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News / Business

Americans are buying cheaper cars, as prices dip

By Gabrielle Coppola and David Welch, Bloomberg News
Published: April 6, 2024, 5:26am

Toyota Motor Corp. and Honda Motor Co. notched big U.S. sales gains and General Motors Co. grew retail deliveries to start the year as demand for lower-priced models help automakers defy expectations for a broad slowdown.

Toyota said Tuesday that deliveries rose more than 20 percent in the first quarter, buoyed by the compact Corolla sedan and RAV4 crossover. Honda’s CR-V crossover and Civic compact drove the Japanese automaker to a 17 percent sales increase. GM reported a 1.5 percent drop in units sold during the quarter due to lower purchases by corporate fleets, but increased sales at retail by 6 percent with its Chevrolet Trax compact showing the biggest gain.

The early results underscored the importance of affordability for car buyers after pandemic-driven shortages and high interest rates drove up costs in recent years. The pricing bonanza that juiced automaker profits during the pandemic is fading as production normalizes. Now that inventories are rising, car companies are doling out more incentives and prices are starting to slip.

Budget cars and compact SUVs made eye-popping share gains in the first quarter, with sedan growth matching SUVs at Toyota. Large pickup trucks — one of the industry’s priciest segments — lost ground in January and February, according to researcher GlobalData. Several brands, including Jeep, Tesla and Ford, reduced prices to win back inflation-weary consumers and spur demand in the sluggish electric vehicle market.

“I’m surprised about how resilient the market has been,” said David Oakley, an analyst with GlobalData. “Affordability is a massive issue for the industry, and it will be going forward. But right now it seems they’re weathering the storm, and people are somehow making it work.”

GM said sales of its large and pricey SUVs, including the Chevrolet Tahoe and GMC Yukon, tumbled. Meanwhile, purchases of its new Chevy Trax, a compact SUV with a starting selling price of just $20,400, jumped almost six fold as part of the company’s push into affordable vehicles.

The company is seeing slow progress on solving production problems in its electric-vehicle battery operations that make the company’s new Ultium battery pack. While the volume is still relatively small, GM had its best quarter with the new-generation of EVs, selling 5,800 of the Cadillac Lyriq and 1,668 electric Hummer trucks.

The industry’s yearly sales pace, known as the seasonally adjusted annual rate, rose to about 15.8 million in March, up from 14.9 million a year ago, according to the average estimate of eight analysts surveyed by Bloomberg. The 3.8 million vehicles sold in the first quarter mark a 6 percent increase from a year ago, but a 3.1 percent drop from the final quarter of 2023, Edmunds said.

Toyota on Tuesday reported U.S. new vehicle sales of 565,098 in the quarter, with higher growth coming from its namesake brand compared to the luxury Lexus line. The company was boosted by a nearly 40 percent gain in Corolla sales. RAV4 sales were up nearly 50 percent.

Kia America’s sales slipped 2.5 percent in the three-month period despite a 10 percent increase in sales of its compact Forte car. Hyundai Motor Co.’s U.S. sales were roughly flat in the quarter.

Consumers seem to be cooling to fully electric vehicles due to a lack of charging infrastructure and high prices. While EV sales rose from a year ago, volume in the first quarter likely declined sequentially for the first time since early in the pandemic, according to researcher Cox Automotive. Meanwhile, sales of hybrid vehicles, which offer good fuel economy and sticker prices that are closer to their gas-powered siblings, are growing.

Steve Gates, a dealer who owns ten stores across Kentucky, Tennessee and Indiana, said sales in the first quarter were better than he expected considering affordability is still weighing on shoppers. That’s especially true for hybrids. In a sign of the financial strain on consumers, he can’t acquire enough used cars to meet demand from shoppers who have been priced out of new models.