Average Automotive Pricing Window Continues Shifting Upwards
Now that fuel prices are popping off and it’s becoming glaringly obvious that we’re falling into another recession, one would hope that automakers would be prioritizing their more economical models. Unfortunately, most manufacturers operating in North America spent the last decade culling the smallest models from their lineup. Domestic brands took the practice so far that several no longer offer traditional cars, opting instead for compact crossover vehicles yielding higher price tags and broader profit margins. Foreign brands were only marginally more reserved with the ax.
This has helped move the average vehicle transaction price beyond $42,000 in the United States, according to Edmunds, with used rates sitting somewhere around $28,000. Though the cause isn’t entirely down to there being a complete lack of econoboxes on the market. Increased regulations and the industry’s newfound obsession with connectivity/tech have also increased pricing. But it doesn’t change the fact that we’re now confronting a situation where almost nobody is selling the kind of small, affordable vehicles that cater to shoppers needing to be thrifty right when they really need them.
Automotive News even reported this week that the existence of sub-$20,000 cars may be in jeopardy as the market for them dwindled. Realizing it could make more money by selling aspirational crossovers, the industry made a conscious shift away from small hatchbacks (e.g. Volkswagen Golf, Honda Fit, Chevrolet Sonic, Ford Fiesta, Toyota Yaris) and sedans that weren’t selling in large volumes and made them less money per sale than SUVs, crossovers, or pickup trucks.
“For most shoppers, smaller, inexpensive cars aren’t dream vehicles, so the thought of spending a bit more and getting into an SUV is very appealing,” said Jessica Caldwell, executive director of insights at Edmunds, told the outlet. “Lower interest rates and leasing can help consumers stretch into vehicles they might not have believed they could afford previously.”
Perhaps. But we recently covered just how outrageous auto debt has become and the increasingly arbitrary nature in which lenders apply interest rates as terms stretch out longer than ever before. U.S. citizens are now on the cusp of carrying around $1.42 trillion in vehicle debt — a new record and double what would have been considered normal just 10 years prior.
“The pendulum has swung so far into the pricier vehicle categories that we may see a swing back a bit,” Caldwell continued. “But perhaps we will see different body styles in the cheaper categories, like the Ford Maverick, rather than the compact car.”
“However, with autonomous technology and electrification on the rise,” she added, “offering less expensive options seems like it will be challenging for automakers.”
Autonomous driving technology currently feels like a grift only a few brands are willing to continue running. But advanced driving aids continue being installed into increasingly more vehicles every day and electrification is something still being championed by governments that prefer crony capitalism to the free-market variety and the industry at large. And both items are making vehicles cost more as supply shortages and rolling production stoppages have become the norm.
Here’s the reality of the situation. Manufacturers have removed their most affordable models in the pursuit of profit, unnecessary hardware inclusions are making new vehicles more expensive as supply chain problems make components difficult to source, inflation is mucking up the value of the dollar, and there’s a shortage of vehicles driving up used prices to a point where it might not even make sense to buy secondhand anymore.
“While some budget-conscious shoppers may find better value and choices by going used — if they can successfully navigate this fiery market right now — there are still a lot of consumers who prefer to buy new,” said Robby DeGraff, industry analyst at AutoPacific. “Stagnant wages and the rising costs of living are only adding extra stress into this quest of trying to find a great vehicle without spending a fortune.”
If you ask them, automotive executives will tell you that the small-car segment abandoned them and not the other way around. This isn’t their fault, nor is it the fault of legislators that helped pass initiatives the drove up inflation, or the United States’ inability to manage supply chains that start thousands of miles offshore. It’s nobody’s fault, which is why you should just happily pay an extra six grand for that used car you hate but desperately need to get to work.
Maybe there’s room for the downtrodden in the realm of new vehicles, however. Surely with the market in such a sad state, the industry has something on the lower end of the scale catering to cash-strapped shoppers. Right?
DeGraff recently asked his Twitter followers to price their favorites for vehicles under $20,000 — including shipping charges.
Including the destination charges in the price makes the under-$20,000 challenge tougher. Rising transportation costs are translating to ever-higher factory destination charges, a nonnegotiable add-on to prices.
The new Ford Maverick would have been an easy choice, given its attractive body style and standard hybrid powertrain. But with shipping, the base Maverick rises to $21,490. That’s also true for the Toyota Corolla and Honda Civic, which were easily less than $20,000 with shipping in years past, but no longer.
One of DeGraff’s followers chose a Kia Rio hatch with a technology package and automatic gearbox — for $19,910 including shipping. The Kia Soul would have been a valid pick a couple of years ago, but now that it has discontinued its less expensive manual-transmission option, the Soul starts above the $20,000 threshold.
That realistically leaves you with the Chevrolet Spark, Kia Rio, Hyundai Accent, and Nissan Versa (all in their more basic formats) if you’re absolutely positive you need a vehicle to come in under $20K. But even then, that’s not even close to the price you’ll be paying after you get stuck with a 72-month lease with a lofty annual percentage rate. While that is something you can help bring down with a fat down payment, you’re probably looking at bargain-basement rides specifically because you don’t have that kind of money.
Electric vehicles are also an option. But the savings you’re likely to incur via government incentivizing likely won’t bring you below the $20,000 threshold since they tend to cost more than gasoline-driven automobiles. Meanwhile, they’ll also need to fit into your lifestyle (range anxiety) and you’ll have to do most of your charging at home to keep operating costs below what you would have otherwise been spending at the pump.
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- Bobbysirhan The Pulitzer Center that collaborated with PBS in 'reporting' this story is behind the 1619 Project.
- Bobbysirhan Engines are important.
- Hunter Ah California. They've been praying for water for years, and now that it's here they don't know what to do with it.
- FreedMike I think this illustrates a bit of Truth About PHEVs: it's hard to see where they "fit." On paper, they make sense because they're the "best of both worlds." Yes, if you commute 20-30 miles a day, you can generally make it on electric power only, and yes, if you're on a 500-mile road trip, you don't have to worry about range. But what percentage of buyers has a 20-mile commute, or takes 500-mile road trips? Meanwhile, PHEVs are more expensive than hybrids, and generally don't offer the performance of a BEV (though the RAV4 PHEV is a first class sleeper). Seems this propulsion type "works" for a fairly narrow slice of buyers, which explains why PHEV sales haven't been all that great. Speaking for my own situation only, assuming I had a place to plug in every night, and wanted something that ran on as little gas as possible, I'd just "go electric" - I'm a speed nut, and when it comes to going fast, EVs are awfully hard to beat. If I was into hypermiling, I'd just go with a hybrid. Of course, your situation might vary, and if a PHEV fits it, then by all means, buy one. But the market failure of PHEVs tells me they don't really fit a lot of buyers' situations. Perhaps that will change as charging infrastructure gets built out, but I just don't see a lot of growth in PHEVs.
- Kwik_Shift Thank you for this. I always wanted get involved with racing, but nothing happening locally.
What recession? What glare? Please explain.
Not necessarily a recession now but it is a period of high inflation with less goods available than demand for them which causes higher prices. Recessions usually follow a period of high inflation and usually you don't know there is a recession until after it has happened.