Rising Popularity of Affordable New Cars: A Shift in Consumer Preferences
Emerging Trends in Vehicle Purchases
The automotive market is witnessing a significant shift towards lower-priced vehicles, particularly those priced between $20,000 and $30,000. This trend is not limited to budget-conscious buyers; even those with the means to purchase pricier models are opting for more affordable options. A prime example is Michelle Chumley, who, after owning a $40,000 Chevrolet Blazer, chose a more economical Chevrolet Trax compact SUV for her recent purchase.
Affordability Shift in the Auto Market
Industry analysts have identified an “affordability shift” as many consumers find themselves unable or unwilling to spend on vehicles that now average over $47,000—an increase of over 20% since the pandemic began. For many buyers, financing a vehicle at this price translates to monthly payments of approximately $737 for nearly six years, a financial commitment that feels out of reach for numerous consumers.
Sales Growth in Affordable Segments
As a result, buyers are increasingly turning to the lower price brackets. According to Kevin Roberts, director of market intelligence at CarGurus, all sales growth this year is occurring within the more affordable segments. New vehicle sales rose by just 1% through September compared to last year, with a notable 43% of that growth coming from the $20,000 to $30,000 price range—the largest share in four years.
Rising Discounts and Incentives
In response to changing consumer preferences, automakers are adjusting their pricing strategies. Over the past year, the average sales incentive per vehicle has nearly doubled to $1,812, prompting manufacturers to offer steeper discounts on pricier models to boost sales. General Motors managed to maintain average vehicle prices around $49,000 in the third quarter, resulting in a $900 million increase in pretax earnings compared to the previous year.
Market Recovery of Compact Vehicles
The growing demand for compact and subcompact cars is reminiscent of pre-pandemic trends when these vehicles represented nearly 35% of new vehicle sales. The proportion dropped during the pandemic due to chip shortages and increased production of higher-priced trucks and SUVs. However, 2024 has seen that share rebound to nearly 34%. Sales of compact sedans increased by 16.7% compared to last year, while sales of larger pickups rose by just under 6%.
Impacts on the Automotive Industry
This shift in buyer sentiment has caught many automakers off guard, leading to an overstock of expensive models while demand for affordable vehicles surges. With rising loan rates and an increase in average auto insurance prices by 38% over the last two years, consumers are adopting a more cautious approach to their purchases. Keith McCluskey, CEO of the dealership where Chumley purchased her Trax, noted that buyers are keen on being frugal.
Sales Success for Affordable Models
General Motors’ Chevrolet brand anticipated this trend and introduced the redesigned Trax in spring 2023. Sales of the Trax have soared by 130% this year, making it the best-selling subcompact SUV in the U.S. The company has successfully doubled its Trax sales volume compared to last year.
Future Outlook for Vehicle Purchases
While the current preference for lower-priced vehicles is notable, experts like Charlie Chesbrough from Cox Automotive suggest that anticipated interest rate cuts by the Federal Reserve could eventually shift consumer preferences back to larger vehicles. As auto loan rates decline, larger vehicles may become more affordable, prompting buyers to reconsider their options.
