Why the average new car costs $50K — and why cheaper options are disappearing
Transportation once came with relatively basic costs. Not anymore: the average price of a new car in the U.S. has skyrocketed to $50,000 — just $9,000 less than the average annual salary.
Affordable new models under $20,000 have all but vanished from dealer lots, pushing many buyers toward used cars. While prices for used vehicles are falling, high loan rates remain high.
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Why can’t automakers produce budget-friendly new vehicles anymore? The answer might be found in a perfect storm of rising production costs and the industry’s shift toward electric vehicles (EVs) and SUVs.
Why affordable cars are disappearing
A decade ago, budget-conscious shoppers could easily find sedans and reliable hatchbacks for under $20,000. Buyers may have had to settle for cheaper models, with manual windows and cheap seats. But those have all but disappeared as automakers shift their focus to more profitable SUVs and trucks.
The transition to EVs isn’t helping: Automakers are investing billions in new technologies, including advanced batteries and in-car software — expensive innovation that’s passed to buyers.
Production costs have also risen. Aluminum prices have increased, and labor costs have been affecting vehicle prices. Economy cars historically operate on razor-thin margins, making them less appealing to manufacturers compared to high-margin SUVs and luxury vehicles. Additionally, tariffs on Chinese automakers — which could theoretically fill the gap with affordable imports https://www.experian.com/blogs/ask-experian/what-is-the-average-length-of-a-car-loan/ limit competition in the U.S. market and help keep prices high.
Read more: 5 ways to boost your net worth now — easily up your money game without altering your day-to-day life
Reshaping consumer behavior
As vehicle prices climb, Americans have longer loan terms with higher rates to afford them.
Today, the average auto loan is about 68 months — nearly six years — making monthly payments more manageable but increasing the total cost due to interest. With interest rates now exceeding 6% for many borrowers, financing a car can add thousands of dollars to the price tag. For example, a $40,000 car financed over 72 months at a 6% interest rate will cost nearly $52,000 — including sales tax, registration and other costs — by the time the loan is paid off.