Ram CEO Tim Kuniskis was recently asked why he couldn’t build a cheap $40k new full-size truck and he said several factors forced his hand. Is it really that impossible?
Cheap $40k new full-size truck
There’s no doubt the automotive industry has an affordability problem.
For the past decade, truck prices have grown each year incrementally and now the average transaction price for a new full-size truck regularly exceeds $50,000.
That isn’t to say there aren’t cheaper versions known as stripped-down models or work truck versions with rubber floor mats and bench seats available, however, they all retail for around $40,000 with some cheaper at times with incentives. After all the paperwork is signed, you are over the $40,000 price tag.
Impossible to hit the $40k new full-size truck price tag?
Why is that? Why is it so hard to build a cheap, affordable full-size truck? Is it corporate greed? The UAW’s higher wages?
Ram’s CEO Tim Kuniskis pointed out other factors.
“Because I’d lose money.” Kuniskis said in response to a question on why he can’t build one. “I try and sell a light-duty truck with the technology we have in it with the Federally mandated requirements we have in it with everything we have in that truck today and what am I going to strip out? Get a Tradesman today and you tell me what I am going to strip out? What am I going to strip out of a Tradesman today to get to that price point? I’m going to save a $1k maybe? I can’t get to $40,000. I can’t. I just can’t do it. I’d love to.”
The Tradesman is Ram’s work truck and it has a starting MSRP of $40,275 for a double cab, 2WD without a $2,000 destination fee.
He talks about the technology and the federally mandated requirements.
For technology, the Tradesman has the most basic technology on any truck offered today. If you strip that out to roll-up windows, manual locks and AM/FM radio, customers won’t buy it. Ford learned that lesson and they discontinued their last truck with those options years ago. It cost them more to offer it than they made on selling it.
Mandatory safety equipment
Next, let’s discuss the mandatory safety equipment. What does that entail?
This mandatory safety equipment is on your vehicle:
- Seat belts
- Air bags
- Latch car seat attachments
- Tire pressure monitoring systems
- Backup camera
- EV and hybrid sounds
- Rear seatbelt reminders
If you don’t think safety matters for full-size truck buyers, then you haven’t been paying attention lately.
The Insurance Institute for Highway Safety (IIHS) and the National Highway Safety Administration (NHTSA) have both been ramping up their crash testing on the ever popular full-size truck category making it harder for manufacturers to achieve their highest safety rating and customers are watching.
Consumers are regularly cross-shopping trucks based on safety rating since they have now become dual-purpose vehicles hauling families and as a work vehicle. Safety and the safety rating are a big deal.
This means where things like two airbags used to be sufficient, now they need four or five. They also need to redesign part of the truck’s front end for the new front crash test and there’s a new test for a rear-seat occupant that is sure to add to the truck’s price in the future.
Emissions equipment
What about emissions equipment? The Environmental Protection Agency is to blame here right? They are forcing automakers to adopt ridiculous fuel economy standards that’s causing engines to become more complex and raising prices. That’s the collective wisdom these days you’ll read online.
When you dig into it, there’s a lot of historical reasons we are now where we are in terms of emissions.
Looking back, the first emissions rules put in place happened after the 1979 Iran Oil Crisis leading to a sharp drop in oil production. This led to the U.S. Government to create the first Corporate Average Fuel Economy law (CAFE) which are Federal mandates setting fuel economy standards for automakers to follow. If automakers don’t meet the fuel economy standards they pay fines.
The idea behind this law was to reduce our dependence on foreign oil consumption. If vehicles use less fuel, then we would import less oil. Burning less emissions was a side effect of this law.
Over the years, various Presidential administrations revamped CAFE regulations with either an aim to improve fuel efficiency or to improve emissions. Each time, they focused their intent on saving the American family money by reducing how much fuel they bought each year. The thinking was if the vehicle was more fuel efficient, you’d save more money each year no matter how much more expensive the vehicle became to purchase.
There have also been U.S. Supreme Court decisions to regulate Greenhouse Gas Emissions that also forced the EPA to add regulating those emissions to the CAFE rules.
The emissions equipment that have been added to gas and diesel equipment over the years include many things like:
- Catalytic Converter
- Diesel Oxidation Catalyst
- Engine Gas Recirculation
- Positive Crankcase Ventilation
- Oxygen Sensors
- Engine Computers
Then there are things automakers have chosen to do, not mandated by the EPA, to meet fuel economy requirements:
- Turbochargers
- Hybrid systems
- Direct injection
- Cylinder deactivation
- Auto start/stop systems
- Multi-speed transmissions
- Aluminum alloy engine blocks
Also, automakers have chosen to cut weight off their vehicles through using different metals like aluminum on hoods, tailgates and doors and high-strength steel in places on the frame.
All of these changes add to the truck’s overall cost.
Profit margin
Can’t make money on a $40,000 truck? That’s the comment I keep hearing. The real answer is corporate greed.
The profit margin in automotive is understood to be 10% with some luxury brands being higher. Dealerships make around 1-2% on new vehicle sales with most profit being made on service and selling extended warranties.
That 10% margin applies to a truck whether it is sold for $40,000 or $100,000. It doesn’t change. The fancy interior, the blingy exterior, the bigger wheels and tires found on the luxury trucks aren’t free. They all cost money.
The bottom line
If it was all about profit, automakers wouldn’t even build a $41,000 work truck to be honest. They would just build luxury trucks. They would just sell less of them to make up for the lost volume, so that argument doesn’t work.
Blame the EPA? Sure why not. That seems like a popular thing to do these days. They are just mandated by whatever law Congress passes, the Supreme Court rules on or the direction of the President forces them to act.
Mad about the mandatory safety equipment you don’t need? Sure. That’s just where we are and that’s not going backwards. I’m quite certain we are going to see even more mandatory safety equipment added in future years.
IMO, when you take it all into consideration, it is actually quite impressive that there’s still a full-size truck available for less than $50,000. With the amount of mandatory safety equipment and emissions plus the various other factors, it should be more expensive when you think about it.
