DETROIT — Had she wanted to, Michelle Chumley could have afforded a pricey new SUV loaded with options. But when it came time to replace her Chevrolet Blazer SUV, for which she’d paid about $40,000 three years ago, Chumley chose something smaller. And less costly.
With her purchase of a Chevrolet Trax compact SUV in June, Chumley joined a rising number of buyers who have made vehicles in the below-average $20,000-to-$30,000 range the fastest-growing segment of the nation’s new-auto market.
“I just don’t need that big vehicle and to be paying all of that gas money,” said Chumley, a 56-year-old nurse who lives outside Oxford, Ohio, near Cincinnati.
Across the industry, auto analysts say, an “affordability shift” is taking root. The trend is being led by people who feel they can no longer afford a new vehicle that would cost them roughly today’s average selling price of more than $47,000 — a jump of more than 20% from the pre-pandemic average.
To buy a new car at that price, an average buyer would have to spend $737 a month, if financed at today’s average loan rate of 7.1%, for just under six years before the vehicle would be paid off, according to Edmunds.com, an auto research and pricing site. For many, that is financially out of reach.
Yet there are other buyers who, like Chumley, could manage the financial burden but have decided it just isn’t worth the cost. And the trend is forcing America’s automakers to reassess their sales and production strategies. With buyers confronting inflated prices and still-high loan rates, sales of new U.S. autos rose only 1% through September over the same period last year. If the trend toward lower-priced vehicles proves a lasting one, more generous discounts could lead to lower average auto prices and slowing industry profits.
“Consumers are becoming more prudent as they face economic uncertainty, still-high interest rates and vehicle prices that remain elevated,” said Kevin Roberts, director of market intelligence at CarGurus, an automotive shopping site. “This year, all of the growth is happening in what we would consider the more affordable price buckets.”
Under pressure to unload their more expensive models, automakers have been lowering the sales prices on many such vehicles, largely by offering steeper discounts. In the past year, the average incentive per auto has nearly doubled, to $1,812, according to Edmunds. General Motors has said it expects its average selling price to drop 1.5% in the second half of the year.
Through September, Roberts has calculated, new-vehicle sales to individual buyers, excluding sales to rental companies and other commercial fleets, are up 7%. Of that growth, 43% came in the $20,000-to-$30,000 price range — the largest share for that price category in at least four years. (For used vehicles, the shift is even more pronounced: 59% sales growth in the $15,000-to-$20,000 price range over that period.)
Sales of compact and subcompact cars and SUVs from mainstream auto brands are growing faster than in any year since 2018, according to data from Cox Automotive.
The sales gains for affordable vehicles is, in some ways, a return to a pattern that existed before the pandemic. As recently as 2018, compact and subcompact vehicles — typically among the most popular moderately priced vehicles — had accounted for nearly 35% of the nation’s new vehicle sales.
The proportion started to fall in 2020, when the pandemic caused a global shortage of computer chips that forced automakers to slow production and allocate scarce semiconductors to more expensive trucks and large SUVs. As buyers increasingly embraced those higher-priced vehicles, the companies posted robust earnings growth.
In the meantime, they deemed profit margins for lower-prices cars too meager to justify significant production of them. By 2022, the market share of compact and subcompact vehicles had dropped below 30%.
This year, that share has rebounded to nearly 34% and rising. Sales of compact sedans were up 16.7% through September from 12 months earlier. By contrast, CarGurus said, big pickups rose just under 6%. Sales of large SUVs are barely up at all — less than 1%.
Ford’s F-Series truck remains the top-selling vehicle in the United States this year, as it has been for nearly a half-century, followed by the Chevrolet Silverado. But Stellantis’ Ram pickup, typically No. 3, dropped to sixth place, outpaced by several less expensive small SUVs: the Toyota RAV4, the Honda CR-V and the Tesla Model Y (with a $7,500 U.S. tax credit).
The move in buyer sentiment toward affordability came fast this year, catching many automakers off guard, with too-few vehicles available in lower price ranges. One reason for the shift, analysts say, is that many buyers who are willing to plunk down nearly $50,000 for a new vehicle had already done so in the past few years. People who are less able — or less willing — to spend that much had in many cases held on to their existing vehicles for years. The time had come for them to replace them. And most of them seem disinclined to spend more than they have to.
