By on October 10, 2018

2017 Elantra Eco

Once a bracket where most desirable vehicles lived, the sub-$20,000 price range is not the hot neighborhood it once was. The ever-upward creep of new vehicle MSRPs increasingly places most vehicles above that marker, and shifting consumer trends haven’t helped expand its ranks.

According to data from J.D. Power, 2018 has seen a rapid exodus from the cheap seats, with retail volume from the $20k-and-under crowd sinking 20 percent since the start of the year. Big spenders, on the other hand, are gobbling up $80,000-plus vehicles at a rapid clip.

Vehicles in that upper bracket only make up 1 percent of new retail volume at franchised dealers, explained Tyson Jominy, head of automotive data and analytics consulting at J.D. Power. Still, despite all of the rarified air, the volume of vehicles with an average transaction price above $80k rose 25 percent since the start of the year.

“Suddenly, high-end models are gaining this year,” Jominy said. “It’s jumped up before at times, but was contracting for the past two years.”

(Keep in mind that J.D. Power’s methodology excludes Tesla sales. – Ed)

In this price bracket, numbers are fairly volatile. Gains and losses can often be attributed to the release of desirable new models or the discontinuation of popular ones, but this year is strange. “Some of this $80k-plus growth is driven by new product … but demand for some older models is growing,” Jominy said.

More interesting is the low end of the market — vehicles with ATPs below $20k. Some 400,000 American buyers bled out of that category this year. While the vast middle ground ($20-$80k) has seen volume increases throughout the price range (but concentrated away from the low end), the buyers flowing out of the entry-level bracket seem to have vanished.

One would think that the recent or impending death of many small car models, the growing popularity of crossovers, a steady rise in interest rates, and fewer zero-interest loans would compel low-end shoppers to either upsell themselves and finance a pricier vehicle over a longer term, or hit the used market. Unless they’re headed to BHPH lots, however, that doesn’t seem to be happening.

“It’s interesting — they’re not going over to used,” said Jominy. “Sales are perfectly flat compared to last year.” The sub-$20k range represents 55 percent of all used vehicles sold at franchised dealers, he added.

Buyers looking for a low-mileage off-lease compact car face steep price increases due to high demand and increasing scarcity. The average price of a three year-old compact rose over 7 percent in September, year over year. Midsize sedans saw the second-highest price increase among all segments.

The price point where volume switches from contraction to growth is $21,000, Jominy said, but the biggest gains are occurring at higher price points — which isn’t where this generally younger cohort would end up. Where have these buyers gone? While some surely dug deeper and others found a used vehicle somewhere, others may have decided to forgo buying altogether. It’s possible we’ve begun to see the impact of new ownership alternatives (car sharing, ride-hailing) aimed primarily at urban Millennials. Still, the data doesn’t exist to fully back that theory.

[Image: Hyundai]

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46 Comments on “Low-priced New Vehicle Buyers Are Missing in Action...”


  • avatar
    Vulpine

    The reasoning is pretty simple, though I don’t agree with the idea. The reason the “cheap seats” are getting left behind is that more people are renting, rather than buying. In other words, they’re leasing cars that would normally be well out of their purchase economy and leaving it up to the bank, dealership, or whomever to absorb any depreciation while they just trade to a newer model when their lease expires.

    The problem is, this has the tendency to put 3-year-old cars (plus or minus one year) onto the used car market at prices well above what most used-car buyers can afford, meaning, again, that it’s cheaper to lease new than buy used.

    Now, imagine what this does to residuals on those leased cars. If the lease is underpriced, then the depreciation isn’t covered by the lessee’s payments and the lessee typically has to pay the difference in a lump sum… if they can. I’ve personally never been a fan of leases for exactly this reason.

    • 0 avatar
      ravenuer

      Not sure I agree with you. The lease payments, residual and any disposition fees are set at lease inception. If, for whatever reason, the vehicle is worth less than the residual at lease end, the lessor is responsible, not the lessee.

      • 0 avatar
        FreedMike

        I think he’s referring to open ended leases. About 134 of them were made this year. The other 1.4 kajillion were closed end leases.

        • 0 avatar
          Vulpine

          I’m referring to both open- and closed-end leases. Someone is eating the depreciation and if it’s not the lessee, then it’s certainly the lessor. In the one case the lessor doesn’t care and in the other case the lessor has to re-sell at a higher price OR literally eat the difference, losing money on every re-sale if he guessed the return value too high.

          Either way, the buyer/lessee is getting a car valued well above their normal budget which is WHY the lower-priced cars aren’t selling.

