It is no secret that cars have continued to become more expensive, while average incomes have remained relatively the same. As a result, a larger portion of the market is getting priced out of new vehicles. Ford’s new CEO, Jim Farley, stated the brand’s commitment to building more affordable cars in his new restructuring plan. A new range of cheap vehicles could give cash-strapped buyers the possibility to buy new.
How affordable does Ford need to go?
The auto industry’s definition of affordable seldom matches that of the consumer. According to The Bureau of Labor Statistics, the average income in the United States is just $33,706. Compare that to Kelly Blue Book’s $38,948 reported average price for a car sold in December of 2019. As of writing, Ford’s cheapest car is the EcoSport, a subcompact SUV with a starting price of $19,995. One step up to the SE trim elevates the price up to $23,450, already placing it out of reach for low-income families.
To give the average income earner a financially responsible opportunity to buy a new car, Ford should build a car under $15,000. A sub-$15,000 car would sit below half of the average annual income, allowing buyers to purchase them without the need for a long-term loan.
Younger buyers mean early brand loyalty
Nissan understands the value of younger customers, and as a result, developed an entire range of vehicles, explicitly targeting first-time buyers. The Nissan Versa and its $14,830 starting price is an excellent example of a financially viable option. Even a fully loaded Versa has a lower base price than Ford’s EcoSport. The availability of affordable cars allows buyers to buy into a brand and potentially build brand loyalty early on. A positive early on could result in countless sales of more expensive vehicles as the buyer produces a higher income.
It seems as though Farley understands this potential loss for Ford and has decided to address it when entering his new role. Given Ford’s recent commitment to crossovers over sedans, expect this new affordable model to be smaller than the EcoSport and maybe even a hatchback. Chevy, one of Ford’s major competitors, currently produces the Spark, the cheapest brand new car for sale in the U.S.
It can’t just be affordable
While the Chevy Spark may be the cheapest brand new car for sale, it’s also a bad one. Consistent testing from Consumer Reports revealed significant issues with various generations of the Spark, often citing reliability issues, poor ride quality, and low owner satisfaction. Ford has an excellent opportunity to produce a fantastic affordable car and dominate this lower market sector.
The low quality of cheap vehicles is one of the main reasons buyers take out high-interest loans to afford a more expensive model. While on its own, this entry-level model may not be a moneymaker, Ford needs to consider the long game. More buyers in Ford cars, even if they are very affordable, is a win for the brand, especially if they go on to become repeat buyers. Let’s hope Ford’s new CEO is considering long-term growth over short-term gains.