Never Stop Driving #117: Where Are the Cheap Cars?
The average price of a new car is $48,644, or about two-thirds of the U.S. median income. There are more than 300 million people in this country and about 16 million new cars are sold every year, yet most Americans can’t afford a new car. Consequently, prices of used cars are similarly high: the average used car costs $25,000 and has 70,000 miles. It’s no wonder that the average car on our roads is now a staggering 13 years old.
My youngest turned 16 this week, which meant he could get a driver’s license. Since my wife and I are ready to be out of the chauffeur business—he’s the last of three kids to become a licensed driver—I’ve been shopping for cars. I wanted a manual transmission and my wife wanted newish and safe, which meant the pickings were slim. A local dealer had a 2017 VW Golf for sale with 65,000 miles. They wanted $16k for a car that probably cost $20K new and would soon need plenty of maintenance items like brakes, tires, and who knows what else.
While I dithered for a day, the car was sold, which the dealer warned me would happen. Here’s where many of you would suggest I get a much older and well-worn used car for under 10 grand and then teach my kid how to fix it. I went that route with my firstborn. We spent a lot of time making repairs, but it still broke down at the worst times, like when he needed to get to a school function, or I was out of town. The car added stress to our family routines rather than relieving it. My kids get plenty of wrenching time without daily driving a clunker. You might conclude that I simply chose the wrong used car, but here in the Rust Belt, every used car is a roll of the dice.
This time around, I figured the safer, smarter bet was to spend a little extra and buy new. With used cars so expensive, even Consumer Reports suggests this route. There are, however, only about a dozen new cars with sticker prices below 25 grand. Among them there is no Honda or Ford and only one Toyota. Interestingly, there’s a Chevy and a Buick on the list. Add in the stick shift requirement and the potential number drops to two, the Nissan Versa and the Volkswagen Jetta. I’d only consider the Jetta.
But there were no local Jettas with manual transmissions. My Ann Arbor dealer said, “Good luck.” That’s why last week I flew to Oshkosh, Wisconsin, to buy a Jetta at Bergstrom VW and drive it home. The total cost, without taxes, was just 20 grand for a car with A/C, power windows, CarPlay, and even cruise control. I think I got a screaming deal, and the process could not have been easier.
Auto industry executives have told me for years that it’s extremely difficult to make money selling cheap cars in the U.S. Americans equate size with price and when gas is inexpensive, they want big cars, which they’re willing to pay for. There’s also the weird reality that pickups and SUVS have gotten so big, that one feels foolishly vulnerable in, say, a Mini Cooper. Consequently, the new fleets are biased toward big, high-margin vehicles, which is why the average price is nearly 50 grand.
Recently, Automotive News ran an editorial talking about the shortage of cheap new cars. The car dealers the publication spoke to all said that “Demand for remaining entry-level vehicles is relentless and far outstrips supply.” The lack of entry-level cars presents a risk: “By ignoring the lower end of the market for so long, incumbent automakers are also indirectly creating societal and political pressures that could one day force open the door to inexpensive Chinese vehicles.”
The editorial acknowledged the billions spent by car companies chasing automated vehicles and electric powertrains. Innovate or die, as they say. Those efforts, AN added, “will be wasted if the lack of entry-level vehicles and frustrated consumers open the door to a flood of new, inexpensive Chinese competitors.” As I’ve noted repeatedly in this newsletter, adapting to present demands while preparing for the future is never easy for the global auto industry.
Before I sign off, let’s talk about the biggest racing news of the year: Basketball star Michael Jordan is suing NASCAR. Jordan and driver Denny Hamlin co-own the 23XI racing team, which, along with Front Row Motorsports, were the only two teams that didn’t sign the new NASCAR charter agreement. The suit claims that the France family and NASCAR are “monopolistic bullies.” The charter agreement, which is something like a temporary franchise agreement for the teams, has been bitterly negotiated over the past two years. The teams say they lose money and want a greater percentage of TV revenue. NASCAR says it’s their party so stuff it. Team owner Rick Hendrick said “I was just tired,” when asked why he signed the new deal. Hendrick is a car dealer, so he likely knows a few things about negotiating.
Without Jordan, who’s worth an estimated $3.5 billion, there is no lawsuit. I have no idea where this is going, but I hope that all the juicy drama—this is a racing soap opera—somehow makes it out. Hamlin is still running for this year’s NASCAR championship. This weekend the series is racing at Talladega, and I can only imagine the awkward scenes that could play out in the paddock.
When I’m not glued to the TV watching the Talladega race this weekend, I plan to get out and enjoy the cool fall weather driving. I hope you can do the same!
Larry
P.S.: Your feedback and comments are welcome.
