Low-priced New Vehicle Buyers Are Missing in Action

Once a bracket where most desirable vehicles lived, the sub-$20,000 price range is not the hot neighborhood it once was. The ever-upward creep of new vehicle MSRPs increasingly places most vehicles above that marker, and shifting consumer trends haven’t helped expand its ranks.

According to data from J.D. Power, 2018 has seen a rapid exodus from the cheap seats, with retail volume from the $20k-and-under crowd sinking 20 percent since the start of the year. Big spenders, on the other hand, are gobbling up $80,000-plus vehicles at a rapid clip.

Vehicles in that upper bracket only make up 1 percent of new retail volume at franchised dealers, explained Tyson Jominy, head of automotive data and analytics consulting at J.D. Power. Still, despite all of the rarified air, the volume of vehicles with an average transaction price above $80k rose 25 percent since the start of the year.

“Suddenly, high-end models are gaining this year,” Jominy said. “It’s jumped up before at times, but was contracting for the past two years.”

(Keep in mind that J.D. Power’s methodology excludes Tesla sales. – Ed)

In this price bracket, numbers are fairly volatile. Gains and losses can often be attributed to the release of desirable new models or the discontinuation of popular ones, but this year is strange. “Some of this $80k-plus growth is driven by new product … but demand for some older models is growing,” Jominy said.

More interesting is the low end of the market — vehicles with ATPs below $20k. Some 400,000 American buyers bled out of that category this year. While the vast middle ground ($20-$80k) has seen volume increases throughout the price range (but concentrated away from the low end), the buyers flowing out of the entry-level bracket seem to have vanished.

One would think that the recent or impending death of many small car models, the growing popularity of crossovers, a steady rise in interest rates, and fewer zero-interest loans would compel low-end shoppers to either upsell themselves and finance a pricier vehicle over a longer term, or hit the used market. Unless they’re headed to BHPH lots, however, that doesn’t seem to be happening.

“It’s interesting — they’re not going over to used,” said Jominy. “Sales are perfectly flat compared to last year.” The sub-$20k range represents 55 percent of all used vehicles sold at franchised dealers, he added.

Buyers looking for a low-mileage off-lease compact car face steep price increases due to high demand and increasing scarcity. The average price of a three year-old compact rose over 7 percent in September, year over year. Midsize sedans saw the second-highest price increase among all segments.

The price point where volume switches from contraction to growth is $21,000, Jominy said, but the biggest gains are occurring at higher price points — which isn’t where this generally younger cohort would end up. Where have these buyers gone? While some surely dug deeper and others found a used vehicle somewhere, others may have decided to forgo buying altogether. It’s possible we’ve begun to see the impact of new ownership alternatives (car sharing, ride-hailing) aimed primarily at urban Millennials. Still, the data doesn’t exist to fully back that theory.

[Image: Hyundai]