Editorial: Industry must address issue of affordability

Automakers and dealers have an affordability problem that continues to get worse, at least some of which is of their own making. And if they don’t deal with the issue soon, it threatens to place new vehicles permanently out of reach for an uncomfortably large percentage of consumers. 

Automakers and dealers have enjoyed an unprecedented run of record profitability after the pandemic disrupted global production and left consumers surprisingly flush with cash. With parts supplies constrained, automakers focused their production efforts on their most profitable nameplates and trim levels. Meanwhile, limited vehicle availability increased consumer competition, adding upward pricing pressure.

Automakers say that production constraints are easing, but they are not yet back to normal. Meanwhile, fleet buyers, whose purchasing options have been just as constrained by production limitations as that of retail consumers, are finally starting to see their longstanding orders filled by automakers. 

It’s worth noting that large fleet buyers like daily rental firms don’t accrue unmet demand the same way consumers do. If a daily rental firm doesn’t have a vehicle to rent out on a certain day, it may miss that sale, but it can’t go back and get it again; whereas if a consumer needs to replace a car and none is available, they still need a car — the need doesn’t go away.

These economic circumstances are certainly no surprise to automakers, even if they are unprecedented. By filling fleet orders, automakers and dealers are able to prolong their profits as retail demand continues to go unmet. But this industry would be wise to contemplate the long-term effects of these actions.

As we’ve pointed out previously, affordability is a rapidly expanding pain point industrywide. Higher interest rates have exacerbated the problem, as have vehicle mix and price increases. Automakers may not be able to manipulate the broader economy’s interest rates, but they can ensure that some supplies of lower-priced vehicles are available to consumers, even if it means forgoing their maximum potential profit on that vehicle. They also have ample room to use marketing dollars to subvent interest rates on leases to at least soften the hit to consumers and keep them coming back.

If average consumers become permanently priced out of even considering a new vehicle, the resulting industrywide shocks will be severe.