Car industry is facing a big affordability crisis

You know the auto industry has a giant affordability problem when a manufacturer unveils a concept car whose roof and hood are made from reinforced cardboard.
The battery-powered Oli, shown last month by Stellantis NV’s Citroën brand, has a top speed of just 68 miles per hour (110 km) and weighs around 1,000 kg (2,200 lb). For once, the company’s PR verbiage was spot on: “The time is right to say: enough to the trend for excess and expense, and to focus instead on creating pure, honest vehicles that are lighter, less complicated and truly affordable.”
Amen to that. Though gizmo-laden SUVs and trucks remain hugely popular, they’ve also become eye-wateringly expensive, especially electric versions. The average price of an electric vehicle sold in the US now exceeds $66,000; last week, Ford Motor Co. hiked the price of its hot-selling electric F-150 Lightning pickup truck for the second time in about two months, blaming rising raw material costs.
High prices are socially regressive and imperil a recovery in auto sales following the pandemic, while undermining the energy transition. Even beneficiaries of this trend, like Tesla Inc.’s Elon Musk, acknowledge sticker prices have reached “embarrassing levels.” I’d add potentially also dangerous levels for the industry.
With low-cost credit no longer lubricating sales and recession fears growing, automakers will need to find other ways to cut buyers some slack. Otherwise they risk being displaced by cheaper competitors or alternative modes of transport. Those able to offer consumers a no-frills vehicle at an attractive price — like Renault SA’s budget brand Dacia — should benefit.
The semiconductor shortages that have bedeviled the industry lately are slowly improving, however any reprieve for car buyers has been tempered by the rising cost of financing a vehicle.
The average interest rate on a US new-car loan hit 5.7% in the third quarter of this year, while the average monthly repayment has climbed to more than $700; one in seven consumers committed to fork out more than $1,000 each month for their vehicle, according to analysts at Edmunds.
Anyone hoping to find a cheap secondhand vehicle is likely to be disappointed: Used-car loans tend to be even more expensive and inventory levels are tightest at lower price points.
General Motors Co. and Chrysler filed for bankruptcy in 2009 (and Ford narrowly avoided a similar fate) when soaring fuel and raw material prices caused buyers to reject Detroit’s gas-guzzling trucks and SUVs and consumers turned instead to more fuel-efficient Asian sedans.
Manufacturers’ finances are now in much better shape; their order books are still plump, dealer inventories are low and the SUV trend looks irreversible. Yet there are growing signs of an affordability shock.
—Bloomberg