I’m not trying to be clever when I say that plenty of companies make affordable cars, but no one has figured out how to make cars affordable. The government? Nope. Dealers? Definitely not. Automakers? Nah. The Fed? Also, nope. It’s a solvable problem, but no one seems to be solving it.
I’ve long ago declared affordability to be the issue of 2026 for the car industry, and this will not be the last Morning Dump dedicated to the problem. I will also not solve the problem this morning, but I want to lay the groundwork for why it feels so intractable. This ongoing tension has helped create Carvana and, occasionally, destabilized it.
Not like anyone has it quite figured out anywhere. Both Tesla and BYD would like to be the biggest seller of electric vehicles, and both are floundering in various markets to start the year. The World Rally Championship has also struggled in the United States, but it sounds like it might be coming back.
Affordability Is A Symptom Of A Diseased System, Not The Disease Itself
It is simplistic to say that greed is at the center of all of life’s problems. That Late Capitalism is the main cause. Or politics. Or the existence of an independent central bank. Or free trade. Or the Internet. Or whatever you like.
All of those are fair targets, and if you are trying to win an election or get subscribers for your Substack, a polemic focused on any of the above is going to likely to be a success. The much harder argument to make, and the far less satisfying one, is that it’s more complicated than that. In fact, I’d say the complexity is the problem.
What do I mean? There are affordable cars for sale. A lot of them. I just drove a Nissan Sentra, and I’m currently driving a Chevy Trax (reviews coming), and both of those are reasonably-priced cars that you can find at dealerships. People don’t necessarily want a Trax or a Sentra. Both are only available as FWD, Chevy and Nissan may not exactly be the most desired brands, and many cheaper cars are small in a country that doesn’t love small cars. I think people are being shortsighted not to consider either of these two, but I understand how some people may have earned or inherited a reasonable prejudice against either.
Even if you like either, keeping them affordable, though, is a challenge. Why? As Cars.com points out, few of the affordable cars for sale in the United States are actually made in the United States:
Inventory of new vehicles priced under $30,000 — the most tariff-sensitive segment — averaged 13.6% share in the first half of 2025. This is down significantly from 2019, when entry-level vehicles made up 38% of the market and reflects the third consecutive month of declines. With 92% of these vehicles built outside of the U.S., tariffs are disproportionately affecting this entry-level tier, which relies almost entirely on foreign-built vehicles.
This starts to get complicated again, because while there are some affordable cars for sale, not every brand makes a lot of its cheapest cars readily available. This trend started during the pandemic, when automakers had to make hard choices about which cars they could build, and the answer was to mostly build higher trim levels of pricier cars. You might think that’s greedy, but it’s also logical.
Automakers are starting to offer lower trim models again, and that starts with Honda, which is one of two brands that make a sub-$30k car in the U.S. with the Civic (the other is Toyota with the Corolla). That’ll help, because these are almost universally popular brands.
Problem solved? Nope! Even if you can find a sub-$30k car you like for sale, the cost of buying the car is high if you don’t have a lot of cash to put down. Before you even get to insurance costs, just financing a car is expensive, and has led to more people taking out $1,000+ a month car loans than ever before. The Federal Reserve Bank declined to lower rates, and it’s complicated, but that means relief for borrowers is probably not in the cards anytime soon.
Should the Fed cut? That’s a conversation for another time, but I’m personally conflicted. I have a sense that we’re in a bit of an AI bubble, and allowing people to borrow more money, cheaply, while a bubble is going on, could have disastrous consequences.
Could politics solve this? I think politics, partially, is to blame. I can also make this bipartisan. The government, broadly construed, pushed electric cars. That money was supposed to eventually return a profit. For most automakers, it has not, and they’ve taken billions of dollars in losses. Would this have changed if an administration change hadn’t occurred and EVs were still given tax credits? I’m not sure that would have solved the demand problem. Either way, the reversal hurt, and then tariffs were added on top of that.
If you’re an automaker, what should you do? Stick with EV investments, knowing that the next White House could bring them back? Onshoring is happening, and was already happening before President Trump, but what if the Supreme Court cancels the tariffs? What if a new Congress does? What if, eventually, a new President does? Automakers are paying for both tariffs and EV investments, with no promise of how either will eventually turn out for them. It makes tossing a bunch of incentives on new cars that much harder, as well as investing in building a small car platform in, say, Cleveland.
What about the dealers? There’s understandably not a huge amount of sympathy for dealers, but they’re also stuck dealing with these forces. Automotive News polled a bunch of them, and the answer seems to be that they also have no clue:
Buyers who have an expiring three-year lease are finding a replacement vehicle carries payments hundreds of dollars more expensive than their last, said Andy Guelcher, chairman of the Chevrolet National Dealer Council and dealer principal of Mohawk Chevrolet in Ballston Spa, N.Y. But this isn’t sustainable.
“We have to be creative,” he said. “We have to use the resources that are available to us to make it as consumer-friendly as possible and to make it as affordable as possible.”
The answer is not to extend loan terms to 8-10 years because then customers will have negative equity in their vehicles “forever,” and won’t be able to trade them in, said Don Hall, CEO of the Virginia Automobile Dealers Association.
“That means that production will slow down,” he said. “That means that dealerships will be less successful because they’re not [selling] more frequently.”
Dealers have to borrow money to keep cars on the lot, and fewer cars might mean a better margin for automakers, but it squeezes customers and dealerships alike. Too many cars can also be a problem for dealers and automakers, because it causes prices to drop too fast and inventory to build up. That’s good for consumers in the short term, but it can also cause the value of cars to drop, which in turn keeps people in negative equity longer.