With loan rates still high and average auto insurance prices up a whopping 38% in the past two years, “the public just wants to be a little more frugal about it,” said Keith McCluskey, CEO of the dealership where Chumley bought her Trax.
Roberts of CarGurus noted that even many higher-income buyers are choosing smaller, lower-priced vehicles, in some cases because of uncertainties over the economy and the impending presidential election.
The shift has left some automakers overstocked with too many pricier trucks and SUVs. Some, like Stellantis, which makes Chrysler, Jeep and Ram vehicles, have warned that the shift will eat into their profitability this year.
At General Motors’ Chevrolet brand, executives had foreseen the shift away from “uber expensive” vehicles and were prepared with the redesigned Trax, which came out in the spring of 2023, noted Mike MacPhee, director of Chevrolet sales operations.
Trax sales in the U.S. so far this year are up 130%, making it the nation’s top-selling subcompact SUV.
“We’re basically doubling our (Trax) sales volume from last year,” MacPhee said.
How long the preference for lower-priced vehicles may last is unclear. Charlie Chesbrough, chief economist for Cox Automotive, notes that the succession of expected interest rates cuts by the Federal Rates should eventually lead to lower auto loan rates, thereby making larger vehicles more affordable.
“The trends will probably start to change if these interest rates start coming down,” Chesbrough predicted. “We’ll see consumers start moving into these larger vehicles.”
AP Economics Writer Christopher Rugaber in Washington contributed to this report.
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Originally Published:
In recent years, there’s been a noticeable upward trend in the popularity of lower-priced new cars. Often, these budget-friendly, brand new vehicles are typically seen as choices for cash-strapped students or cash-poor buyers who are tightening their belts on spending. However, a closer look reveals that the appeal is not limited to just this demographic. Indeed, more and more people from different walks of life, including upper-middle-class and affluent buyers, are also opting for lower-priced new cars.
Changes in the economic climate, shifts in societal attitudes, technological advancement, and improvements in the automotive market are factors contributing to this phenomenon.
The biggest driver of this trend has been the fluctuation and uncertainty of the economy. Even the most well-heeled buyers are seeing this volatility and choosing to be more cautious with their money. Lower-priced cars present a cost-effective and reliable solution without drastically sacrificing comfort, convenience, and style.
Attitudes towards car ownership and wealth are also shifting. There was once a time when the car you drove was seen as a direct representation of your social status. A luxury vehicle parked in your driveway meant financial success. However, modern society is moving away from this perception. The societal pressures to own high-end vehicles are diminishing. Instead, people are taking pride in making sensible economic decisions, one of these being the purchasing of less expensive new cars.
Technological advancements have also played a big part in this trend. Lower-priced cars no longer mean inferior quality. Many affordable models on the market now come packed with high-tech features that were once exclusive to luxury vehicles. Features like touch screen controls, rearview cameras, satellite navigation, and advanced safety technologies can often be found in these budget-friendly cars. Moreover, fuel efficiency has also improved remarkably over the years in the lower-end market, providing further savings in the long run.
In addition, car manufacturers are responding to the increasing demand by offering impressive low-cost models. They are focusing on lowering the cost of production and optimizing their supply chain without compromising on the quality of the cars. As a result, many cost-effective cars that combine economy with comfort, reliability, and fashionable designs are hitting the market.
One more factor to consider is the rise of car sharing, ride services like Uber and Lyft, and the projected advent of autonomous vehicles. These scenarios lower the necessity of owning a costly car since transportation alternatives are readily available.
In conclusion, the rising popularity of lower-priced new cars is driven by various factors such as changing economic conditions, societal shifts regarding wealth and car ownership, technological improvements, and new strategies from automotive companies. These budget-friendly vehicles are no longer just the refuge for cash-poor buyers, but are gaining attention across all economic levels as a sensible choice for modern transportation.
So, whether you’re a fresh college graduate buying your first car, a family looking for a cost-effective way to upgrade your vehicle, or even if you’re simply planning on saving money for other investments, lower-priced new cars are offering better value than ever before.
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Lower-priced new cars are gaining popularity, and not just for cash-poor buyers
