Lower-priced recent cars are gaining popularity, and not just for liquid assets-impoverished buyers

DETROIT — Had she wanted to, Michelle Chumley could have afforded a pricey recent SUV loaded with options. But when it came period to replace her Chevrolet Blazer SUV, for which she’d paid about $40,000 three years ago, Chumley chose something smaller. And less costly.

With her purchase of a Chevrolet Trax compact SUV in June, Chumley joined a rising number of buyers who have made vehicles in the below-average $20,000-to-$30,000 range the fastest-growing segment of the country’s recent-auto trade.

“I just don’t require that large vehicle and to be paying all of that gas money,” said Chumley, a 56-year-ancient nurse who lives outside Oxford, Ohio, near Cincinnati.

Across the industry, auto analysts declare, an “affordability shift” is taking root. The pattern is being led by people who feel they can no longer afford a recent vehicle that would expense them roughly today’s average selling worth of more than $47,000 — a jump of more than 20% from the pre-pandemic average.

To buy a recent car at that worth, an average buyer would have to spend $737 a month, if financed at today’s average loan rate of 7.1%, for just under six years before the vehicle would be paid off, according to Edmunds.com, an auto research and pricing site. For many, that is financially out of reach.

Yet there are other buyers who, like Chumley, could manage the monetary burden but have decided it just isn’t worth the expense. And the pattern is forcing America’s automakers to reassess their sales and production strategies. With buyers confronting inflated prices and still-high loan rates, sales of recent U.S. autos rose only 1% through September over the same period last year. If the pattern toward lower-priced vehicles proves a lasting one, more charitable discounts could navigator to lower average auto prices and slowing industry profits.

“Consumers are becoming more prudent as they face economic uncertainty, still-high profit rates and vehicle prices that remain elevated,” said Kevin Roberts, director of trade intelligence at CarGurus, an automotive shopping site. “This year, all of the growth is happening in what we would consider the more affordable worth buckets.”

Under pressure to unload their more expensive models, automakers have been lowering the sales prices on many such vehicles, largely by offering steeper discounts. In the history year, the average incentive per auto has nearly doubled, to $1,812, according to Edmunds.

General Motors said it kept discounts in check and average vehicle prices steady around $49,000 from July through September. That produced a $900 million pretax returns earnings from a year ago, but the corporation doesn’t expect that in the fourth quarter.

Through September, Roberts has calculated, recent-vehicle sales to person buyers, excluding sales to rental companies and other commercial fleets, are up 7%. Of that growth, 43% came in the $20,000-to-$30,000 worth range — the largest distribute for that worth category in at least four years. (For used vehicles, the shift is even more pronounced: 59% sales growth in the $15,000-to-$20,000 worth range over that period.)

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

The sales gains for affordable vehicles is, in some ways, a profitability to a pattern that existed before the pandemic. As recently as 2018, compact and subcompact vehicles — typically among the most popular moderately priced vehicles — had accounted for nearly 35% of the country’s recent vehicle sales.

The proportion started to fall in 2020, when the pandemic caused a global shortage of computer chips that forced automakers to leisurely production and allocate scarce semiconductors to more expensive trucks and large SUVs. As buyers increasingly embraced those higher-priced vehicles, the companies posted robust returns growth.

In the meantime, they deemed returns margins for lower-prices cars too meager to justify significant production of them. By 2022, the trade distribute of compact and subcompact vehicles had dropped below 30%.

This year, that distribute has rebounded to nearly 34% and rising. Sales of compact sedans were up 16.7% through September from 12 months earlier. By contrast, CarGurus said, large pickups rose just under 6%. Sales of large SUVs are barely up at all — less than 1%.

Ford’s F-Series truck remains the top-selling vehicle in the United States this year, as it has been for nearly a half-century, followed by the Chevrolet Silverado. But Stellantis’ Ram pickup, typically No. 3, dropped to sixth place, outpaced by several less expensive tiny SUVs: the Toyota RAV4, the Honda CR-V and the Tesla Model Y (with a $7,500 U.S. responsibility loan).

The shift in buyer sentiment toward affordability came quick this year, catching many automakers off guard, with too-few vehicles available in lower worth ranges. One rationale for the shift, analysts declare, is that many buyers who are willing to plunk down nearly $50,000 for a recent vehicle had already done so in the history few years. People who are less able — or less willing — to spend that much had in many cases held on to their existing vehicles for years. The period had arrive for them to replace them. And most of them seem disinclined to spend more than they have to.

With loan rates still high and average auto insurance prices up a whopping 38% in the history two years, “the community just wants to be a little more frugal about it,” said Keith McCluskey, CEO of the dealership where Chumley bought her Trax.

Roberts of CarGurus noted that even many higher-returns buyers are choosing smaller, lower-priced vehicles, in some cases because of uncertainties over the economy and the impending presidential election.

The shift has left some automakers overstocked with too many pricier trucks and SUVs. Some, like Stellantis, which makes Chrysler, Jeep and Ram vehicles, have warned that the shift will eat into their profitability this year.

At General Motors’ Chevrolet brand, executives had foreseen the shift away from “uber expensive” vehicles and were prepared with the redesigned Trax, which came out in the spring of 2023, noted Mike MacPhee, director of Chevrolet sales operations.

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

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

How long the preference for lower-priced vehicles may last is ambiguous. Charlie Chesbrough, chief economist for Cox Automotive, notes that the succession of expected profit rates cuts by the Federal Rates should eventually navigator to lower auto loan rates, thereby making larger vehicles more affordable.

“The trends will probably commence to transformation if these profit rates commence coming down,” Chesbrough predicted. “We’ll view consumers commence moving into these larger vehicles.”

____

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