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I find the lack of cheap cars annoying and insulting. For some, price matters. It’s as if the manufacturer’s don’t care about price anymore. It’s not like I cannot afford a $40,000 car, I just don’t want to. I don’t need my seat to vibrate if I drift a little to the left. Eight years ago I bought an Accord Sport manual. It talks to my phone and has a backup camera. That’s about it. And that’s all I need. Cost? 25 grand. People seem to forget that NOT spending is okay. And I can put the 15k toward something else. Or keep it
The truth is labor cost and American buying habits are what killed the cheap car. You can’t expect MFGs to build cars at a loss.
Cars don’t make money options do.
If labor was cheaper like China they cold sell the cheaper cars but even then would Americans buy them maybe. But again maybe not.
The trouble with cheap cars used is they are generally crap cars.
Like it or not the cars that supplied American with affordable used cars were cars like the Cobalt, Cruise and Malibu. Were they perfect cars? No but they were reliable and cheap to fix. Often cheap to buy. They are all gone and the CUV models are all we have as they make money.
We need to ban the Chinese cars. Once in they will kill out MFG and they will end up with cars that are much poorer in the long run.
Everyone complains about Walmart but they still shop there due to price. To get out of this we may need to pay a bit more and we need to get labor to realize the way forward is to improve yourself not get more money for the same basic job.
You know many want to blame the MFGs but even selling expensive cars they are going broke. Think not Chrysler and Dodge may vanish even after selling expensive cars.
There are cheap cars out there. Higher mile RWD cars some even with low miles.
Others like Audi can be cheap but they are expensive to repair.
I understand you-get-what-you-pay-for, so, for what its worth, my 2 cents (which won’t even buy a stick of gum anymore):
The era of the neglected-but-basically-reliable $500 “beater” (existing in our automotive experience for decades), that may have only needed a new set of tires, brakes, and a rudimentary, self-performed, simple tune-up, is definitely a vestige of the past.
Besides inflation continuing to outpace income, it has become an almost unbelievable situation, that, due to undeniably high prices of new cars (40% of which, sophisticated electronics is responsible), has forced a such an overwhelming shift to a high market demand for reliable, sub-100k mileage, “affordable” used cars, which are now likewise becoming still much too expensive for the typical entry-level, underprivileged consumer (such as single working moms and working, public high school students, who would much prefer to save for another now-nearly-unobtainable goal: a college degree).
Inflations out pacing income is nothing new. It used to be people could afford new car or cars every year, Not anymore. My father had a new car a year nearly till I was 20 years old.
Kits in the 60’s working at gas stations could buy a muscle car or Corvette.
But the real issue is if we try to increase the wages at the same pace we end up just increasing the cost of every thing. This is a real driver of the income differences.
People used to go out and improve their jobs and move up with skills and get better employment. Today the government and unions just ask for more money.
While the UAW claims the automakers are flush with cash the truth is many companies including them has had cost of development and other cost go up. It drives the price of products. Yet we are down to one American tire company and Three American automakers if you count Tesla. We also see many of these other automakers in s a bind and struggling.
The Government needs to back off and let EV develop on its own vs forcing it. The casts are high to develop and the customers are still not ready for it. At times I think they are trying to finish off our MFG in this country.
Absolutely terrible advice to buy a beater that “they can learn to work on” as a kid’s first car. By definition it’ll be unreliable, unsafe and end up stranding your kid, causing you the headache of rescuing it and your kid at the most inconvenient time, like in the dead of winter. Who wants to deal with that?
Learned that lesson years ago with my son and his beater Nissan Sentra. Never again!
You made the right choice buying a new car and getting a good deal in the process. A new driver deserves a safe, reliable car, and so do mom and dad.
Depends on the car and kid. I would not recommend it to all but I know some kids could do a good job with them.
Come on, Larry, you are letting the value of convenience trump all reasoning here. In my opinion there is no scenario that a first driver teenager gets a brand new ride. I remember reading a statistic back in the day that teenage drivers that purchase their own first car are the least likely to be involved in an accident. I believe that is more effective than air bags and lane departure systems.
I agree we have a problem here. I was lucky enough to hand down my not-too-old, well-maintained cars to both my kids when the time came, as I was getting newer ones. But of course not everyone can get the timing right this way every time.
Larry, a quick question about this: “… the potential number drops to two, the Nissan Versa and the Volkswagen Jetta. I’d only consider the Jetta.” Why wouldn’t you consider a Nissan? I’ve had the chance to drive a slew of Nissan loaners at the dealership where I maintain my Z. All sorts of sedans and small SUVs. They all seemed pretty decent cars. I’d appreciate your thoughts on this.
Oh, perhaps I should have driven the Versa. It just seems like a cheap econobox and the Jetta more substantial. That’s purely my opinion.
So you paid about a $4k premium to get a vehicle that was 7 years newer, 65k less miles and comes with a warranty (and is basically the same vehicle). I would call that well bought.
Re: Versa vs. Jetta. The Versa feels like exactly what it is: a cheap entry-level car. The Jetta on the other hand, feels like a de-contented Audi A3 (which is essentially what it is).
