New cars with lower prices are gaining popularity, and not just for cash-strapped buyers

DETROIT (AP) — If she wanted to, Michelle Chumley could have bought an expensive new SUV full of options. But when it came time to replace her Chevrolet Blazer SUV, which she paid about $40,000 for three years ago, Chumley chose something smaller. And less expensive.

With the purchase of a Chevrolet Trax compact SUV in June, Chumley joined a growing number of buyers who have turned sub-average $20,000 to $30,000 vehicles into the fastest-growing segment of the new car market. of the country.

“I just don’t need that big vehicle and paying all that money for gas,” said Chumley, a 56-year-old nurse who lives outside Oxford, Ohio, near Cincinnati.

Across the industry, auto analysts say, an “accessibility 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 approximately the current average sales 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 per month, if financed at the current average loan rate of 7.1%, for just under six years before the vehicle is paid off, according with Edmunds.com, an automobile research and pricing site. For many, this is financially out of reach.

However, there are other buyers who, like Chumley, could afford the financial burden but have decided the cost is not worth it. And the trend is forcing North American automakers to reevaluate their sales and production strategies. With buyers faced with inflated prices and still-high loan rates, U.S. new car sales rose just 1% through September compared to the same period last year. If the trend toward lower-priced vehicles proves lasting, more generous discounts could lead to lower average car prices and slowing industry profits.

“Consumers are becoming more cautious as they face economic uncertainty, still-high interest rates and vehicle prices that remain high,” said Kevin Roberts, director of market intelligence at CarGurus, an automotive shopping website. “This year, all the growth is happening in what we would consider the more affordable price ranges.”

Under pressure to get rid of their most expensive models, automakers have been reducing the selling prices of many of these vehicles, largely by offering steeper discounts. Last year, the average incentive per car nearly doubled to $1,812, according to Edmunds. General Motors said it expects its average selling price to fall 1.5% in the second half of the year.

Through September, Roberts calculated, new vehicle sales to individual buyers, excluding sales to rental companies and other commercial fleets, rose 7%. Of this growth, 43% occurred in the $20,000 to $30,000 price range – the largest share for this price category in at least four years. (For used vehicles, the change is even more pronounced: 59% sales growth in the $15,000 to $20,000 price range during this period.)

Sales of compact and subcompact cars and SUVs from major auto brands are growing faster than in any year since 2018, according to data from Cox Automotive.

The gains in affordable vehicle sales are, 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 – accounted for nearly 35% of the country’s new vehicle sales.

The proportion began 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 adopted these higher-priced vehicles, companies saw robust profit growth.

However, they considered that the profit margins on lower-priced cars were too thin to justify significant production of them. In 2022, the market share of compact and subcompact vehicles fell to less than 30%.

This year, that percentage recovered to almost 34% and continues to rise. Sales of compact sedans increased 16.7% through September compared to the previous 12 months. On the other hand, CarGurus said, large pickup trucks were up just under 6%. Sales of large SUVs barely increased – less than 1%.

Ford’s F-Series truck remains the best-selling vehicle in the United States this year, as it has been for nearly half a century, followed by the Chevrolet Silverado. But Stellantis’ Ram pickup, normally No. 3, fell to sixth place, beaten by several cheaper small SUVs: the Toyota RAV4, the Honda CR-V and the Tesla Model Y (with a $7,500 US tax credit). USA).

The shift in buyer sentiment toward affordability came quickly this year, catching many automakers off guard, with few vehicles available at lower price points. One reason for the change, analysts say, is that many buyers who are willing to shell out nearly $50,000 for a new vehicle have already done so in recent years. People who are less able – or less willing – to spend so much have in many cases kept their existing vehicles for years. The time has come to replace them. And most of them seem unwilling to spend more than necessary.

With loan rates still high and average car insurance prices rising a whopping 38% over 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 his Trax.

CarGurus’ Roberts noted that even many higher-income buyers are choosing smaller, lower-priced vehicles, in some cases due to uncertainty about the economy and the looming presidential election.

The change has left some automakers saddled with too many more expensive trucks and SUVs. Some, like Stellantis, which makes Chrysler, Jeep and Ram vehicles, have warned the move will hurt their profitability this year.

At General Motors’ Chevrolet brand, executives anticipated the move away from “super expensive” vehicles and were prepared with the redesigned Trax, which launches in spring 2023, noted Mike MacPhee, Chevrolet’s director of sales operations.

U.S. sales of the Trax so far this year are up 130%, making it the best-selling subcompact SUV in the country.

“We are basically doubling our (Trax) sales volume from last year,” MacPhee said.

How long the preference for lower-priced vehicles might last is unclear. Charlie Chesbrough, chief economist at Cox Automotive, notes that the succession of expected interest rate cuts by federal rates should eventually lead to lower auto loan rates, thus making larger vehicles more affordable.

“Trends will probably start to change if these interest rates start to fall,” Chesbrough predicted. “We will see consumers start to migrate to these larger vehicles.”

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AP Economics Writer Christopher Rugaber in Washington contributed to this report.