Automakers abandoned the 'starter car' — and it's raising prices for everyone
Lower-end vehicles are more costly and less available than they used to be as automakers double down on higher-profit models.
GM
- Many car companies are prioritizing high-profit vehicles over starter cars.
- The percentage of vehicles listed under $30,000 dropped in half from 2019 to 2022.
- That’s bad news for the whole car-buying market.
Automakers are abandoning entry-level vehicles, often called "starter cars" — and it's a problem not just for buyers looking for a less-expensive one, but all car shoppers.
New vehicles had an average sticker price (MSRP) of $48,205 in January, according to Edmunds, with transaction prices not far behind, at $47,911.
Though those figures are averages, it's clear that lower-end vehicles are more costly than they used to be — a direction automakers have been moving in for years.
In 2019, about one-third of new vehicles had a sticker price under $30,000, according to J.D. Power. By 2022, that number was cut in half, with only about 17% priced there. While overall vehicle manufacturing fell by 2.7 million from 2019 to 2022, sub-$30,000 vehicles fell by 3.1 million.
It's "profit-maximizing behavior due to the supply chain crisis," Tyson Jominy, J.D. Power VP of data and analytics, told Insider. "It's not indicative of demand, which is very strong below $30,000."
Why is there a pricing crisis?
There are a few reasons automakers have gone this route. Part of it is related to the pandemic-induced inventory challenges brought on by the chip shortage.
"They shifted their focus of chips onto the things that the customers wanted the most," Whitney Yates-Woods, dealer principal of Yates Buick GMC in Goodyear, Arizona, said of automakers like GM — which includes larger vehicles and trucks. "But that meant that some of the cheaper stuff went by the wayside."
Some of this has been going on since before COVID, especially as many automakers discontinued sedans several years earlier.
Profit, as Jominy pointed out, is also a key factor — and automakers are even willing to sacrifice market share for it.
"The more economical vehicle market they're exiting as they find that profits are much greater on these higher dollar heavier units," Scott Kunes, COO of Kunes Auto and RV Group, which owns more than 40 dealerships in the Midwest, said.
"There is definitely a void happening in the market for those vehicles," Kunes added.
What car buyers can look out for
The used market isn't much better, Kunes noted — the average used vehicle transaction price was $29,226 last month, per J.D. Power — "which really puts a lot of pressure on that lower-end market, and there's no manufacturers really stepping up to fill that void."
While many shoppers have indicated they are willing to pay more for luxury vehicles and upscale features, the new and used vehicle cost dynamics are pricing a lot of other shoppers out of the car-buying market entirely.
It means many are holding on to their vehicles for longer; the average age of a car hit about 12 years recently.
"The lower-end models that they're not building are what's needed. And whoever starts to build those will start to capture some more market share," Ambrose Conroy, CEO at supply chain and manufacturing management consultancy Seraph, told Insider last month.
"I think the Hyundais, Kias of this world are very well positioned, whereas the GMs who have moved away from the 'every man's car' are going to struggle," Conroy added. "If they focus purely on luxury cars and high-end SUVs that cost $100,000, there are only so many people that can afford those."