Above are not even all the problems; they’re just the ones that are easiest to diagnose.
Carvana Exists Because Of This Complexity
One of the most fascinating companies in the automotive world over the last ten years may not be Tesla. I’d argue it’s Carvana, a company that’s either raking in tons of cash while also earning huge valuations, or being accused of being a house of cards by short sellers. Kinda like Tesla. Also, like Tesla, it’s not always great to bet against the company.
There’s a fantastic write-up on the company in Bloomberg Businessweek that touches on what this company represents, and I appreciate that it addresses both of the key aspects of the company: Efficient organization and a scary loan business.
Buying a car from Carvana is easy, and the model makes a lot of sense. Some of this is because the company is very good at buying, selling, fixing, and moving cars. As the article points out:
Workers on the floor with iPads track the progress of vehicles under repair using Carli, a production management system Carvana developed with Oracle Corp. The software can proactively order parts based on the condition of a vehicle and the model. (Some models are more likely to need certain repairs.) Carvana says Carli and other improvements have helped cut operations costs by $1,700 over three years. The company spends an average of $900 a vehicle compared with rival CarMax Inc., which spends about $1,200, according to JPMorgan analyst Rajat Gupta.
That’s a big deal. With affordability an issue, and the dealership experience often a mediocre one for customers, Carvana makes it easy to buy a car and processes those cars quickly and cheaply. That’s all good, but what’s the scary part of the business?
Carvana’s stock is perpetually vulnerable to aggressive short sellers. On Jan. 28 Gotham City Research LLC published a report accusing Carvana of inflating its valuation by overstating earnings and obscuring transactions between different Garcia family-owned businesses, sending shares plummeting 14% that day. Although the stock price has begun to recover, Carvana’s otherwise lofty valuation is driven by an expectation that its rapid sales growth will continue. If it doesn’t, the company will be carrying substantial expenses from its rampant expansions. But for the moment, selling auto loans is a good business if you can get it. Carvana, which makes most of its income by selling the loans it originates, has been steadily turning a profit for almost two years. It originated $9 billion in loans in the first nine months of 2025 and has had no trouble finding buyers for the debt.
This is a bit like Wile E. Coyote running off the cliff. So long as the economy stays up and one looks down, Carvana doesn’t come crashing down. That feels like a tough bet, but it’s one Carvana feels comfortable making.
Tesla And BYD Are Not Starting The Year Off Great
I’m reusing this photo we made back when Tesla v. BYD had Tesla on top in a race to the moon. Now it’s a race to stay out of the gutter. As Electrek writes, Tesla “can’t find the bottom in Europe.”
The first batch of January 2026 registration data is in from Europe, and Tesla’s freefall on the continent shows no sign of slowing down. Across five major markets that have reported so far, Tesla registrations are down a staggering 44% year-over-year, extending what is now more than two years of continuous decline.
The company sold just 661 cars in France and just 83 in Norway, the one market where it usually did well. That’s an 88% year-over-year drop. Oops. Not like BYD is having the best time, either, as the rolling back of subsidies in China resulted in a 30% year-over-year decline for the brand.
Will this be the year that someone like Geely takes a huge chunk out of both?
WRC Wants That American Money
If a mostly European brand like F1 can succeed in the United States, then why not the World Rally Championship? The series hasn’t had an event here since 1988, and that’s far too long, reports Automotive News:
“The United States represents one of the most important growth opportunities for the FIA World Rally Championship,” said Mohammed Ben Sulayem, president of the sanctioning body. “It is a nation where motor sport is part of the cultural DNA, with world-class domestic championships and a rapidly growing appetite for global competition.”
The trial event will be held this summer between Kentucky and Tennessee.
What I’m Listening To While Writing TMD
Hey, it’s the Talking Heads saying “Don’t Worry About The Government.” Is David Byrne being sincere here? That’s the question with basically every Talking Heads song.
The Big Question?
You’re asked to solve affordability. Where do you start?
Top graphic images: stock.adobe.com; DepositPhotos.com
Another definite consideration is the cost of maintaining a car.
Around here, a basic (front and rear, pads and rotors) brake job costs $2000. I am fortunate that I can do that job for ~$200 in parts, but it seems like not many people do their own repairs.
A $2000 repair would have me questioning whether to keep / fix or trade, and could definitely steer me towards something with a full warranty.
I disagree with your assertion that during the chip shortage automakers choosing to produce higher trim models was the way to go.
You know what doesn’t require chips to function?
Manual seats, windows, mirrors properly designed cabin heating/cooling ducts, etc.
What the automakers should have done during the chip shortage was produce vehicles and specific trims of vehicles that require less chips per vehicle, then invest in making chipless solutions for problems that don’t require chips.
It’s easy to retrofit an electric motor to a hand crank window system, it’s near impossible to retrofit a hand crank to a dedicated electric window system.
The chip shortage should have been the golden era of base cars, where you could option them with higher end trim features, like manual seats with leather, manual sunroofs, manual convertibles, etc.
How to solve car affordability? I’ll start my own car company with blackjack and hookers.
John DeLorean would probably tell you that’s a bad idea if he were still around.
There are a lot of things that can be done at all levels but the head of the line is the consumer.
People need to learn:
There are definitely some systemic issues on the political and corporate side but they really need to be driven from consumers changing their habits. Good luck, though.