Where in the world are Detroit's entry-level vehicles?
Since its development of the Model T in 1908, Ford Motor Co. has been synonymous with building affordable, entry-level vehicles for the working class. By 1924 the price of a Model T Runabout had fallen to just $260 — the equivalent of about $3,900 in today's dollars.
Fast-forward to 2020, and Ford does not offer a single vehicle for less than $20,000 when delivery fees are included. And Ford is not alone. As Detroit automakers increasingly abandon affordable sedans for higher-priced SUVs, Asian carmakers are only too happy to pick up those entry-level sales and possibly gain loyal customers for life.
Since Ford ended production of its entry-level Fiesta and Focus cars last year, the most affordable vehicle in the automaker's lineup is the $21,090 Ford Ecosport SUV ($19,995 MSRP plus $1,095 delivery fee).
Fiat Chrysler Automobiles has seven brands in the United States. Since it discontinued U.S. sales of the Fiat 500 for 2020 and axed the Dodge Dart in 2016 — both slow-sellers — not a single vehicle in the automaker's lineup is priced under $20,000.
Among Detroit brands, only Chevrolet — traditionally the value nameplate at General Motors Co. — still offers vehicles below that $20,000 price-point: the subcompact Sonic at $17,595 and the wee Spark at $14,095, both with delivery fees included.
The entry-level market is now dominated by Asian makers like Hyundai. The Korean automaker's new subcompact Venue SUV — loaded with features like automatic collision-braking and remote smartphone-app connectivity — starts at $17,350. That's about $3,700 less than Ford’s similarly sized EcoSport.
“Our young customers want SUVs, and we have the most affordable SUV on the market,” Mike O'Brien, Hyundai's vice president of product development, said at the Venue’s media launch in Miami this winter. “We feel the entry-level market is key to bringing new customers into the brand.”
Kia (the $18,610 Soul) and Nissan ($19,965 Kicks) are the only other manufacturers to offer sub-$20,000 SUVs.
If consumers still find the SUVs too steep, there are always Asian cars like the $15,655 Nissan Versa, $16,250 Hyundai Accent, $16,605 Toyota Yaris, $16,815 Kia Rio, $17,145 Honda Fit and $18,855 Kia Forte.
A new narrative
While Ford has exited traditional entry-level segments due to slow sales and thin profit-margins, it has made major investments in SUVs like the $26,080 Ford Escape and the upcoming (estimated $28,000) Ford Bronco. It also has made bets in more-upscale products like the Tesla-fighting $45,000 Mustang Mach-E, and a took a stake in premium EV-maker Rivian, with which it is co-developing an electric Lincoln SUV.
“We made a strategic decision to exit the small-sedan segment,” said Mark LeNeve, Ford's U.S. vice president for marketing, sales and service. “We want to be in affordable vehicles. We just won’t be in sedans, but in SUVs where we are stronger.”
LeNeve points out that Asian automakers’ global footprint includes Japan and Korea, where cheap, small cars are still in demand, thus giving them the production volume necessary to spread costs.
“Our global footprint is North America,” he said.
Small-sedan sales have shrunk to just 750,000 units annually in the U.S., about 4% of the market. LaNeve said that vehicles like the coming Bronco are unique products that Asian carmakers can’t rival.
But he admitted: “If what the customer wants is a (compact or subcompact) segment car, then we don’t have anything for them right now."
The new narrative is in contrast to the principles that made Henry Ford’s Model T a household name in the early 20th century.
"I will build a motor car for the great multitude,” Henry Ford famously said in 1909. “...It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one..."
Before this year, car buyers could walk into a Ford showroom and buy a $19,000 Focus or a $15,000 Fiesta. Focus buyers at the end of their lease period now enter dealerships with the choice of a more-expensive Ecosport or bigger SUV.
One Michigan Ford dealer that also owns foreign-brand dealerships told The Detroit News that buyers enter Ford stores and sometimes can’t find an entry-level vehicle that fits their budget. The dealership declined to be identified, for fear of backlash from the automaker. Determined not to lose the customers' business, they send them to their Asian-brand stores.
In the absence of Detroit offerings, foreign manufacturers are filling the niche.
Ford’s Dearborn backyard, for example, is home to Metro Detroit's largest Hyundai dealer, LaFontaine Hyundai. When the Focus exited the market, car buyers who otherwise might have shopped that car started looking seriously at the Hyundai Elantra, which carried an $18,120 price tag last year.
"We've seen a lot of interest in the Elantra since Ford left the compact market," Lafontaine sales manager Steve Hunsinger told The Detroit News. Notably, the Elantra’s price has jumped to $20,105 for 2020, as Hyundai moves the Venue into the price slot below it.
The higher price of entry-level vehicles has sent more buyers into the used market, according to Cox Automotive. In 2018 and 2019, pre-owned sales were at their highest levels since the Great Recession, despite a healthy economy.
Cox analysts say new-car affordability is a concern for the industry.
It’s a big issue for manufacturers who need to sell new cars to be profitable. New-vehicle sales crested 17 million units in 2019 for a record fifth straight year. But it came at a cost as new car sales were actually down while fleet sales ballooned by 10.5%.
“Why aren’t we selling 18 million new vehicles? Why not 20 million when the economy is so strong?” Cox senior economist Charlie Chesbrough asked at a January conference in Detroit. “New-car leases and new purchases were down substantially in 2019, and we think this is due to vehicle affordability. If and when we have a price recession, where is (manufacturer) safety?”
Dealers sell used vehicles that can be had for well under $20,000, and that market has grown significantly as manufacturers have fled the lower model segments.
Ford sales chief LaNeve said that, for now, used cars have become a key part of Ford’s entry-level strategy.
“We will be putting more emphasis on used cars going forward. Our customers get them off-lease, plus service,” he said. “Plus the business goes through Ford Credit. We sell them maintenance contracts and insurance... it’s a very profitable business. We make bigger margins than selling a Fiesta or Focus, to be honest.
Asian manufacturers see a safety net in selling subcompact cars under $20,000 should the economy turn sour, Chesbrough said. “When times get tough," he said, "consumers look for ways to cut their expenses."
And, he added, “An easy way for consumers to save money is to go back to the car.”
Henry Payne is auto critic for The Detroit News. Find him at firstname.lastname@example.org or Twitter @HenryEPayne.