Small cars are back because that’s all Americans can afford
The Ozempic economy has come for American SUVs.
Americans have had a long love affair with big cars and the fantasy of hulking pickup trucks on wide open roads, but now many are finding new flings with smaller cars simply because they’re cheaper.
Sales of sub-size SUVs in the U.S. shot up 20% in the first half of this year, far outpacing overall vehicle sales growth of 2%, according to data from Cox Automotive. Moreover, compact car sales increased 18%, and compact SUV sales rose 12%, while full-size pickup truck sales slumped 4% in the same time period.
Amid a 19.6% price increase of automobiles from January 2021 to 2024, most of these compact SUVs are under $30,000, with many under $25,000—a stark difference from the $60,000 price tag of a pickup truck and an easier-to-swallow pill. Often with lower interest rates than even gently used cars and similar features to their larger counterparts, smaller vehicles have become a formidable alternative.
“Consumers need the functionality,” Cox Automotive senior economist Charlie Chesbrough said in a CBT News interview in April. “They need the flatbed of a pickup or the cargo area of an SUV, but they’ve got to get the smaller size, because at these prices, they’ve got to look for ways to save money.”
As more consumers look to buy smaller, affordable models, car manufacturers are meeting them where they are, introducing new features like heated, leather seats, rearview cameras, and sunroofs that were once reserved for European luxury vehicles, Brian Moody, executive editor of Kelley Blue Book, told Fortune.
But while smaller cars are more affordable and just as practical as bigger ones, there’s also simply more compact entrants on the market that have driven up sales. Compact SUVs like the Mazda CX-50 and Chevy Trax have emerged in the market only during the past 20 years.
“There’s just simply more of them,” Moody said. “So when there’s more choice, it’s likely to attract more consumers.”
Industry changes
The uptick in small car sales “doesn’t mean that many people aren’t still buying large pickups,” Moody said. The top-three best-selling cars in the U.S. last year—the Ford F-Series, the Chevy Silverado, and the Ram Pickup—were all large flat-bed pickups. And with car size continuing to expand since the 1970s without any signs of slowing down as they accommodate both safety and luxury features, large cars will continue to be popular.
Because of the continued demand for large cars and trucks, auto manufacturers won’t go all-in on compact vehicles despite positive sales data, David Oakley, manager of Americas vehicle sales forecasts at GlobalData, told Fortune. For Detroit’s Big Three auto manufacturers—Ford, Stellantis, and General Motors—compact vehicle production has decreased due to slim profit margins. As car sizes get smaller, there’s greater pressure on car companies to match smaller price tags to the slimmer frames, something they’re just not willing to do.
“Compact is the smallest that most manufacturers probably want to focus on,” Oakley said. “And it feels like anything smaller than that is still going to be a little bit underserved.”
But the industry will continue to make changes to appeal to those looking for compact, affordable cars. Moody notes that the No. 4 best-selling car below the top-three pickup juggernauts is the stalwart Toyota Rav 4, which led the trend of compact SUVs after its introduction 30 years ago. He expects the compact Toyota model to continue to creep up the rankings as compact cars continue to rise in popularity.
Moody also expects more hybrid compact SUVs to emerge, particularly as an alternative to electric vehicles, which, because of their large and heavy batteries, are often oversized and expensive. Even EV producers are aware of the pitfalls of large electric cars, and they’re aiming to produce smaller autos.
“We have to start to get back in love with smaller vehicles. It’s super important for our society and for EV adoption,” Ford CEO Jim Farley said at the Aspen Ideas festival earlier this month. “We are just in love with these monster vehicles, and I love them, too, but it’s a major issue with weight.”
But the continued success of compact car sales will ultimately rely on companies keeping the promises associated with them, Moody argues: affordable prices, good resale value, and strong luxury features.
“You want them to be successful?” he said. “Make it better.”
