Magic 'under $20k' price point is disappearing

LOS ANGELES — Just a few years ago, nearly every automaker had an inexpensive car or small crossover to draw first-time buyers into a long-term relationship with their brands. These low-margin vehicles were often competent, fuel efficient and sold with a decent warranty.

But the industry transition to crossovers with advanced tech gadgets, along with rising buyer aspirations fueled by low interest rates, has made consumers less interested in sub-$20,000 vehicles. As a result, Honda has phased out the Fit, Toyota yanked the Yaris, Ford finished off the Fiesta and Focus, and Chevrolet sacked the Sonic.

Now, with the global semiconductor shortage pushing transaction prices for new vehicles to an average of $42,000 and used prices beyond $28,000, according to Edmunds, bargain buyers are being left without much to choose from.

But small cars were already on the outs before the crunch.

"While some budget-conscious shoppers may find better value and choices by going used — if they can successfully navigate this fiery market right now — there are still a lot of consumers who prefer to buy new," said Robby DeGraff, industry analyst at AutoPacific. "Stagnant wages and the rising costs of living are only adding extra stress into this quest of trying to find a great vehicle without spending a fortune."

For dealers who have traditionally welcomed buyers at the lower end of the market, the semiconductor shortage has made it difficult to stock vehicles that once sold below their sticker price with incentives.

"It has been an issue for first-time buyers, students or anyone looking to get a reliable car that is inexpensive," said Ayman Moussa, CEO of Carnamic auto group in Northern California with Mitsubishi, Nissan, Hyundai and Kia stores.

"We are selling [Mitsubishi] Mirages at MSRP, and used Mirages that we used to sell under $10,000 aren't available now," said Moussa. Same with his other brands. "They aren't available to start, but when they arrive, they are gone in 10 days."

Mark Reuss, president of General Motors, said inexpensive vehicles have been losing market share, but that the automaker has not given up on sub-$20,000 cars.

"I don't think they're gone," he said at an event last week. "We used to offer cars in that segment, lots of cars in that segment, and that segment dried up. And it wasn't because we didn't offer things like that, but it just wasn't there anymore. I've got to be careful with what we do there, but I would love to have cars in that price range."

DeGraff recently asked his Twitter followers to price their favorites for vehicles under $20,000 — including shipping charges.

Including the destination charges in the price makes the under-$20,000 challenge tougher. Rising transportation costs are translating to ever-higher factory destination charges, a nonnegotiable add-on to prices.

The new Ford Maverick would have been an easy choice, given its attractive body style and standard hybrid powertrain. But with shipping, the base Maverick rises to $21,490. That's also true for the Toyota Corolla and Honda Civic, which were easily less than $20,000 with shipping in years past, but no longer.

One of DeGraff's followers chose a Kia Rio hatch with a technology package and automatic gearbox — for $19,910 including shipping. The Kia Soul would have been a valid pick a couple of years ago, but now that it has discontinued its less expensive manual-transmission option, the Soul starts above the $20,000 threshold.

A surprise entry was the compact Subaru Impreza sedan with standard all-wheel drive, a five-speed manual gearbox and a reasonable $960 shipping fee. The base-model Volkswagen Jetta also made the cut, but with only the unpopular six-speed manual.

Toward the subcompact end of the spectrum, Chevrolet sells the 2022 Spark with an automatic transmission for $16,090, including shipping, and Mitsubishi's Mirage is just $500 more in a similar configuration.

In the small-crossover segment, the Hyundai Venue with an automatic transmission comes in at $19,935 with shipping. And over at Nissan, the Versa sedan comes in under $20,000, even in its top SR trim.

"Some automakers are still dedicated to offering new-car shoppers affordable options," DeGraff said. "Nissan has three models — Versa, Sentra and Kicks — that all start under $20,000 that are stylish, drive well, get great fuel economy and are jam-packed with today's safety and infotainment tech."

But once shipping is included, the Sentra and Kicks rise above the $20,000 mark.

The shift to electric vehicles will make low-end shopping even more difficult. EV tax subsidies and lease deals may help, but those are subject to government policies and automaker interest. In a tight auto market with high gasoline prices, EVs are typically selling at sticker now.

Automakers are responding to market demand. Shoppers have more options in the mid-$20,000 sticker range, with a burst of small crossovers, particularly in the compact segment, and longer loan terms.

"For most shoppers, smaller, inexpensive cars aren't dream vehicles, so the thought of spending a bit more and getting into an SUV is very appealing," said Jessica Caldwell, executive director of insights at Edmunds.

"Lower interest rates and leasing can help consumers stretch into vehicles they might not have believed they could afford previously."

Without the demand for small cars, automakers have pushed certified pre-owned vehicles as the new entry point. But even before the chip shortage, average used-vehicle prices were averaging around $22,000, according to Edmunds.

"The pendulum has swung so far into the pricier vehicle categories that we may see a swing back a bit," Caldwell said. "But perhaps we will see different body styles in the cheaper categories, like the Ford Maverick, rather than the compact car.

"However, with autonomous technology and electrification on the rise," she added, "offering less expensive options seems like it will be challenging for automakers."