Abandoning Cheap Cars Could Be A Serious Blunder For Automakers

A little over a week ago, several of us wrote about the end of the line for the Chevrolet Bolt and Bolt EUV. These vehicles aren’t the greatest EVs, but they occupy a pivotal space in the EV market. With liquid cooling, enough range to get to the next Electrify America station on most interstates, and a highly useful hatchback or small SUV form factor, the Bolt Brothers are basically the cheapest EVs that check all of the boxes for usability. Sure, you could find cheaper EVs and there are other EVs in that price range, but they tend to lack key features for a roundly usable general purpose vehicle (no liquid cooling, smaller battery pack, can’t go highway speeds, etc.).

GM promises a $30,000 version of the Equinox EV in the next year or two, but let’s keep in mind that the Bolt EV was selling for around $25,000 before tax credits or state rebates/credits. This means that the cheapest offering will now be $5,000 more expensive (whenever they actually get around to offering low-spec $30k vehicles). And this is before tax credits, so the days of $20,000 EVs (and cheaper) are mostly over, with the possible exception of the states with aggressive credits on top of the federal one.

Perhaps more importantly, this is an industry-wide issue. It could be argued that EVs, being powered by relatively new battery technologies, are harder to deliver at prices everyone can afford, but cheaper ICE vehicles are likewise disappearing from the market. This leaves not only a dearth of affordable EVs, but any affordable new vehicles.

Let’s Talk About The Alternatives First

The lack of new automobiles doesn’t mean that people won’t be able to leave the house, obviously. So, people who are optimistic about the future of US automakers might point to these and say that the alternatives can cover the transportation needs of people on lower incomes while the auto industry can still profit and be successful serving people with average or higher incomes. Before I get into the biggest threat, let’s talk about what these alternatives are.

Almost everybody starts their adult driving career with a used car, sometimes a heavily used “beater” or “shitbox” that barely runs. Those of us who can launch a decent career eventually move on to better used cars and maybe a new car. Even among people with higher incomes, many people just stay with used cars to save money and spend it on other things. So, it could be either low income or frugality that drives the decision to buy used.

Another alternative for a growing portion of the US population is to just take the bus, or other transit options that exist in cities. From an environmental perspective, this is probably a lot better than cheap EVs in many cases, and it’s also good for congestion. In fact, at least according to urbanists, getting rid of a good chunk of the cars can solve everything from congestion to housing to hangnails and the common cold.

For people who don’t like transit, there’s also micromobility. Regular bikes, electric bikes, electric scooters, neighborhood EVs, and mini-EVs are all great options, even if they aren’t as fast or versatile as regular EVs. Some of them are quite cheap, and prices for them range from just a couple hundred bucks to the price of a new car, so people at all income levels can have at least some of their transportation needs served by these options.

Why These Alternatives Might Not Save US Auto Manufacturers From Themselves

First, let’s talk about why these options don’t fix the problem.

The first problem: Used car prices can’t stay low if there isn’t a steady supply of new cars becoming used. If there aren’t new cars at most price points, the price of used cars are naturally going to be higher. On top of that, if the demand for used vehicles stays the same and the supply only comes from higher priced parts of the market, the price even for the cheaper used cars will also be higher.

Can demand for cheaper cars be satiated with transit and micromobility? Maybe, but only in places where people feel that these alternatives are both safe and serve their needs. If the bus only comes a few times a day, and the bike lane either doesn’t exist or is only a stripe to “protect” you from distracted drivers, people will still want or need a car. Many places are doing a better job at this, but many other places aren’t going to upgrade their transit and bike lane options, so the demand for cars will not go down everywhere.

Cheap ICE & EV Cars Will Come From Somewhere

This happens over and over again throughout history.

Automakers think it’s a genius move to cut low-margin volume models because “wE cAn StILL mAkE MoNeY oN BiG cArs”

Then credit dries up, the economy tanks, and cheap imports devour market share. We’ve been here before.

— Joe Ligo (@JoeLigo) May 8, 2023

With the demand in many places having no real chance of going down, all of these cars are going to have to come from somewhere. If US automakers, European automakers, and Japanese automakers don’t deliver at price points most people can afford, Chinese automakers will be more than happy to use the lower parts of the market to get a beachhead in Europe and the United States, just as Japanese automakers once did.

Assuming they don’t sell absolute garbage, they’ll eventually build up a loyal following of customers, who will follow the brands up the market as their careers take off. For people who don’t climb the income ladder, the Chinese brands will still be there, taking most of the market share that the short-term profit-oriented automakers abandoned to them.

Urbanists & Car People Can Agree That This Isn’t A Good Outcome

Whether you love cars and want automakers to do well, or you hate cars and want them gone, this isn’t how we get to either or both of those places. Instead of moving cars up the market and replacing them with transit and micromobility, we’d instead see an onslaught of cars at every price point, including people who today can only afford a bicycle. These cars won’t be fast or be good for road trips, but they’d take up enough of a traffic lane to mean there’s no meaningful reduction in needed car infrastructure.

The truth is that there are no simple answer to this. Business as usual doesn’t seem to be palatable to the automakers, so the supply of cheaper EVs will be limited going forward, even if the automakers were to try to offer more cheap EVs. So, in addition to pressuring automakers to offer more affordable vehicles, we need to beef up the alternatives to cars everywhere that we can. In other words, cities and states need to get serious about e-bike and other micromobility infrastructure, and not just paint lines or “sharrows” and call it a day. More importantly, we need to hold their feet to fire until it happens.

Featured image by Jennifer Sensiba.