Compact cars make a comeback as Americans sacrifice space for savings
Bigger isn't always better in today's auto market. While pickup trucks still rule the roads, a new trend is emerging: smaller, more wallet-friendly cars.
In the first half of this year, sales of sub-size SUVs in the U.S. surged by 20%, far outpacing the overall vehicle sales growth of 2%, according to Cox Automotive. Compact car sales jumped 18%, and compact SUV sales rose 12%.
Meanwhile, full-size pickup truck sales dipped 4% during the same period.
Affordability is a major factor here. New car prices have soared by 19.6% from January 2021 to 2024, driving consumers to sacrifice space for savings.
"Consumers need the functionality," said Cox Automotive senior economist Charlie Chesbrough 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."
Manufacturers shift gears into the small car market
This marks quite the turnaround.
Manufacturers had all but given up on sedans and smaller cars as their sales numbers tanked pre-pandemic. However, as rising costs and higher-for-longer inflation eat into Americans' wallets, we are witnessing a renaissance of sorts in the small car market.
Most compact SUVs cost under $30,000, and many dip below $25,000. Pickup trucks, meanwhile, average $60,000. Interest rates are also typically lower for small cars.
The increased competition in this segment has led to a wider range of options, allowing consumers to find the best value for their money.
The market has seen an influx of new compact SUV models, like the Mazda CX-50 and Chevy Trax. Compact cars are also booming, led by strong sales of the Nissan Sentra, Honda Civic, and Toyota Corolla.
Thankfully, smaller doesn’t mean bare bones anymore. Manufacturers are responding to the increased popularity of smaller vehicles by packing more features into smaller packages.
"Heated leather seats, rearview cameras, and sunroofs - once reserved for European luxury vehicles - are now finding their way into compact cars," said Brian Moody, executive editor of Kelley Blue Book.
Pickup trucks still rule the road
Despite the rising popularity of compact vehicles, larger vehicles aren't going anywhere.
The Ford F-Series, Chevy Silverado, and Ram Pickup remain the top three best-selling vehicles in the U.S., though compact SUVs like the Toyota RAV4 are gaining ground.
Industry analysts predict hybrid compact SUVs could be the next big thing, offering affordability, maneuverability, and eco-friendliness. However, this shift challenges Detroit's Big Three automakers.
David Oakley, manager of Americas vehicle sales forecasts at GlobalData, suggests compact vehicles might be as small as manufacturers are willing to go.
“It feels like anything smaller than that is still going to be a little bit underserved," said Oakley.
This trend towards smaller, more affordable vehicles may also accelerate as automakers brace for another looming challenge: the potential influx of inexpensive Chinese electric cars from the world's fastest-growing automobile market.