          • 0 avatar
            Lie2me

            I thought the auto manufacturers absorb the extra depreciation. Isn’t that what’s refereed to as “buying sales”? It’s a dangerous game, but not my problem

          • 0 avatar
            WallMeerkat

            It isn’t unheard of for some manufacturers to guarantee a 3 year used value, it helps them to gain traction with lease sales, and also keeps used values high which can sometimes increase desirability (the iPhone effect).

          • 0 avatar
            Vulpine

            @Lie2: Unless the auto manufacturers are actively financing the leases (and yes, some do, up to a point) it is the banks and to some extent the dealerships partnering with banks who are taking the hit.

            And depending on the vehicle, the MSRP can be 100% higher than the cost to build that vehicle, making the planned profit margin a full 50%. On average, the profit margin is more like 10% for most vehicle types.

          • 0 avatar
            sportyaccordy

            The lessor is eating it. The Germans have been subsidizing their leases this way for years. It allows them to offer a discount without dinging brand perception. Good deal for consumers and I image this has some tax benefits for manufacturers as well.

          • 0 avatar

            I’m amazed the automakers haven’t been burned by the Lease deals but so far used car prices still support it. Part of it is shipping cars to higher value areas and part is the way financing works on used vs new but still crazy. My wife told me she saw car-max literally buy every AWD lease return at an auction the other day. I figure they have to be shipping those around to max returns.

          • 0 avatar
            mtunofun1

            There is a small cohort of dumdums like me who have no need to lease a car and end up turning the car in with only 15K miles because they hardly ever drive the dang thing. So now I have to buy back the car and sell it to someone who will buy at KBB or just below KBB to just break even. Never leasing a car again!

  • avatar

    My personal idea (nothing to back this up), is that the top 20% of people in the US have gained in income. They are now buying more expensive cars and more cars (heard somewhere cars per household is ticking back up). Those that aren’t in that bracket don’t buy new and if they do they hold it until it dies. Not sure how the calculate leases but that might have an effect lease rates on pickups can be cheap and the MSRP on those is fairly high.

    • 0 avatar
      SaulTigh

      That’s essentially correct. Recent studies looking into the “shrinking middle class” have found that once the effects of Johnson era “Great Society” programs were felt, the poverty rate in the United States has been remarkably stable. The middle class has shrunk though, because members have moved into the upper class (defined as the top 20% of household income).

      I feel like you can see the effects everywhere…new car sales, the overwhelmingly plush new housing construction etc. The hundreds-of-millionaires and billionaires at the top get all the press and adulation from the masses, but there are a LOT of people running around with a net worth over 1 million dollars. Some of this is of course due to inflation, but I have relatives that are retired with a net worth of over 1 million, and she was a school teacher and he was a traveling salesman. Years of frugal but not miserly living and wise investing massively paid off and most of their boomer friends are living very similar stories. Both of them came from poverty.

      • 0 avatar
        bd2

        The middle class has’t “shrunk” primarily b/c members have moved into the upper class; it has shrunk b/c wages have have remained stagnant (and w/ inflation, have lost earning power) and b/c the Great Recession wiped out the what wealth the middle class had (value of their homes).

        The wealthy, otoh, have gotten, well, wealthier (esp. the top 0.5%); haven’t seen these levels of wealth disparity since the time of the Robber Barons.

        Ironically, the “Pax Americana” (1950-60’s) that a certain segment of the pop. pines for was during a time of great wealth distribution.

        High tax rates on upper incomes, govt. programs (GI Bill) which were instrumental in the growth of the middle class (via tuition, housing, etc. aid); other govt. spending such as massive infrastructure projects (the Interstate Highway System, Tennessee Valley Authority, etc.) which paid dividends down the road.

        • 0 avatar
          Vulpine

          Just a note, bd2: The TVA served multiple purposes, not least of which was flood control– in the 1930s. Improvements were made, even up into the 70s, where one Tennessee River hydroelectric dam was shut down and moved about 5-8 miles downstream, where it would be much more effective for both flood control and power generation.

        • 0 avatar

          So the upper class did get larger from some middle class moving up (depends on what measure but I think most estimates are under 5% of the middle class moved up in the last 30 years. But the bigger issue is the people left in the middle class have not seen an increase in income so they are still moving slowly towards working poor. Basically you have 50-60% of the country in the middle class. You then have 20-30% in lower class down to poverty. You then have 20% that are upper middle on up to just plain wealthy. The top 20% and the bottom 5% have seen improvements but the middle is kind of stuck and actually falling backwards thanks to inflation.

  • avatar
    Groovypippin

    I sell cars. Folks either want a well equipped new vehicle, usually a crossover, or a well equipped used vehicle if they don’t have the budget for the former. And this is in Canada, where they market for small vehicles is much more robust than in the US. And in the Canadian city with the highest proportion of sub-compact vehicle sales in Canada.