As far as cheap cars in general go, let’s not forget the role played by manufacturer greed and jealously. During Covid, when Dealers were making money hand over fist, we heard automakers openly express their jealousy, then saw a slew of price increases as manufacturers sought to “get theirs”. And prices – like taxes – only seem to go one way.
While some manufacturers have committed themselves to building nice quality, entry-level cars, if the industry in general can’t/won’t meet the demand in this segment, then they deserve whatever comes their way.
I have some nieces and nephews that have reached driving age recently. The one family passes along a family car to the new driver. The other family simply buys the new driver a brand-new Civic (I can only imagine that family’s car insurance bill. As my Dad always said, “cars are cheap. It’s the insurance and repairs that are expensive.” Of course, those were the days of the late 1970’s and early 1980’s when you could get a decent 10 year-old used car for $500. My first car was a hand-me-down 1980 Toyota Tercel with a 4-speed manual transmission. A brand-new 1990 Acura Integra sedan 5-speed came next, followed by a 2002 Honda Accord sedan 5-speed. Sadly, the Accord was hit by a drunk driver. My Mom and Dad taught us to drive a manual transmission. My Dad loved to buy manual transmission cars to save that extra $800-$1,000. I loved the driving experience of a manual transmission. I purchased a 2013 Camry, however, no manual transmission was available. I still drive the Camry, the only car I have owned with an automatic transmission. I tried the paddle shifters once, but couldn’t figure those out. A no-clutch vehicle is not a manual transmission. I dream of a Mazda Miata with a manual transmission to fulfill my dream car desires of an MG without the maintenance issues. My dream car is a 4-door convertible with RHD and suicide doors. I would even give up the 4 doors for a two-door convertible with the RHD. One day soon.
A few thoughts. I think people commonly over rate the safety of new cars. Any car with dual front airbags is pretty safe. The benefits of any additional safety features are usually far out weighed by the quality of the driver behind the wheel, as in do they drive defensively and do they avoid texting and other distractions while driving. Dual front airbags have been the standard for well over 25 years so this opens a lot of used car options from brands with long-term reliability for your new driver. You have to remember that teenage drivers are much more likely to have minor fender benders and parking lot damage incidents which is why I would never put them in a new car as dealing with the insurance implications and or repair cost on most new cars is insane.
The sweet spot if you know how to spin a wrench: mid to late 2000’s Toyotas, they are reliable enough to see a quarter million miles easily and for most models the parts are dirt cheap. Case in point, my newest driver (licensed in January) is driving a 06′ corolla CE. Its a bit ugly and has 230,000K and showed some signs of neglect, but purchase price was $2300. An additional $800 in parts and tires and two Saturdays of repairs (front wheel bearings, rear brakes, engine mounts and 02 sensor and a few differed maintenance items) and the car runs like a top. It has already seen 5000 trouble free miles and I would not hesitate to drive it cross country tomorrow. There is a cheaper way than the trap of buy new vs all used cars not CPO are untrustworthy. Buying the right brand in the sub $10k market means it does not have to be a crap shoot or constant unreliability. Any mechanic worth their salt should have a good enough idea of the mechanical condition of their car to know if it can be expected to be reliable. Brand and mechanical condition is key. If you buy used high milage cars with a reputation for unreliability (anything European made in the last 25 years for instance) than no amount of TLC is going to make it a car you can trust. Conversely brands and specifically models with stellar reputations for reliability tend to stay reliable with predicable failure modes that can be monitored while you do regular maintenance. You basically drive them till corrosion becomes too much of a issue or till the fundamental components of the engine or transmission give up the ghost. Everything else is replaceable and to a large degree predictable. Just my two cents, but for what it worth this is from someone that has 5 cars with 200K plus miles and dailies another car with 280K (also a Toyota).
One thing to add is there are some good low price cars out there. The trouble is they are not always obvious to those that do not know cars.
I have found some good cars but they may not always be popular or cool. Too often kids want that cool car for a first car.
My first car was a good condition 1963 Ford Galxie. It was a sedan. No not cool but a set of tires and wheels it would due. Drove it two years and sold it for $1000 in the 80’s. I found cool cars as my income improved.
My son needed a car. I inherited a Malibu I had been driving. I let him use it to go to school and work. He got his degree and went to buy a new car. It is less than a Year and he has most of it paid off already.
He even changed jobs but is good at saving cash and makes good money.
This is a deal where everyone points fingers and yes everyone has some skin in this game for blame. It is not just one MFG or person to blame.
Also remember many of these kids today also have a $1300 phone in their pocket and $800 video game at home. Nothing is cheap and some have to start to makeing choices as we no longer can have it all in some case at some point in age. And no having it all is not a right.
You know it is Ironic that today you can find a decent low mile C4 Corvette for $10K or less. Insurance my not be great but their are cars worth owning cheap.
A VW past 100K miles will bankrupt you.