Is the era of inexpensive cars over? Why auto prices are on the rise in America

John Yang:

Five years ago, shoppers looking for an inexpensive car could choose from about a dozen models selling for less than $20,000. Now there's only one, the subcompact Mitsubishi Mirage, and there are reports that it will be phased out in 2025.

The average car price is now more than $48,000. And buyers are being further squeezed by rising interest rates. It's hitting younger generations particularly hard.

Last year, those aged 18 to 39 Generation Z and millennials had more than $20 billion in auto loans more than 90 days overdue. Total outstanding auto loans are nearly $1.6 trillion. Earlier, I spoke with Tom Krisher, who covers the auto industry for the Associated Press. I asked if the era of inexpensive cars is over.

Tom Krisher, Associated Press:

There will be some inexpensive SUVs, but the cars are cheaper. And those are gradually they're falling out of favor with buyers, number one. And plus the auto companies don't make nearly as much money on them as they do more expensive SUV.

So the auto companies have gotten out or a lot of the auto companies have gotten out of the small car business and it just doesn't have profit margins. So I think you're correct that we're probably not going to have any or at least very few inexpensive cars for a long time.

John Yang:

And not only they're very few inexpensive cars, it seems like at the top end, it's grown. It's not just the car is now cost 40 or $50,000. But there are a number of models that are more than $100,000.

Tom Krisher:

Yeah, there are 32 according to Cox Automotive that are over 100 grand. And just five years ago, there were a dozen. Granted these are though, a small number because they're mostly high end European luxury models.

John Yang:

Of those two things you mentioned at the top customer demand being lower for small cars and also the automakers chasing the profit margin. Which of those factors is bigger, do you think?

Tom Krisher:

It's a good question. I would think it's the shift to SUVs. Americans since about 2012 have just started wanting to sit higher in vehicles and they liked the utility being able to see sitting higher up in an SUV that kind of started the downfall of cars.

The auto companies saw the trend coming so they started to get out of it because the sales were dropping. It used to be the midsize car was the number one selling non pickup truck in America. Now, the Toyota Rav4 small SUV is the number one selling non truck in the country.

John Yang:

When you go to car dealerships, or talk to car shoppers, what do they say about this?

Tom Krisher:

There are people who are disappointed. It's tough to afford something even $20,000. You know, if you put the standard downpayment down at 7 percent interest, which is kind of the average now, on a car loan for 60 months, you're going to be paying 375 bucks a month. And for a lot of people, if they make minimum wage, or even less, that's pretty expensive.

We do have, you know, quite a few other vehicles that have sticker prices starting at under $20,000. But by the time you put on shipping, and then any options to them, they all got over, except for the Mitsubishi Mirage, which was, I think it had an average selling price of $19,205.

John Yang:

Do you think this will spur the growth of what not only ride sharing services, but also car sharing services,

Tom Krisher:

It's kind of tough to say I ride sharing, I think, is going to be still more expensive than owning your own car if you drive it frequently. If you make an infrequent trips, like you only have to go to the office two days a week or something, it may be cheaper to go with ride sharing.

And then you got this other wild card out there autonomous vehicles, crews and Waymo are testing driverless vehicles. And if you don't have to pay the driver, your cost per mile is a whole lot less. So the ride sharing ride hailing costs can come down. Those are still, you know, kind of in the test phase, but San Francisco seems to be, you know, getting quite a few of these rides.

John Yang:

A few years ago, there were stories saying that the younger generation was moving away from driving, moving away from cars. Is that holding up?

Tom Krisher:

Anecdotally? No. I use my own daughter as an example. She has a car and she enjoys being able to drive to her place of employment park and walk into the door. A lot of younger people, once they get out into the working world are starting to see that that it is convenient. And if you don't have good public transit, which a lot of places don't, it's, you know, a much better way to get around.

John Yang:

You've covered the auto industry for quite a while if the sedans are going away, and it becomes sort of small SUVs become the smallest car that the car companies offer. What's last for the American culture and for the for car buyers?

Tom Krisher:

Well, affordability is the top thing but you also have fuel economy an SUV, because it sits higher it has more wind drag. And you can't defeat the laws of physics a smaller sedan or even a mid-sized sedan that sits lower it gets way better gas mileage, and people are spending more on gas because they have these SUVs and cars generally do a better job with that.

John Yang:

Is the shift to electric vehicles going to change this dynamic or more sedans going to be in demand, then?

Tom Krisher:

That's a possibility. It may change the affordability issue too. Because if you get a $7,500 tax credit, and you buy, say, a Chevrolet Bolt, which I think starts at $26,000, but it can go up, you know, rapidly. So say you pay $30,000 for an electric car, it's really 22,500 because you get a $75 tax credit if you make enough money to get that credit. But that makes it a whole lot more affordable. They say that the prices of batteries and components are going to come down the more electric cars you build, then the price could even drop further.

John Yang:

Tom Krisher, auto writer for The Associated Press. Thank you very much.

Tom Krisher:

You're quite welcome, John.