  • avatar
    APaGttH

    B&B: Who would ever spend $68K on a Suburban.

    America’s top 20%. Hold my craft microbrew and watch this…

    • 0 avatar
      SaulTigh

      I sat in a slightly used Navigator the other day (20,000 miles) and wanted it real real bad. They were asking $75k so I walked away.

      Next recession and or gas crunch, if my household stays employed, it’s on like Donkey Kong.

      • 0 avatar
        cdotson

        I’ve been shopping 2-4yo Expedition ELs with 2x-3x that mileage at HALF that price for the wife.

        They’re *ALL* former rental cars without a notable exception that I can recall.

        • 0 avatar
          gtem

          The former fleet Ecoboosted Expeditions (old steel body style) have caught my attention as well. The propensity for older expeditions to flake off paint and corrode the aluminum parts of their sheetmetal (ironic, no?) and the cheap interiors are keeping me away I think, but they are an undeniable value for someone that wants SUV capability and the best interior room short of a minivan. The 3.5L Ecoboosts seem to be holding up well enough, and are a good match power-wise to the heavy steel Expedition (much better than the old 5.4L they were saddled with). My favorite current SUV value is likewise ex-rental Armada SVs: massively higher quality feeling vehicles in terms of interior materials and how they are put together, but they have substantially less interior/cargo room than even a non-EL Expedition.

  • avatar
    brn

    Two data points are interesting, but do not make a trend. What’s the trend over the last six years? What’s happening over the next three? Let’s not make long term assumptions over two data points.

  • avatar
    Hummer

    Is it possible that there’s just nothing sub 20k that’s interesting? Sub 20k gets me into compact/midsize 4cyl FWD crapboxes and not much else. Color me surprised that no ones interested.
    Build an actual SUV (BOF,solid axle(s)) with large 4cyl or V6 for sub 20k and see what happens.

    • 0 avatar
      Drzhivago138

      Is such a thing even possible? No, really–is it possible in this day and age to build a small BOF SRA (not even asking about SFA) SUV that meets MPG and emissions regs, isn’t a death trap, and has reasonable creature comforts while still being a basic sub-$20K vehicle?

      • 0 avatar
        Hummer

        I’d have to imagine its possible, I mean the amount of money to develop the Toyota Corolla for instance could surely have been used to build something the size of (or smaller) a first gen S10 Blazer; use old fashioned leaf springs, a log axle at the rear, well engineered frame for crash scores, and a 2.5L 4 cylinder with 160-180HP.

        I would have to imagine its possible, would it get 30MPG? Maybe?

        In my 87 S10 Blazer I replaced the 2.8 with a 3.4 (and 4.3l throttle body), my poorly tuned creation (not yet fully broken in) managed 24 MPG on the highway to the beach. Mind you it was running rich because the injectors were for a bigger engine and I did not have them leaned down, the old 4 speed had to deal with 4:11 (mountain package) gear set, and the truck was loaded down on the trip. If I had it running perfectly I’m sure it could have returned at least 25, change the gears to 3.56 or 3.73 and that might be another 1 mpg.

        Now put a modern 4 cyl and 6+ speed transmission in it, how much higher can it go? The the argument becomes safety equipment would weigh it down, yes sure but I can’t imagine it would be enough to kill mpg.

        I have to imagine it would be possible

    • 0 avatar
      Hummer

      A Mahindra Roxer type vehicle wth minimal safety equipment would kill it. Despite its many short comings the B&B would bash it for – some people want cheap cars that don’t remind them of a suppository.

    • 0 avatar
      eggsalad

      $20k will get you into a stripped-out Frontier.

      It’s almost an SUV, just add a shell.

  • avatar
    eggsalad

    Transactions prices on the rise, so are interest rates. Perhaps at some point, people will stop confusing what they *want* with what they *need*.

    A coworker just got into a $400/mo LEASE on a Wrangler, because he couldn’t afford the $700/month loan payment. I rest my case.

    • 0 avatar
      2drsedanman

      “… a $400/mo LEASE on a Wrangler, because he couldn’t afford the $700/month loan payment.”

      This. Most people are more concerned with the monthly payment than the transaction price. Using the above scenario, the person would also rather lease a Wrangler for $400/month than own a $20k dollar car for the same payment, essentially a double whammy. In the battle of wants and needs, wants are usually the clear winner for most folks.

    • 0 avatar
      remusrm

      Its so true. Most get mesmerized by gadgets and safety systems that cost nothing, but they pay idiot tax for them. Its just a matter of time before SHTF in car market.

  • avatar
    DenverMike

    What’s in it for me to not simply keep driving my ’16 Accent, Fiesta, Rio, Verse, Spark (or similar), etc, (into the ground) and what is it about the ’19 version of any of those that I should be terribly excited about?

