When it comes to picking their next set of wheels, U.S. drivers have long believed that “more is more.” But high interest rates and rising prices for new cars are making some people look at smaller cars.
In the past few months, sales of smaller cars have grown faster than sales of big and midsize SUVs and pickup trucks. This shows that people who want to buy a new car are increasingly choosing to downsize.
Edmunds.com expert Ivan Drury said that people who are buying their first car or a car for their family are looking for these kinds of entry-level cars. “They are moving toward options that are less expensive,” he said.
AlixPartners’ managing director for automotive and industrial, Dan Hearsch, said, “it’s not about the price, it’s about the payment” for the “vast majority” of people who buy cars. He said that the current state of the economy is pushing people toward cars they can buy.
Automobile companies are realizing that smaller cars have a place in the market and can bring in new or younger customers.
However, generally, carmakers have made more money from bigger, more feature-packed cars, with smaller cars making less money as the price goes down.
“People are interested, and there is a lot of it, but it’s hard to say if it will make money,” Hearsch said.
But the downshift probably won’t last for long.
Drury from Edmunds.com remembered that many people turned in their Chevy Tahoes for subcompacts during the 2008 financial crisis, when gas prices were going up. However, he also said that within a year, the market was full of these smaller cars.
“If people didn’t have to worry about money so much right now, they would naturally choose bigger cars,” Drury said.
“Consumers find it hard to go back and downsize,” he said, adding that people want the features they’re used to, like the bigger touchscreens, remote starters, and air-conditioned seats that are usually found in bigger cars.
It’s possible for some buyers to end up in the used-car market, but not all of them. Drury said, “Buying a used car is a whole different ballgame.”
A lot of people are busy and don’t have time to do the work and study that is needed to buy used cars. And for some, the peace of mind that comes with having a brand-new car is more important than the money they save.
Another thing to think about is that new cars that cost less than $30,000 are becoming harder to find. This is because many automakers have stopped making their cheaper, less successful cars in recent years.
The online car market Cars.com CARS 0.39% recently said that its platform had only 333,000 new cars priced less than $30,000. This is down from 1.1 million in July 2019.
The average price of a new car has stayed around $49,000, and the supply keeps going up, “with the most significant inventory rise in mid- to high-priced vehicles,” according to Cars.com.
Cars.com said that the used-car market has its own problems, like the fact that there aren’t many lightly used cars with low mileage.
The company said that the number of vehicles priced between $30,000 and $49,000 dropped by 15% year over year. This was because there weren’t as many one- to three-year-old cars in that price range.
Cars.com also said that used cars priced under $20,000 now have an average of 93,000 miles on them, which is 33% more than they did five years ago.
