The Rising Cost of Buying an Entry Level Car

There is some good news.

After adjusting for inflation, the typical $15,000 or so brand-new economy car—something like a Nissan Versa ($14,830) or Hyundai Accent $15,600)—doesn’t cost that much more than something like a 1970 VW Beetle cost ($1,839) when it was a brand-new economy car.

A ’70 Beetle’s MSRP today would be just over $13,000, a real-money (or purchasing power) difference of about $2K now vs. then. If adjusted for equipment, it cost about the same as a new Versa or Accent. Instead of an AM radio, drum brakes, a speedometer, and a heater, you get a stereo, air conditioning, a full set of gauges, disc brakes, power windows, and locks.

The bad news is that the cost of a modern economy car is going up because cars like the Versa and Accent are the only new cars you can still buy for just over $15K.

Mitsubishi, which sold cars for less, is “pulling back” from the North American market. The $13K to start Mirage was the most affordable new car available in the United States.

Bye-bye.

The least expensive new Kia you can buy, the 2020 Forte, stickers for just under $18K to start.

A new Toyota Corolla stickers for just under $19K. A Mazda3 lists for just over $20K.

The 2021 Honda Civic starts at $22K.

Chevrolet doesn’t sell a new car that costs less than $21K because it no longer sells cars at all. The just-over-$16K Sonic has been canceled, leaving the micro-crossover Trax as the lowest-priced new Chevy on the field. It stickers for $21,400 to start.

Credit: L. Willms

Ford no longer sells an affordable car, either—cancelled all of them, including the Fiesta and Focus. This leaves the EcoSport – another micro-crossover – as the lowest cost new Ford. That one stickers for $19,995 to start.

There is nothing on the Dodge menu that stickers for less than $27,500, and that one’s a minivan. If you want a car from Dodge, you’ll pay considerably more. A new Charger sedan starts just under $30K; the two-door version of the same thing, a Challenger, is slightly less at just over $28K to start. They are both great cars, but there’s nothing Beetle-analogous at Dodge, which once upon a time was an entry-level brand, a notch up from Plymouth—a brand no more.

As for Volkswagen, the people’s car is now the rich man’s car, too—or the not poor man’s car. The lowest-priced new VW is the Jetta, which stickers for just under $19K to start. As in $5 under ($18,895).

Now, the Jetta is a fine car—a Cadillac in comparison with the ’70 Beetle. But it also costs about $6K more than the ’70 did, in actual purchasing-power/adjusted-for-inflation dollars. This would be okay—a net gain—if the average American’s purchasing power had tracked upward along with inflation. If it had, the average American would be getting much more car for about the same money as the average American paid for a car back in 1970.

Instead, a new car buyer is getting more car—and paying for it because he has less money. Income has not kept up with inflation, while taxes have gone up.

Credit: Nick Youngson CC BY-SA 3.0 Alpha Stock Images

Since he or she can’t pay for the new car, they finance it—routinely for six or even seven years as opposed to the three or four it took in 1970. Since this interest cost has become almost universal, car companies have less incentive to offer affordable cars. It is easy to hide the $3K difference between a $15K Hyundai and an $18K Toyota over six years of monthly payments.

It’s just another $50 per month—easy!

Except it’s hard.

People just don’t see it yet because as long as they can finance and as long as they can make that monthly payment—the thing seems viable until the day comes when it isn’t.

This has created a self-sustaining feedback loop. The cost of entry-level goes up because most people are financing more and for longer. It doesn’t make sense for a car company to sell a $15K car to finance the $20k car.

The more who finance the $20K car, the fewer $15K cars there are on the market. There is no longer an incentive to keep prices down when costs can be hidden.

This is why things like air conditioning and power windows and locks are now standard equipment in every new car. It used to be optional. The Versa was the last new car that let you skip AC and power windows if you didn’t want to pay for them.

But now you can’t avoid paying for such things because everyone else is financing them. And once you get accustomed to financing AC and power windows and locks, why not also an LCD touchscreen and an upgraded stereo, too? How ’bout a turbocharged engine while we’re at it?

And so, they do, but for how long?

It’s interesting to imagine what a car like the ’70 Beetle would cost today. Could it be built using modern manufacturing techniques and taking advantage of all the advances that have made it possible to build $15K cars with AC, power windows, locks and so on?

Likely, the 1970 Beetle could be built for less than $10K in today’s dollars, which would put it within reach of many people’s ability to buy it in three years or less.

What are the solutions then when solvency and prudence are so out of fashion in America?

Eric Peters lives in Virginia and enjoys driving cars and motorcycles. In the past, Eric worked as a car journalist for many prominent mainstream media outlets. Currently, he focuses his time writing auto history books, reviewing cars and blogging about cars+ for his website EricPetersAutos.com.

Editor’s Note: The opinions expressed in this article are those of the author.

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