For Automakers, Small Cars Must Pay the Bills Now
U.S. automakers face a growing challenge as they move from building trucks and SUVs to making smaller cars: how to make money.
When the profit margin for a small car is about $500, compared to a truck or SUV that can typically pull in between $3,500 to $4,000, automakers must find another way to turn a profit. Increasingly, they are looking toward option packages that will cost consumers more.
The logic is that while car buyers are certainly looking for smaller, more fuel-efficient cars, they are still willing to pay a bit more for a premium driving experience. This is where bundling options comes in. If car buyers want a high-end sound system, they need to buy a package that includes a moonroof as well, pushing the price up to increase profit — but not enough to force the buyer into going with a stripped-down model.
The catch, however, is that major automakers cannot rely on Mini’s strategy of occupying a specific niche. They need to sell cars in high volumes in order to turn a profit and make up for the losses of the disappearing SUV market. This will also mean that inventory will have to be managed intelligently to avoid price reductions, but again, there have to be enough perks and options to justify higher sticker prices.
