For years, high prices forced Americans to switch to smaller cars

Whether it’s something as simple as adding an extra meal at the McDonald’s checkout or saving up for a home expansion, we’re often told bigger is better. But thousands of U.S. car buyers appear to be bucking the trend and switching to smaller, cheaper vehicles. With car prices rising and loan payments spiraling, it seems many new car buyers are choosing to give up some space in favor of more compact, more economical options.

More: Nearly 20% of car buyers paid more than $1,000 per month in Q4

But with the average sales price hitting an all-time high of $47,000, is this really a surprise? As expenses increase, many people are feeling the pinch. The result has been a decline in sales of most large vehicles. For example, Edmunds said sales of large pickup trucks are down 1.9% this year compared with 2023, and sales of midsize SUVs are down 2.3%.

Cheaper models and compact cars will surge in 2024

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Instead, small car sales took off. Entry-level model sales rose 23%, while overall industry growth remained in the low single digits. Compact car sales rose 16% in November alone, while subcompact SUV sales rose 11.5%, according to Edmunds.

Analysts explain that buyers are willing to make sacrifices in exchange for cheaper payments. “They want the functionality of the vehicle, but they just need to buy it in a smaller size,” Charles Chesbrough, senior economist at Cox Automotive, said in an interview. Wall Street Journal.

But offers fewer options. In 2025, there will be more than 45 models on sale in the United States priced under $25,000. Today, only 11 of them, many sedans and hatchbacks, meet their makers. Gasoline prices play a role in this, and years of cheap gas have really boosted sales of gas-guzzlers. But things are no longer the same, and with a new administration in place, natural gas costs are likely to influence the direction of the industry in the coming years.

It’s smart to keep affordable options in your lineup

It’s not all bad news, though, especially for the small SUV on offer. While Chevrolet has decided to ax much of its sedan lineup, the entry-level Trax SUV has been making its own kill. According to analysis by Motor Intelligence, budget-conscious buyers are favoring the small SUV, and Trax sales surged 89% in November.

Unfortunately, not all automakers can say the same, with many companies starting to kill off budget cars in favor of pricier options in order to reap higher profits. As a result, many dealers now feel they are trapped without an economical product.

Will Trump’s tariffs kill cheap cars?

One segment that has managed to buck the trend is large SUVs, but that’s more because buyers can’t stand the diminished practicality of smaller SUVs. Such buyers, primarily families, need the extra space that form factors bring, and analysts say owners are unwilling to compromise.

Smaller, more affordable options may win for now, but that may not last. Incoming President Donald Trump plans to impose a 25% import tariff on goods coming from the Mexico-Canada border, where many low-cost models are made.

More: Number of car buyers paying more than MSRP plummets

While analysts say doing so would add $3,000 to the average price of a new car, severely affecting price-sensitive buyers, some, including General Motors CEO Mary Bara, believe it could have an impact on the economy. Trump poses a threat to achieving his goals. If that’s true, we’ll soon find out — as will a host of automakers that rely on cheap imports, including General Motors, which makes nearly a third of the cars it sells in the U.S. in Mexico.