Kia Moves Upmarket, But Remains Popular With Subprime Set

Kia’s product lineup is moving on up, but some of its models are highly popular with the subprime set.

A top-10 list of new vehicles purchased last year by below-prime buyers includes four Kias: the Optima (tied for No.1) Forte (No.2), Soul (No.4) and Rio (No.9), at $13,900 one of the most inexpensive cars in the U.S.

Kia began selling cars in the U.S. 20 years ago, starting with the bare-bones Sephia. For years, the South Korean automaker limited its offering to entry-level models. But recently it has moved into premium segments with two sedans, the Cadenza and the impending K900, starting at $35,700 and $59,500, respectively.

Is Kia’s upmarket strategy hobbled if the brand repeatedly appears on a list of vehicles credit-challenged buyers like best?

“I don’t think it will hurt, and if anything it might be the opposite,” says Sam Lopez, vice president-direct marketing for CarFinance.com, an online special-finance company that put out the list based on its lending data.

Today’s near-prime, non-prime and subprime customer could become tomorrow’s prime customer, he tells WardsAuto.

Accordingly, if dealers and automakers treat them right, eventually they may return to the same store and brand to purchase a more expensive vehicle when their credit rating is higher.

“Some of them may come back and say, ‘It has been seven years since I’ve been driving my Forte, and now that my credit is better, I want that nicer Cadenza.’”

The trajectory of every current below-prime customer does not ultimately end up landing at prime levels. Some people build up or repair their creditworthiness, some don’t.

“Obviously it is not linear,” Lopez says. “But we are seeing more folks who had trouble in the recession coming out of their credit issues stronger.

“There always will be a subprime segment, for whatever reason. Things happen. But some borrowers who are in that segment now are going to come out of it and end up as prime customers.

“At that point, many of them will remember a particular dealer and manufacturer that helped them in a pinch.”

But in their current circumstances, below-prime borrowers aren’t particularly brand-loyal. They generally just want a low-priced car with high value and a generous warranty. Brand and dealership loyalty usually kicks in when their credit improves, Lopez says.

Their ranks are formidable. Subprime auto loans account for more than half of used-car and a quarter of new-vehicle financing in the U.S., according to CarFinance.

“They include people out of college, and often people in their late 30s and early 40s,” Lopez says. “It’s early Generation Y and late Generation X, but we see the whole gamut.”

The special-financing company’s top-10 lists “offer a snapshot of the vehicle preferences of consumers credited with helping drive U.S. auto sales growth,” says CarFinance CEO Jim Landy. “The brands that show up on these lists should take note: Today’s below-prime car buyer, who is already rebuilding credit with a car purchase, could be your brand-loyal prime customer of tomorrow.”

The top 10 new vehicles purchased by credit-challenged people are:

Domestic vehicles dominate the list with six entries, and Kia and Nissan are the only international brands represented, CarFinance notes. No.1 Dodge Avenger goes out of production this year, and is priced accordingly on dealer lots.

No pickup trucks are on the new-vehicle list. That changes with the used-car list. Pickups take the second, third and fourth spots.

Pickups are popular in the U.S., but their new-vehicle stickers drive off typical credit-challenged buyers, Lopez says.

“There’s a practical use for trucks, even a family use,” he says. “A lot of people want them. But their prices are a challenge for a below-prime buyer. However, if a truck is a few years old and its price comes down, it becomes attractive to that person.”

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