Small is Back

  • July 7, 2024

Huge (and expensive) trucks and SUVs have for many years been the best-selling vehicles on the market. But that may be changing – in part because they are so huge (and expensive).

Sales of the Mitsubishi Mirage – which is the smallest and least-expensive new car on the market – have increased by 85 percent over the past year so far. They have jumped from 5,316 in all of 2023 to 9,862 in the first six months of 2024. The numbers may not be huge – yet – but the percentages indicate they may soon be.

It’s not just the inexpensive Mirage that’s selling really well all-of-a-sudden. It is also other inexpensive small cars like the Nissan Versa, which you can buy for just over $16k to start (or about half what it costs to buy a Nissan Ariya EV). Versa sales are up by more than 60 percent.

The why ought to be obvious.

A diminishing percent of Americans can afford a huge and hugely expensive truck or and SUV – and forget an EV.  Over the course of less than four years, the average price paid for a new vehicle has increased by about $15,000 to just shy of $50,000 – which is about 75 percent of the average American family’s annual income.

That, by itself, would almost certainly put the brakes on sales of huge trucks and SUVs – as well as EVs. It really doesn’t matter how much you like or want something if you can’t make the payments on it. And payments have already been stretched to about as long as they can be stretched – to about six years – because after six years, the depreciated value of the vehicle is likely to be less than what the borrower still owes on the vehicle. When that point is reached, the common sense incentive for the borrower is to stop making payments and leave the debt albatross parked in the driveway to be repossessed.

The lender loses – and that’s why loans on depreciating consumer appliances such as cars are limited to about six years.

But when you limit a loan to about six years, there’s no way to make those monthly payments on a $50k vehicle seem “affordable.”

Even assuming a zero percent loan, it costs about $700 per month to finance the purchase of a $50k vehicle over six years. That’s more than most Americans can afford – and that’s before you take into account what it costs to pay for a full-coverage insurance policy (mandatory when you are making payments on a vehicle you don’t own yet) which will typically add at least $2k annually to what you’re paying. Plus the “property taxes” that some states have that add another $1k (or more) annually that you’re on the hook for if you buy a new vehicle that’s valued at $50k or more.

Then add what it costs to fuel a huge truck or SUV now that it costs about twice as much to fill ‘er up as it did when Orange Man Bad. Plus the 30 percent (at least) uptick in the cost you pay for everything else, especially food.

It is not surprising that there is a surge of interest all-of-a-sudden in small, affordable – and efficient. A little car like the Mirage uses half as much gas each month as a huge truck or SUV – and that alone amounts to a savings of at least $100 per month for most people.

But there aren’t many small cars left to choose from.

The Mirage and the Versa are just two of the few. Ford and GM and Chrysler and Dodge no longer sell cars at all. This is a consequence of the decision to sell high-profit trucks and SUVs (and crossovers, which look like SUVs) rather than low-profit inexpensive small cars that it’s necessary to sell a lot of to make the profit the automakers would like to see.

But that only works when there are enough people willing – and able – to buy an expensive truck, SUV or crossover. More finely, it works only for as long as they are able to make the payments – and lenders have confidence they’ll finish making them.

We have probably already crossed that event horizon. All you have to do to confirm that death is in the air is to cruise past new car dealer lots and see for yourself how many huge trucks, SUVs and crossovers are just sitting on those lots. Then juxtapose that with how many Mirages and Versas are leaving the lots.

The Left – which is responsible for most but not all of this – is beginning to understand that reality has a bite. The government – which has become a tool of the Left – is almost entirely responsible for the $15k increase in the average price paid for a new vehicle and the increased cost of everything else.

But the car industry is responsible for deciding to focus on making as much profit per truck and SUV – rather than sell a lot of small cars and make a profit on volume, instead. The latter course of action was Henry Ford’s model – and it worked well for Ford and for Americans.

It can, again.

But it’ll take a Henry Ford (rather than an Elon Musk) to make it happen.

. . .

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