Cheap Cars Are Dead

Cheap Cars Are Dead

Soon there won’t be a single new car in the US for under $20,000.

By the end of next year, there might not be a single new car in America that costs less than $20,000. The Mitsubishi Mirage and Kia Rio are headed to the big junkyard in the sky, as will the Nissan Versa. They’ll follow nearly a dozen other cars in the sub-$20,000 category that have died off since 2019 in a mass exodus from affordability.

Much of it has to do with Covid. Prior to 2019, the average cost of a new car was about $38,000—bolstered, in part, by each brand’s most affordable offerings. Things have changed; supply chain issues throughout 2020 and beyond pushed production costs higher. But that also gave companies an excuse to quietly kill their most affordable offerings with no replacement in sight.

The Ford Fiesta and Chevrolet Cruze both got the axe at the end of 2019. Smart pulled out of the US market entirely that same year. And between 2019 and 2023, we lost the Hyundai Accent, Ford EcoSport, Volkswagen Beetle, and Chevrolet Spark—at one point the cheapest car in America.

2024 Nissan Versa

But this isn’t necessarily a new phenomenon, notes Tyson Jominy, Vice President of Data & Analytics at J.D. Power.

“Discontinuing the cheapest cars predates Covid by a number of years,” he says. “What we saw since Covid and the supply chain issues are companies prioritizing higher priced models within their lineups and within each model prioritizing more content and features to push up transaction prices. This started when microchips were scarce, so automakers had to choose wisely where to put their limited resources.”

He notes that some brands, like Honda, are reintroducing cheaper trim levels as the market improves. But even a car like the Civic—a historically affordable compact—still costs nearly $25,000 in 2024. The mid-size Accord is now a $28,000 proposition—$4,000 more than it was in 2019. And you can’t get into a new CR-V for less than $30,000.

2024 Honda Civic

But even a car like the Civic—a historically affordable compact—still costs nearly $25,000 in 2024.

That’s well on par with increasing average vehicle transaction prices, which were $46,000 in 2023, a jump of 36% from 2019 when the average was just $33,700. But with the average salary in the US in 2023 sitting at just under $60,000, that means most Americans fall below the threshold of being able to realistically afford a new $46,000 car without a five-year loan at a minimum—especially when interest rates and dealer markups through the roof. Compare that to 2019, when the median income was over $68,000 and interest rates were hovering around 2%.

But there is a glimmer of hope. Average transaction prices actually decreased for the first time since the pandemic last summer, and continue to be down.

“J.D. Power forecasts new vehicle prices to fall $1,100 on average over the course of 2024 to $44.9K,” Jominy tells Motor1. “Only the second time this century that prices will fall on a full-year basis (the previous year was during the Global Financial Crisis). In February, we forecast new vehicle transaction prices will decrease over $1,900 to $44,045.”

So, potentially good news for buyers in the market for a new car. But the used car market is still suffering from the sales collapse that started in July 2021 and persisted throughout 2022. Even fewer used cars will be available to consumers next year.

“The supply of used vehicles up to five years old was 16.3 million pre-Covid,” says Jominy, “but 2024 will be the fourth straight year of contraction to 13.7 million. 2025 will be the bottom when the supply of these used vehicles falls to 12.5 million.”

2024 Mitsubishi Mirage

But as truly affordable cars become more scarce, that’s not to say there isn’t space in the market for new offerings under $30,000. “There is ample room for any automaker to capture the sub-$30,000 price range,” Jominy says, “which has been nearly abandoned to the used car market. Pre-covid, 47% of new vehicle sales were sub $30,000, but today, only 17% of new vehicles are below $30,000. Used vehicles are now the primary offering in the sub-$30K range.”

While many established automakers are shying away from sub-$30,000 offerings in search of higher transaction prices, there’s an unlikely source pushing to bring affordable cars to America: China. Chinese automakers like BYD, Chery, and Hongqi are making a dent in the European car market with more than 400,000 cars delivered to customers in Europe in 2023. The current Chinese market share in Europe is about 8%, but experts expect that number to grow to nearly 15% by 2025.

Chery—one of the biggest automakers in all of China—wants to set up shop in the US in the next few years. The company already sells a number of cars and SUVs in Mexico for under $30,000 (adjusted to US dollars), and Executive Vice President of Chery Mexico, Brian Wu, sees a path to the US.

Chery Arrizo 5

Chery—one of the biggest automakers in all of China—wants to set up shop in the US in the next few years.

“[The U.S. market] is very important for us. We already have a roadmap of how to enter the U.S., but frankly speaking, I can’t say much more about our strategy,” Wu said in an interview with Motor Trend last year.

Chery attempted to sell cars in the US initially in 2005, then again in 2020. Both bids failed. But the company promises that this time could be different. “I don’t want to repeat the same story,” Wu said. “Today is not like before. Not like it was 20 years ago.”

So what of the sub-$20,000 new car segment as we know it? It’s probably dead. New car sales were 15.5 million units in the US last year and show no signs of slowing. Sales figures continue to rise, even with vehicles getting more expensive, which means there’s little incentive for automakers to lower their prices now.

Affordable cars, you will be missed.

RIP