Why it’s getting harder to find a new car under $25,000

Key Concepts

• Decline of Affordable Cars: The significant reduction in the number of new vehicle models available for under $25,000 in the U.S.
• Shift in Consumer Demand: A move towards higher-priced vehicles, particularly SUVs, over traditional entry-level cars.
• Impact of Tariffs & Inflation: The potential and realized effects of tariffs and broader economic inflation on vehicle production costs and prices.
• Role of Regulations: The influence of fuel emission and safety standards on vehicle pricing.
• EV Incentives & Reversal: The impact of electric vehicle tax credits on affordability and the consequences of their rollback.
• Production Timelines: The lengthy process involved in developing and manufacturing new, affordable vehicle models.

The Disappearance of Affordable New Cars

The availability of new cars priced under $25,000 in the United States has drastically decreased. In 2017, 36 models fell into this price range; currently, only five remain. This shift is driven by a confluence of factors impacting both consumer behavior and production costs.

Changing Consumer Preferences & Automaker Response

Despite economic conditions that might suggest increased demand for cheaper vehicles, Kelley Blue Book data reveals a surprising trend: in November, cars priced over $75,000 outsold those under $35,000. Automakers have responded to this shift in consumer demand, pivoting away from traditional entry-level cars and focusing on small SUVs. According to a Motor Trend features editor, this is because “the traditional entry-level car we always think of are just not moving.” This strategy is also financially advantageous, as SUVs generally offer higher profit margins. The cost of building an SUV on a shared platform with cars is relatively similar, allowing for successful sales at a higher price point.

The Role of Tariffs and Inflation

While tariffs implemented during the Trump administration haven’t yet fully translated into price increases, American car companies like GM and Stellantis acknowledge that they have initially impacted profits. They anticipate that these costs will eventually be passed on to consumers. The example of the redesigned Chevy truck, initially planned with a price tag under $22,000, illustrates this point. To mitigate tariff costs, production was moved to South Korea, resulting in a “dramatic” price increase. Furthermore, separating the impact of tariffs from general inflation is challenging, as “even with cars at half price it is hard to say how much of the increases are tariffs, how much are everything costs more.”

Regulatory Impact and Potential Solutions

Lawmakers have attempted to address affordability through regulatory changes. President Trump rolled back fuel emission standards, predicting a $1000 price reduction per new car. The Senate Commerce Committee is also examining how safety standards, such as automatic emergency braking and rear seat alarms, contribute to vehicle prices. However, experts like Tucker are skeptical of the effectiveness of these measures. He notes that previous relaxation of fuel economy standard enforcement had “limited impact” and that removing safety features would only result in “nowhere near what they are saying” in terms of price reduction.

Conversely, EV incentives, such as the $7,500 tax credit for North American-manufactured EVs under the Biden administration, demonstrably lowered costs, with some models like the Chevy Bolt falling below $30,000. The rollback of these incentives by the Trump administration is expected to hinder global competition and potentially pressure U.S. automakers to refocus on gas-powered vehicles. It’s argued that removing these incentives “will drive automakers to focus more on the entry-level” and prioritize basic features over “bells and whistles.”

Production Challenges and Future Outlook

Despite the potential for a return to affordable models, creating them is a lengthy process. Even if Ford were to initiate a project today to develop sub-$25,000 cars, the first vehicles wouldn’t be available for “five or six years.”

Recommended Affordable Vehicles

Despite the shrinking market, some affordable options remain. Experts recommend the Nissan Sentra, Kia K4, Subaru Crosstrek, Hyundai Venue, and Kia Soul. However, the Hyundai Venue and Kia Soul are described as “somewhat endangered,” with their future production uncertain.

In conclusion, the decline in affordable new cars is a complex issue stemming from shifting consumer preferences, economic factors like tariffs and inflation, regulatory changes, and the long lead times associated with vehicle development. While potential solutions exist, a significant return to the availability of numerous sub-$25,000 models is unlikely in the immediate future.