New cars under $20K are hard to come by
Where did all the cheap cars go? The simple answer: away, and they aren’t coming back anytime soon.
The below-$20,000 new vehicle – long a benchmark for affordability – is an endangered species, and established automakers have little incentive to rescue it.
“Automakers are much more focused on the upper end of the market,” Cox Automotive executive analyst Michelle Krebs said.
Disruptions ranging from COVID-19 to natural disasters to Russia’s invasion of Ukraine have slashed vehicle production, but demand is strong and companies like Ford, General Motors, Toyota, Stellantis and Volkswagen are making money hand over fist.
Demand exceeds supply and the average new-vehicle price is at record levels.
“It’s a tale of two markets,” Krebs said. “There are people who stayed employed through the crisis, have good credit and savings. They have lots of choices.”
At the other end of the spectrum are those who lost jobs or have fewer resources. They used to be among the most likely buyers for low-priced new cars, but they’ve been squeezed out. Even many late-model used cars have moved out of their reach.
The average price for a new vehicle in the U.S. was $46,084 in February, according to Cox Automotive. That’s a grand below the record set in December, but still nearly $8,000 above the prepandemic average price. Out of reach for many hard-working folks.
Blame COVID-19, Vladimir Putin, Adam Smith. None of them are listening. Automakers are building every vehicle they can, and crying all the way to the bank. The market is so far out of balance that some new car dealers are adding hundreds, even thousands of dollars of mystery fees to ho-hum vehicles that usually sold for less than the sticker
price. Even some used cars are selling above the new models’ manufacturer’s suggested retail prices (MSRPs).
Barely a handful of new vehicles available in the U.S. today have MSRPs under $20,000. The number dwindles further when you add the non-negotiable destination fee, which, conveniently, is not included in the MSRP that features prominently in advertising.
Add to that the fact that most automakers have cut production of, or completely dropped, inexpensive small cars like the no-longer available Chevrolet Cruze, Ford Focus and Honda Fit. They shifted focus to small SUVs, for which they can generally charge higher prices.
The smallest SUVs tend to be inexpensive, but still pricier than little cars were. The Hyundai Venue – base price $19,000 – is an example, but even it tops $20K out the door, thanks to a $1,245 destination charge. For comparison, prices for the subcompact Nissan Versa sedan starts at just $15,180.
In addition, GM recently announced it was dropping the least expensive vehicle it sells in the U.S., the $21,400 Chevrolet Trax. The newer and slightly bigger $21,600 Chevy Trailblazer is still affordable by current standards – and a better vehicle – but GM’s move further reduces the supply of inexpensive vehicles.
While automakers rake in profits building $40,000-plus vehicles, they could lose the key benefit of offering entry-level vehicles: attracting first-time buyers who become customers for decades.
“It costs more to get a new customer than to keep a loyal one,” Krebs said. “By some estimates seven times as much” in advertising and marketing expenses.
“Some automakers think used cars can be a bridge to winning first-time buyers, but that doesn’t work for everybody,” she said. “The failure to offer an entry-level vehicle should concern any automaker.”
Despite that, automakers have ignored entry-level buyers before, to their regret.
History could repeat itself.