Detroit – When it was time for Michelle Chumley to replace her Chevrolet Blazer SUV, she could have easily afforded a new, expensive SUV with all the bells and whistles. But instead, she chose something smaller and more affordable. And she’s not alone. Chumley’s decision to purchase a Chevrolet Trax compact SUV in June reflects a growing trend in the auto industry – an “affordability shift” that is reshaping the market.
At 56 years old, Chumley, a nurse from outside Oxford, Ohio, near Cincinnati, made a conscious decision to downsize her vehicle. “I just don’t need that big vehicle and to be paying all of that gas money,” she said. And she’s not alone. Across the industry, analysts are seeing a shift towards more affordable vehicles, led by buyers who can no longer afford the average selling price of over $47,000 – a 20% increase from pre-pandemic levels.
According to Edmunds.com, an auto research and pricing site, the average buyer would have to spend $737 a month for almost six years to pay off a new car at today’s average loan rate of 7.1%. For many, this is simply not feasible. As a result, more and more buyers are opting for lower-priced vehicles, forcing automakers to reassess their sales and production strategies.
Kevin Roberts, director of market intelligence at CarGurus, an automotive shopping site, explains that “consumers are becoming more prudent as they face economic uncertainty, still-high interest rates and vehicle prices that remain elevated.” This year, the majority of growth in the new auto market is happening in the more affordable price range of $20,000 to $30,000.
In response to this shift, automakers have been forced to lower the sales prices on their more expensive models by offering steeper discounts. In the past year, the average incentive per auto has nearly doubled to $1,812, according to Edmunds. General Motors has also announced a 1.5% drop in their average selling price for the second half of the year.
Through September, individual buyers have seen a 7% increase in new vehicle sales, excluding sales to rental companies and other commercial fleets. And of that growth, 43% came from the $20,000 to $30,000 price range – the largest share in at least four years. This trend is even more pronounced in the used vehicle market, with a 59% increase in sales in the $15,000 to $20,000 price range.
Cox Automotive data shows that sales of compact and subcompact cars and SUVs from mainstream auto brands are growing at the fastest rate since 2018. This is a return to a pattern that existed before the pandemic, when these vehicles accounted for nearly 35% of the new vehicle market. However, in 2020, the pandemic caused a global shortage of computer chips, leading to a decrease in production and a shift towards more expensive trucks and large SUVs. As a result, the market share of compact and subcompact vehicles dropped below 30%. This year, it has rebounded to nearly 34% and is continuing to rise.
While Ford’s F-Series truck remains the top-selling vehicle in the United States, followed by the Chevrolet Silverado, Stellantis’ Ram pickup has dropped to sixth place, outpaced by several smaller, more affordable SUVs such as the Toyota RAV4, Honda CR-V, and Tesla Model Y (with a $7,500 U.S. tax credit).
This shift towards more affordable vehicles has caught many automakers off guard, with too few vehicles available in the lower price ranges. One reason for this is that many buyers who were willing to spend nearly $50,000 on a new vehicle had already done so in the past few years. Now, it is the turn of those who are less able or willing to spend that much to replace their existing vehicles. And most of them are choosing to be more frugal with their purchases.
With high loan rates and a 38% increase in average auto insurance prices in the past two years, it’s no surprise that buyers are opting for more affordable options. Keith McCluskey, CEO of the dealership where Chumley bought her Trax, explains that “the public just wants to be a little more frugal about it.” Even higher-income buyers are choosing smaller, lower
