Have “cheap” cars disappeared?

Have “cheap” cars disappeared?

Australia’s new-car model catalogue has shifted in the last 20 years.

A couple of years ago US cable news channel CNBC published a report into the demise of the “cheap” new car.

The report made the case that new cars are getting more expensive and claimed these cheaper (sub-US$20,000) cars are unlikely to return.

CNBC’s report showed these cars have largely been replaced by SUVs (sport utility vehicles), or the high-riding wagons so common in today’s traffic.

Various factors have helped fuel this change.

Thin profit margins in smaller cars with cheaper prices; the cost of ever-growing on-board technologies fitted in today’s new cars; the impatience of younger buyers; older buyers feeling they’ve earned the right to choose something “nicer” after many years; longer finance terms, and more.

It’s an eye-opening review. And it’s echoed here in Australia’s new-car market.

According to VFACTS, Australia’s annual new-vehicle sales grew around 19% between 2002 and 2022. During that time, the new-car segments known as Light (VW Polo size) and Small (VW Golf size) have shrunk to around half. But sales of SUVs and 4×4 pick-ups (or utes) have almost quadrupled.

Those are big shifts. And they bring challenges.

For example, it can make it harder for first-time buyers to enter the new-car market, and that can mean automakers miss out on establishing a new generation of long-term brand-loyal buyers. It can also mean the same for budget-conscious shoppers.

Growing affordability gaps can be difficult to bridge. And with unusually high used-car prices in recent years, buyers have likely had to turn to alternatives, such as considering smaller vehicles or different used-car options.

These remarkable product shifts are unsurprising.

Long stretches of economic growth have no doubt played a major role in driving this “lift” in buying preferences.

Australia’s new-car industry has largely withstood severe disruptions, such as the GFC and the COVID-19 pandemic.

And affordable credit has certainly made it easier to choose a more expensive new car.

Australia’s SUV migration started long ago.

When we were developing and building Ford Australia’s Ford Performance Vehicles (FPV) range, “Upper Medium” or “Large” or “E-segment” cars (Falcon and Commodore) were the main game in town.

During 2004 the locally developed Ford Territory SUV was released. It rapidly climbed up the sales charts, ranking just behind the top-selling Toyota Prado after only its first full year of sales.

Australians took to it quickly. And the SUV migration spread.

You can see it on the road today. SUVs of all sizes are what Australian new-car buyers want. In fact, SUVs and dual-cab 4x4s are a large part of our new-car engineering and enhancement work. Automakers and official new-car importers are asking us to help them optimise their SUV sales opportunities.

You can still buy great Light cars (such as the Mazda2) and great Small cars (like the Hyundai i30) here in Australia. But there’s no doubting the appeal of size and height.

Click here to watch CNBC’s story from the US.

What’s your opinion?

 

Bernie Quinn
Engineering Director, Premcar Pty Ltd

 

About Premcar – Premcar Pty Ltd is a leading Australian vehicle engineering business that specialises in the automotive, defence and aerospace industries. For more than 25 years, global car-makers have made Premcar their go-to partner for the complete design, engineering and manufacture of niche-model new cars, full-scale new-vehicle development programs, and electric vehicle (EV) conversions and manufacturing. As the name behind more than 200,000 new cars and 55,000 new-vehicle engines, Premcar’s body of work is extensive and has delivered technical and sales success for major car brands from Europe, the USA, Japan, China and Australia. Visit premcar.au.

 

Follow Premcar on Instagram@premcaraustralia

Follow Premcar on LinkedIn – @Premcar Pty Ltd

 

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