The Death Of The Cheap New Car As Exemplified By These Two Corollas I Bought New in 2017 and 2024

I purchased a new Corolla LE in 2017 to donate to my disabled daughter’s group home. My final out-the-door price was $15,308 (including registration, etc. but no sales tax in Oregon). The MSRP of a 2017 Corolla LE was $19,820,  but they (and most small  cars) were not selling well at the time so I was able to negotiate a pretty good deal.

Now I’ve just purchased another one, for a second car there, which will allow them more flexibility with their activities. Same basic Corolla LE. This time my check was for $23,976, a 57% increase. The CPI increase over the same time period (2017-2024) is 28%. That means the price of a new Corolla has grown by over twice the rate of inflation.

No wonder so many would-be new car buyers have sticker shock and are forced to buy used cars, not that they’re exactly cheap either. And no wonder profits for the manufacturers are so high, even on lower volumes. They’re largely done with the low end of the market; trucks and SUVs are where it’s at. Let them eat (used) cake.

According to Cox Automotive, the average price of a new car this year is $48,205, up 21% from five years ago, which is actually down a bit from the peak in 2022. But that obviously doesn’t tell the whole story, by a long shot, as in the case of these two Corollas which went up by 57%. Why the disparity? I don’t have stats to readily back me up, but undoubtedly the biggest single factor is manufacturers backing away from low end cars, killing many model lines. Toyota ditched both the Yaris and Yaris iA (Mazda 2) which were cheaper than the Corolla, thus making it now the bottom of the Toyota lineup. And clearly Toyota is not making enough Corollas to meet the demand, as my buying experience showed. I felt like I was back in the mid-’80s or so, when folks would give a deposit to the Toyota or Honda dealer and await a call weeks (or months later) telling them to hustle down right away with their check to buy it off the truck. 

Not only did my local Toyota dealer not have a single Corolla LE in stock (very unlike back in 2017), but they wouldn’t give me an out-the-door price for the next one coming in. The price they did give me included the usual little extras to pad the bottom line, and even then I wasn’t sure it would be the final selling price. Very unlike in 2017, when they accepted my low-ball offer and were quite gracious about it.

I found more transparent pricing at a smaller family-owned dealer 45 miles away, and they sent this to me via text. This was Friday afternoon. Since I had to come there with a person from the non-profit company that runs the group home, who would be the actual titled owners, I asked if I could make a deposit to hold it until Monday. “Yes, but only in person”. Really? You won’t take a credit card number to hold it for two days? “No; only in person”.  I was steamed.

The person from the group home operator said he could swap days off and come Sunday. I called Saturday afternoon to see if it was still available. “No; it’s been sold. We expect another one late next week”. Then Sunday night I get a message that that deal fell through, it still is available. Ok. So off we went on Monday, but not before checking again. Is this anyway to treat a customer? Well, yes, especially if you’re a cash buyer, since dealers hate that more than anything, as they make their biggest profits on F&I, Financing, Insurance and all sorts of ridiculous extended warranties and “Paint protection” and other useless crap. The total of all these items offered was over $11k; with the final price being a bit over $35k. No thank you!

Having surmounted the hurdle of actually being able to buy a Corolla, the rest of the dealer experience was actually very pleasant. Our salesman was a very young guy, smart, great people manners, drives a Miata, and we talked about vintage Datsun roadsters. And the Sales Manager and Business Manager were all very pleasant and efficient. I was out in about an hour.

Here’s stats from KBB for average prices of compact sedans, 2018-2024. But note: “Consumer incentives are excluded”. That’s the problem with these stats; they don’t reflect the actual sales prices, which were of course typically significantly lower before the pandemic. No more. There’s fewer low end models, inventory is tight, and they’re selling for a lot more out the door than they once did.

By the way, there are still a handful of new cars priced below the Corolla, although the number is shrinking. But when it comes to a safe buy with long-term value, low depreciation and expected reliability, it’s something of the gold standard. According to this list by KBB, there’s only two priced below $20k; the Mitsubishi Mirage and the Nissan Versa. But that list is already out of date; the Mirage has been cancelled and the Versa will be after 2025. It’s the end of the $20,000 or less car, in the US, that is.

Meanwhile, in Europe there’s scads of sub-$20k cars, like this Dacia Sandero, starting at €11,800  ($12,889), which includes the 19% VAT (tax) in Germany. Minus the VAT, that would be $10,440, or just about one half of the cheapest cars in the US, if you can find one.  The Corolla is probably a bit nicer, but for ferrying folks a few miles around town, the Sandero or such would certainly do.

In Japan I’d be able to buy this roomy Honda N-Box van for under $12,000. Make that two of them; one for the group home and one for me.

In case you’ve been living under a stone, the US car market is by far the most profitable one. Americans have been happy to slurp up trucks and SUVs costing $50k and commonly significantly more than that. Combine that with drastically higher interest rates, and a significant portion of the market is feeling sticker shock and turning to used cars. Or Corollas, if they can find them.

While we were sitting in the dealer waiting on our paperwork, I couldn’t help but notice a sign in the windshield of this Tacoma in the showroom: $3,494 off MSRP.  And their website shows all their Tacomas have at least $2500 discounts, to start with. The cheapest Tundra I see in their inventory is $51,946. The most expensive is $70,374. And that’s not an i-Force Max (hybrid).

Yes, these expensive cars and trucks are facing a bit of a headwind. Per Reuters:

Toyota is expected to report a 14% year-on-year operating profit decline in July-September, to 1.2 trillion yen ($7.9 billion), according to the average of nine analyst estimates in an LSEG poll. That would mark its first profit decrease since the same quarter in 2022. It has already said quarterly global sales shrank 4% from a year earlier and that output declined 7%.

Yes, manufacturers are having to discount trucks and other higher-priced cars these days, but the prices ran up so high, it’s still petty change. The profit margins on trucks are phenomenal; it’s what’s (sort of) bailing out Ford despite losing billions on EVs.

Here’s a chunk from a recent article at Bloomberg that says it all rather succinctly:

A recent survey by Edmunds found that almost half of American car shoppers expect to pay $35,000 or less for a new car. That makes sense because the average trade-in is six years old, which means those buyers last purchased a new car back when the average price was in the mid-30s.

When they return to the showroom and discover they’ll have to pay almost $50,000, they’re walking away. The Edmunds survey found that 73% of consumers are holding off on buying a new car because of the cost.

“The prices are just shocking people,” says Jessica Caldwell, head of insights for Edmunds. “They’re like, ‘How come buying the same car costs $300 more a month?’”

Monthly payments on new-car loans now average $767, up 17% from four years ago, according to Cox. And 1 in 6 new-car buyers this year will take on payments of more than $1,000 a month,

No wonder Americans are disgruntled. The years of overproduction and historic low interest rates are over. We were massively spoiled by their combined effect. In reality, the Corolla’s price has just returned to its historic norms, if we assume it sold for at or about its MSRP in previous decades. Adjusted for inflation, here’s what a 4-door sedan in one trim level above the lowest was priced at (the L was dropped a few years ago):

1981 – $19,775

1991 – $23,798

2001 – $22,697

2011 – $23,341

2021 – $20,375

2025 – $23,609

And some of us are old enough to remember sky high monthly payments in the 1980s. On our first new car, a 1985 Cherokee, the monthly payment was $484 ($15,000, 36 months, 10% APR). That’s…$1441/month in 2023 dollars. Gulp. No wonder most of us drove smaller and cheaper cars back then. There’s more than one kind of inflation, including the inflation of expectations.