\n

For example, Renault had refreshed its Clio
\nsupermini as a more-expensive, hybrid-only hatchback earlier this
\nyear. But citing cost-of-living pressures of its demographic
\ntarget, in October Renault announced a gas-only version priced at
\n£17,795 in the UK, a £3,500 price cut from the hybrid model (prices
\nfor the gas model vary on the Continent, from \u20ac21,950 in Germany to
\n\u20ac23,400 in France, but still represent a substantial price cut from
\nthe hybrid).<\/p>\n

“Renault won't be alone in recognizing the
\nopportunity presented by the current dearth of affordable small
\ncars in the market,” MacRae said. “Others may follow, not just
\nbecause of a market share opportunity, but it also fits the
\nnarrative of helping entry buyers in a cost-of-living crisis.
\nHowever, in a segment where margins are consistently razor thin,
\nthe opportunity to do this profitably may quickly pass if others
\njump in.”<\/p>\n

Affordability is more than
\nprice<\/strong><\/p>\n

Of course, the vehicle transaction price is
\nonly one part of affordability, as consumers also need to consider
\nincentives, trade-in value, taxes, fuel economy, and loan rates.
\nBut at its core, average annual car payments as a percent of income
\nbegan to rise in 2021 and have continued to climb through 2023.
\nMultiple factors contributed to the increase, including:<\/p>\n