What happened to all the cheap new cars?

Photo (c) Maskot - Getty Images

There are fewer of them and rising interest rates make available models even more expensive

Could it be that what happened to the housing market has now affected the automotive market? Prices have jumped and so have interest rates, meaning fewer new cars are affordable for the typical buyer.

Consider this: Five years ago the average new vehicle transaction price was $35,794. Last month, according to a new report from automotive publisher Edmunds, it was $47,713. That means the average price consumers pay for a new car or truck has risen 33% in just five years.

Remember when there were lots of new cars with price tags at $20,000, and sometimes even less? Good luck finding one these days. 

Take a look at Edmunds’ transaction data from March 2023 compared to March 2018:

  • 0.3% of new vehicles sold were $20,000 or under, compared to 8% five years ago.

  • Just 4% of new vehicles sold were $25,000 or under, compared to 24% five years ago.

  • 17% of new vehicles sold were under $30,000 compared to 44% five years ago.

What happened? Two things actually. Automakers began phasing out small, inexpensive sedans because they weren’t all that popular and, more importantly, had smaller profit margins. At the same time, consumers began buying more expensive vehicles because they could finance them for seven years.

Is $60,000 now the norm?

Edmunds transaction data from March 2023 compared to March 2018 reveals:

  • 17% of vehicles sold were $60,000-plus compared to 6% five years ago.

  • 10% of vehicles sold were $70,000-plus compared to 3% five years ago.

Edmunds’ research also shows that five years ago, only 5% of full-size pickup trucks sold for more than $60,000. Last month, 50% did.

SUVs have always cost more than sedans and five years ago, 54% of large SUVs carried a sticker price above $60,000. Last month, the percentage was 94%.

It’s worth noting that during most of that five-year period money was cheap. New car interest rates were around 3% – sometimes less. Now they are around 7%, meaning monthly payments are through the roof.

The Washington Post recently reported that the average monthly payment for a new car or truck was a record $730 in the first quarter, up from $656 in 2022. What's more, 16.8% of car buyers are paying $1,000 or more a month.

This squeeze shows no sign of ending anytime soon. The March Consumer Price Index (CPI) shows the price of new cars rose another 0.4% last month while used car prices continued to fall.

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