‘First Car’ Prices : Mini-Trucks Overhauling Auto Market
A funny thing happened when Bernie McKean, a drain cleaner from Riverside County, went shopping for a new station wagon that would suit his wife and kids and still hold up on his long commutes to and from West Los Angeles. He ended up with a truck.
McKean, 31, didn’t really have much of a choice in picking a truck over a passenger car--thanks to the stiff pricing policies of the auto companies. As McKean quickly discovered, it’s hard to find an American or Japanese-built station wagon for less than $13,000 these days, and even subcompact cars aren’t that cheap anymore. McKean didn’t want to stretch his family’s finances quite that far.
A mini-pickup, on the other hand, can still be had for about $6,000. In the end, McKean bought a Nissan truck, with a few options and an extended warranty, for just $7,800.
Big Price Difference
“A station wagon with comparable equipment would have cost $15,000, so I decided a new truck would fit into our budget a lot better,” says McKean. “We looked at it both ways, and we couldn’t swing the monthly payments on the wagon.
“They’re certainly making it rough for people to buy cars these days.”
First, they were squeezed out of the domestic car market by Detroit’s high prices and uneven quality. Then, they were left behind by the Japanese, who decided to jack up their car prices and sell more luxury models to offset import quotas and the rising value of the yen.
Finally, entry-level car buyers--young, working, middle-class people like McKean who used to be the bread-and-butter customers of mass-market auto makers such as Chevrolet and Toyota--are moving, out of necessity, to cheap, light trucks.
Reshaping Auto Market
In the process, they are helping to reshape the automotive marketplace, and the mini-pickup is becoming the first “new car” of hundreds of thousands of American families.
Suddenly, the Mazda B2000 and Isuzu mini-pickups are in the 1980s what the Chevrolet Biscayne was in the 1950s and the Ford Falcon was in the 1960s. The small pickup has become the car of last resort for people who can’t afford anything else. People who never need a truck to haul anything more than groceries and kids are trading in their old passenger cars for a taste of “urban cowboy” driving in new mini-pickups.
“The distinctions between cars and trucks are quickly melting away, as far as consumers are concerned,” says Don Swanson, sales manager for Cormier Chevrolet in Long Beach.
The reason for the shift from small cars to light trucks is known as sticker shock. Although the prices on domestic and imported trucks have increased sharply in the last few weeks, it’s still possible to buy several mini-pickup models for just over $6,000. Few Japanese or American-built small cars can be driven off a dealer lot for less than $7,000 or $8,000, and now many of the most popular Japanese subcompacts, such as the Honda Civic, are hard to find for less than $10,000.
“A truck is a whole lot cheaper than any car you could get,” says 26-year-old Michael Jones of Los Angeles, who also bought a mini-pickup from Nissan recently. “I looked at a (Volkswagen) Jetta, but that cost about $10,000, as opposed to $6,000 and 7.7% discount financing on my truck.”
At the same time, many of the small passenger cars that can compete with light trucks on price are coming from Third World countries, (Yugoslavia’s Yugo and South Korea’s Hyundai Excel) and have not built up the kind of acceptance enjoyed by Japanese and American cars and trucks.
“People are looking at prices of $6,000 for trucks, and at that level, there just aren’t many new cars you can buy,” says Scott Young, sales manager at Crossroads Mazda in North Hollywood. “These are people who look at the (subcompact) Mazda 323, and then see the price, so they switch to the truck. Maybe these people didn’t really want a truck, but the price is the key,” Young says.
‘Most Affordable’ Models
“The most affordable vehicles on the market today are light trucks,” adds John Hammond, an industry analyst with the economic forecasting firm Data Resources. “Trucks have become entry-level vehicles that cater to the marginal buyer who can’t afford a car but still wants to buy something new.”
The average buyer of a stripped-down mini-pickup earns just $23,000 a year, well below the average of about $30,000 among buyers of most subcompacts, according to Chris Cedergren, market analyst with J. D. Power & Associates, a consumer research firm in Westlake Village.
Terry Brill, a 36-year-old sales representative in the South Bay area, just paid $6,400 for a stripped-down Nissan pickup. He says he chose it as his first new car of any kind “because it was easy to finance and I didn’t have to put a lot of money down. I couldn’t have gotten a new car for that price.”
Industry analysts believe the price gap has become so large that each year, 150,000 to 200,000 customers who, like Brill, are trading up from used cars to new vehicles for the first time, are choosing base-model light trucks over subcompact cars.
“Our light trucks are very definitely pulling in people who would previously have bought cars,” says Greg Smith, a truck marketing manager at Ford.
Most Popular in Southwest
The trend is most pronounced in California and the Southwest, where trucks have always been popular. In the Los Angeles area, for instance, mini-pickups now account for 17.4% of all vehicle sales, according findings of a Chevrolet market study. A record 248,891 mini-pickups were sold in California in 1985--26.4% more than the 196,936 of them sold in 1984, according to new-vehicle registration data compiled by R. L. Polk & Co.
