Al Root
One idea from President Donald Trump's press conference about fuel-efficiency standards that has gained surprising traction is the possibility that ultrasmall cars could come to America. Investors probably shouldn't devote much mental energy to that.
Those cars aren't coming, and if they do arrive, investors should mark down the stocks of the companies trying to sell them. That makes more sense than being distracted by the idea that minicars could be disruptive big sellers.
On Wednesday, Trump gathered auto executives at the White House to announce he is rolling back strict, Biden-era standards that would have required manufacturers to significantly boost the average mileage per gallon for their fleets. Auto executives feared, correctly, that it would be impossibly to comply, given current technology and consumer tastes.
Trump also suggested American car companies build smaller, more fuel-efficient cars, drawing inspiration from a recent trip to Asia. Transportation Secretary Sean Duffy was instructed to remove barriers to their manufacturing. "If there's a market for those vehicles, I want to give our manufacturers the opportunity to build those cars," he told CNBC.
There doesn't appear to be a single specific regulation or union issue that prevents American manufacturers from making small cars. Fuel economy rules, based partly on the size of a car, are part of the issue. It can be easier to make a truck that meets the standards than it is to produce a compliant small car. Safety regulations can also make it difficult for a small car to be certified for roads.
Duffy's comment, "if there's a market for those vehicles," points to the real issue.
American consumers don't want those cars, as history shows. Sales of the tiny Smart Car, on the market between 2008 and 2019, reached only about 95,000 cars. It isn't possible to make money at that volume from a lower-priced car with relatively high compliance costs.
The biggest reason Volkswagen stopped selling the Beetle in 2019 was a lack of consumer demand. Americans were buying fewer than 20,000 per year at the end.
Ford Motor's F-Series trucks, meanwhile, are typically an American best-seller. Ford sold about 766,000 F-series trucks in 2024. Car companies have to sell hundreds of thousands of vehicles to make a platform profitable.
One of the reasons Trump cited for rolling back the corporate average fuel-economy standards, better known as CAFE, was to end what he called the "green new scam" that he said was forcing EVs on American car buyers.
EVs accounted for roughly 10% of all new U.S. car sales before Trump removed the federal $7,500 EV purchase tax credit, effective in September. Ford CEO Jim Farley suspects that EVs will account for about 5% of new car sales without federal support.
Americans, however, won't pivot to small cars. Minicars and EVs aren't equivalent. Most EVs are considered luxury cars, while the smallest cars would be low-end economy options. The average transaction price for an EV in America is close to $58,000, about $9,000 more than the average gasoline-powered car costs.
Another reason the U.S. car market looks the way it does, aside from geography or buyers' habits, is wealth. Low-end cars in the U.S. start at about $30,000 these days, or about 35% of median income. Forty years ago, they started at about $9,000, or roughly 35% of median income.
That signals that people don't want a $15,000 car. Americans like nice, comfortable cars, and they continue to be able to afford them.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 05, 2025 12:06 ET (17:06 GMT)
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