Cheap new cars are going extinct while $60,000 SUVs and trucks flood the market

• Last month, 17% of new vehicles sold were under $30,000, compared to 44% five years ago.
• It's a sign that auto companies are prioritizing high-profit cars over cheaper starter cars.
• It's bad news for the whole car-buying market, but especially those looking for a deal.

Automakers are abandoning entry-level vehicles, often called "starter cars" — and it's a problem not just for buyers looking for a less-expensive one amid today's sky-high interest rates, but all car shoppers.

New vehicles had an average transaction price of $47,713 in March, according to Edmunds. Five years ago, that number was $35,794.

Though those figures are averages, it's clear that lower-end vehicles are more costly than they used to be — a direction automakers have been moving in for years.

The $60,000 car is having a moment — and may be here to stay

In 2018, 44% of new vehicles sold were under $30,000, per an Edmunds release. By last month, that number was only 17%. Edmunds called this the "rise of the $60,000 new vehicle."

Some of the more stark price increases include those for full-size trucks, 50% of which were over $60,000 last month compared to 5% five years ago; large SUVs, 94% of which sold for over $60,000 last month, up from 54% five years ago; and luxury midsize SUVs, 70% of which were above that price point, compared with just 31% five years ago. And it's hurting all types of consumers.

It's "profit-maximizing behavior due to the supply chain crisis," Tyson Jominy, J.D. Power VP of data and analytics, told Insider. "It's not indicative of demand, which is very strong below $30,000."

Why is there a pricing crisis?

There are a few reasons automakers have gone this route. Part of it is related to the pandemic-induced inventory challenges brought on by the chip shortage.

"They shifted their focus of chips onto the things that the customers wanted the most," Whitney Yates-Woods, dealer principal of Yates Buick GMC in Goodyear, Arizona, said of automakers like GM — which includes larger vehicles and trucks. "But that meant that some of the cheaper stuff went by the wayside."

Some of this has been going on since before COVID, especially as many automakers discontinued sedans several years earlier. Low interest rates plus longer loan terms had car-buyers embracing tech-equipped luxury trucks and SUVs.

Profit, as Jominy pointed out, is also a key factor — and automakers are even willing to sacrifice market share for it.

"The more economical vehicle market they're exiting as they find that profits are much greater on these higher dollar heavier units," Scott Kunes, COO of Kunes Auto and RV Group, which owns more than 40 dealerships in the Midwest, told Insider earlier this year.

"There is definitely a void happening in the market for those vehicles," Kunes added.

What car buyers can look out for

The used market isn't much better, Kunes noted, "which really puts a lot of pressure on that lower-end market, and there's no manufacturers really stepping up to fill that void."

While many shoppers have indicated they are willing to pay more for luxury vehicles and upscale features, the new and used vehicle cost dynamics, coupled with today's interest rates, are pricing a lot of other shoppers out of the car-buying market entirely.

It means many are holding on to their vehicles for longer; the average age of a car hit about 12 years recently.

"The lower-end models that they're not building are what's needed. And whoever starts to build those will start to capture some more market share," Ambrose Conroy, CEO at supply chain and manufacturing management consultancy Seraph, told Insider in February.

"I think the Hyundais, Kias of this world are very well positioned, whereas the GMs who have moved away from the 'every man's car' are going to struggle," Conroy added. "If they focus purely on luxury cars and high-end SUVs that cost $100,000, there are only so many people that can afford those."