Nationwide, sales of light trucks (mini-pickups, mini-vans and small utility vehicles) rose 15.1% in 1985, to a record 4.4 million units--forming a market nearly half as large as the entire passenger car business. Although in the first three months of 1986, light truck sales declined from last year’s torrid pace, sales of imported pickups, which tend to be cheaper than domestic trucks and thus more attractive to first-time buyers, still rose 10.8%.
The light truck market has become so big so fast that industry analysts are being forced to redefine the car market to explain the switching back and forth between cars and trucks. In fact, many analysts believe that continued sluggishness in sales of domestic passenger cars is due in part to potential car buyers joining the boom in mini-pickups, mini-vans and utility vehicles. These are not currently included in car sales figures.
“We are forecasting a lot more growth in trucks than in cars over the next few years, and a lot of that is due to the fact that we are seeing trucks pulling sales away from cars,” says Brad Hontz, sales analyst with Ward’s Research, an auto industry research firm.
Price Picture Changed
Until the mid-1980s, subcompacts easily filled the transportation needs of young families and other middle and lower-income people who were trading up from used to new vehicles. The explosive growth of Japanese car sales in the 1970s, for instance, was fueled mainly by younger buyers who wanted the kinds of small cars that Detroit had long ceased to build. Trucks--especially the American pickups, which had not yet been downsized for non-commercial use--weren’t even in the running.
The new car market slowly began to close to first-time buyers, however, after import quotas were slapped on Japanese cars in 1981. Limited in the number of cars they could sell in the United States at a time when demand for their products remained high, the Japanese raised prices. They also shifted their product strategies away from an emphasis on small cars to concentrate on larger, performance models that carried bigger profit margins.
More recently, the rapid appreciation of the yen against the dollar, which has increased the cost of manufacturing goods in Japan for export to the United States, has pushed Japanese car prices up again. Today, Japanese cars are often more expensive than their closest domestic rivals. The era of the cheap Japanese car has all but vanished.
Prices on imported and domestic light trucks have not risen as much, mainly because Japanese light trucks, which first entered the U.S. market in small numbers in the 1950s, have never been restricted by the quotas that have limited car imports since 1981.
At the same time, the image of the truck has changed. As pickups have become smaller, they have come to seem less threatening to suburban drivers. Light trucks can be easily modified by their owners into racy, performance vehicles or functional, family sedans capable of a wide range of tasks that most cars can’t handle. People have started thinking of trucks in the same terms as station wagons or sporty specialty cars, and the little pickups have taken on a certain cachet that small cars have never carried.
Versatile for Family Use
“For a lot of people, a new truck provides more status and prestige than you can get in a subcompact,” says Mike Chadsey, market researcher for Mazda. “People also know they can get more use out of a truck than a small car--they can put a camper on the top and the kids in the back,” says Ray Cowan, sales manager at South Bay Nissan in Redondo Beach.
With all those factors in their favor, the Japanese small trucks soon became cheap and attractive alternatives for many people who preferred imports but were shut out of the Japanese-car market after quotas were imposed in 1981.
“People thought that when quotas were put on Japanese cars, everyone would switch to American subcompacts,” Hammond recalls. “But instead, they went to Japanese trucks as the closest substitutes.”
By 1982, however, Detroit began to move aggressively into the light truck market with new, downsized models, further increasing truck competition and depressing prices. Today, the mini-pickup market is the most competitive in the auto industry and the only market segment in which the Japanese importers offer discount financing and other incentives to boost sales. Import dealers, accustomed to charging well over the list price for passenger cars, now find themselves in a price war on the truck side of the lot.
“A $25 difference in price will take a truck customer right out of here,” says Dan Davidson, co-owner of Toyota of Pasadena. “It’s a tight, tight market, so we basically sell at invoice (generally, the dealer’s cost). That’s what you’ve got to do.”
More Small Cars Coming
Still, some industry observers do not believe that the truck’s role as America’s entry-level car will last.
They point out that more mini-cars from developing nations are about to flood the U.S. market, and that new assembly plants Japanese auto makers are establishing in the United States will soon start pumping out more American-built small cars, unrestrained by import quotas. As a result, they say, the subcompact market is likely to become nearly as competitive as the market for light trucks.
When that happens, analysts believe mini-pickup prices will more closely match small car prices, and truck buyers who really wanted cars all along will return to subcompacts. Sales of stripped-down mini-pickups will slow.
“With the new mini-car entries starting to come in 1987, we think the substitution of base-model mini-pickups for cars will start to decline,” says Ted Sullivan, automotive analyst with the Chase Econometrics forecasting firm.
Sullivan and other analysts believe that the real growth in the light truck category over the next few years will come from upscale mini-vans and an array of utility vehicles, such as Ford’s Bronco II, the Jeep Cherokee and the Suzuki Samurai. Designers in Detroit and Tokyo are hard at work in a race to come up with the perfect yuppie truck--sort of a long-bed Saab with mag wheels and a compact disc player.
Still, even if the auto companies forsake their less affluent truck buyers, it may be tough to get middle-class urban cowboys back into econoboxes.
“For me, a truck has no limitations,” says Brill, who doesn’t plan to return to cars. “It’s economical, rides great, and I can put a camper on it and use it for things I can’t do with a car. I couldn’t be happier.”