    Yeah it would be a brand new car (dipped in ArmorAll) for a few minutes, then what? Most can’t tell a ’16 from a ’19 in the cheapskate sedan/hatch arena. Can YOU? That’s nothing to brag about btw.

    Either way your sparkling new El Cheapo, miser ride is gonna look like sh!t in traffic with or parked with 2019 $80K glamour vehicles all around.

  • avatar
    bd2

    The Elantra is probably not the best image to have been used for this article as sales are up 4% YTD.

  • avatar
    CincyDavid

    Well, I just spent 15 minutes doing some quickie online research about what constitutes “middle class” and learned to my chagrin that, at approximately 4x median income for the county which we live in, my wife and I are not middle class at all, but “upper class” whatever that means. The problem is, we don’t feel like it. If I had to define our lifestyle it’s comfortably middle class…3 bedroom brick ranch in a subdivision, no luxury cars, 2-3 short vacations to FL every year. We both work 6 days a week, she’s an RN and I’m in deathcare. We’re making it, but surely don’t feel like money is piling up around our ears. Cincinnati’s cost of living is relatively low too, we’d be scraping and scrounging if we had our current income in NYC or California.

    My little ’17 Jetta was out the door for under $20k, and if something happened to it that I needed to replace it today, I’d either get another one just like it, or spring for a Passat if I was feeling like a bigshot. People just don’t want little cheap sedans or hatchbacks.

  • avatar
    Peter Gazis

    Navigator sales up 82%; Focus discontinued.
    This is all Ford’s Fault.

  • avatar
    tomLU86

    I think bd2 said it nicely and succinctly mentioned key reasons why this is so.

    My first thought reading this piece, is, one more sign the rich are getting richer.

    The median transaction price for a new car (whatever that means, since many cars, especially higher-priced ones are leased) is around $35k, right?

    “Middle class” people today don’t have that kind of money. Low interest rates on long-term notes help…but the low interest part is coming to a close.

    The middle class IS shrinking–and I don’t view it as a good thing. Some of that is because they are moving up–which is great! But for every middle class family that moves up to ‘upper class’, I’d say FIVE are sliding backwards to “lower middle class / working poor”. Perhaps that ratio is even higher.

    One only has room for so much stuff…when one has it, one gets more expensive stuff. Those who have (and there are many–remember, America has over 300 MILLION people now, vs 200 in 1970) and want to enjoy their wealth go to Norstroms, not Wal-Mart. They’re gonna buy a Benz or BMW or Lexus or Tahoe or loaded pick-up truck, not a Camry or Corolla or Cruze or Elantra.

  • avatar
    Carrera

    I like cars like most guys on this site but I am a realist too. I have a 92 mile commute daily. As soon as it started I traded in my 17 mpg paid pick up truck which ran great but needed 1500 dollars in maintenance work ( tires, timing belt, wheel bearings) for a 2 year old, soul sucking loaded Corolla S plus with a manual transmission. The Corolla had 9,000 miles on it and I got it for $14,000 with a 2.9%. Since it was certified, I got 1 year free maintenance.
    Could I have afforded a slightly used BMW 328 or a New Accord? Of course, but I don’t need a 25,000 plus vehicle to go to work and back for 92 miles. The Corolla gets 40 mpg, it is the definition of reliable and extremely cheap to maintain. It isn’t sexy, but it isn’t a clown car either. It does the job.

    • 0 avatar
      Carrera

      And I forgot to mention…I have a co-worker with the same commute who can afford pretty much anything he wants under $60,000 but what did he get? A brand new Hyundai Elantra Value Package for $16,500. Why don’t more people do this?

      • 0 avatar
        Hummer

        Commutes that long yell work truck in my head. If my company expects me to do that everyday then I expect them to give me a truck and pay the fuel for my travel. – or at very least pay me mileage.

      • 0 avatar
        Scoutdude

        Because if you are spending ~2hrs a day driving just to get to and from work many want a nicer car to spend that time in.

        • 0 avatar
          Carrera

          Yeah, but the Corolla, the newer models aren’t that bad. I was looking at a new Civic but found the Corolla more comfortable. The new Corolla is as big as a Camry from 7-8 years ago. I just can’t see myself doing 35,000/year in a car in a too nice of a car. The minimalist in me…

      • 0 avatar
        remusrm

        because its easy to get payments on a flashy car and pay forever on it, or lease and pay forever to rent!

  • avatar

    Yeah I did 110 miles a day for a while in compacts and subcompacts. It works fine and the economics are great but it wears on you compared to the AWD wagons and now comfy large sedan that I have commuted with since.


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