The Real Reason Why Cheap New Cars Are An Endangered Species

There’s been an underlying tension in the car market that has yet to be resolved, and it has to do with affordability. Carmakers have been producing better, more market-appropriate vehicles in the sub-$30k price range, yet, at the same time, affordability never seems to improve. How is this possible?

I get to look at data every day as part of my morning routine, so it takes a lot to knock me off my chair. Today’s Morning Dump will be all about data, and right up front is a surprising number that goes a long way to explain why the great, affordable cars we all want are likely to be even harder to access in the future.

A lot of this has to do with tariff policy, and the counter-balance to all of this tsuris was supposed to be that the elimination of penalties for violating fuel economy averages would make things easier for automakers. That might happen, but the government has also determined that doing so will result in a lot of job destruction and more expensive gasoline. A look at the 10-year Treasury and Fed policy shows no reason to expect people to get better rates, but many people are doing so. How?

Are you sensing a pattern here? The world, as always, is complex and contradictory. Tesla has continued to see a sales drop consistent with falling demand, so the board has responded by giving CEO Elon Musk billions of dollars.

I was off last week and am grateful to Thomas for filling in. The smart thing to do would be to take it easy for my first TMD back, but who wants to do the smart thing?

The Number Of The Day Is 92%

If you read The Autopian regularly, then you know that there is still a surprisingly large number of good, affordable new cars under $30,000. There’s the Chevy Trax, which is no longer a penalty crossover. The same is true for the completely competent Nissan Sentra. I have not driven the new Subaru Impreza yet, but it seemed like a great deal when it debuted.

I want to say there’s something all these cars have in common, though. Hmm… what could it be?

Oh, right, none of these cars are made in the United States. These cars are made in South Korea, Mexico, and Japan, respectively. If there’s an affordable car that you think is good, or are interested in, the chances are extremely high that it isn’t built in the United States. And by “extremely high,” I mean there’s a 92% chance that it’s built outside the country, as Cars.com pointed out recently:

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. Only two models in this segment are built in the U.S. – the Honda Civic and Toyota Corolla – while some are also produced in Japan. While overall new car units grew 5.6% year over year in the first half of 2025, the entry-level segment lagged behind at just 3.9% growth in the same time period.

The United States has a high standard of living, high energy costs, a strong currency, and elevated labor costs relative to many of the other countries where affordable cars are produced. It’s why it makes sense to build the pricier cars here and the cheaper ones elsewhere.

Obviously, this is not sustainable, so there are a couple of ways this might change, and neither is net-good for consumers:

1. Some production could shift here (Honda and Toyota seem to be going this direction), but that’ll almost certainly make car prices higher, especially with steel and aluminum tariffs in place.
2. Automakers just stop selling sub-$30k cars.

That sounds dramatic, but there’s already evidence that this is going to continue to happen. A good example is Subaru, which has dropped base models faster than my kid dropped Icebreaker mints in our press car last week (sorry, Kia!). Just last week, Subaru announced it was dropping the Japanese-made base Impreza, which means the new model will start at $27,790, or $2,260 up from the base price in 2025. After taxes and fees, that’s likely a $30k+ car.

While automakers can eventually make changes to build more affordable cars in countries with lower tariffs, and trade deals might help, there’s simply not a lot of margin in cheap cars, and even a 10% increase in tariffs is going to make the math difficult.

In my mind, this is the best evidence yet of the negative impact of tariffs on consumers. There haven’t been a lot of huge price increases as automakers are doing their best to hold the line and keep buyers interested. While there’s been a general reduction in incentives, automakers like Ford are attempting to gain market share and, therefore, are actively discounting.

Could this be the year we finally get an Average Transaction Price above $50,000? Absolutely. Not by raising the prices higher on expensive inventory, but merely by reducing the volume of sub-$30k cars, which is exactly what happened during the last market shock.

Removing CAFE Penalties Could Make Gas More Expensive, Cost 450,000 Jobs

There’s a great bit that economist Paul Krugman was doing post-GFC (Global Financial Crisis) in which he suggested that America should just pretend that there’s an alien invasion coming so that the government could spend a bunch of money preparing for it. The invasion wouldn’t be real, of course, but merely a way to achieve economic stimulus via increased spending.

In 2020, there was a real crisis, and increased government spending seemed to avert economic catastrophe, though it did seem to suggest that alien invasions might be inflationary.

Most scientists and most governments have suggested that climate change is an existential threat, and the previous administrations passed a number of now-reversed laws to try and address it. The current administration doesn’t seem to believe that there really is a threat, and the current EPA Administrator, Lee Zeldin, is trying to undo a 2009 scientific finding that said that pollution from fossil fuels endangers the health and future of this country.

From CNN:

“To reach the 2009 endangerment finding, they relied on the most pessimistic views of the science. The great news is that a lot of the pessimistic views of the science in 2009 that was being assumed ended up not panning out,” Zeldin said on CNN’s “State of the Union.” “We can rely on 2025 facts as opposed to 2009 bad assumptions.”

[…]

In the nearly 16 years since the EPA first issued the Supreme Court-ordered endangerment finding, the world has warmed an additional 0.45 degrees Celsius (or 0.81 degrees Fahrenheit) to 1.4 degrees Celsius, according to climate scientist Zeke Hausfather.

“Both the scientific certainty around climate change and evidence of the dangers it is causing have grown stronger since 2009,” Hausfather said in an email. “There is no evidence that has emerged or been published in the scientific literature in the past 16 years that would in any way challenge the scientific basis of the 2009 endangerment finding.”

This seems bad to me. Not to get too political, but I’ve got a kid with asthma whom I would like to be able to live in a world where she isn’t at constant risk of being harmed in a freak 500-year flood that happens every year. I’d like her to be able to breathe the air outside.

But let’s pretend that the science isn’t clear and no one knows if millions of cars pumping greenhouse gases into the environment is really bad. What are the economic impacts of not addressing the threat of climate change? The good news is that the U.S. Energy Information Administration did some projections as part of its Annual Energy Outlook and tried to see what would happen if the Biden Era policies continued, and what would happen if they didn’t (which is what the current administration has achieved). As you can see in the chart above, in the “Alternative Transportation” case that the Trump White House is carrying out, gas prices go up.

Not immediately, of course. It takes a while for the changes to fuel economy standards to impact demand. Eventually, the mix of cars and the increase in fuel demand mean that demand goes up, which causes prices to go up. This is a somewhat simplistic view, and all sorts of things could happen, including a recession or the discovery of oil in the Rose Garden of whatever. This is an all-things-being-equal kind of calculation. (Of course, eventually, if the price goes high enough, demand for fuel-efficient cars will increase like it has in Europe, where fuel is pricey. I tend to be more optimistic about the adoption of hybrids and the like).

What if you don’t care about gas prices? What if you care about jobs? As CBS News points out, the report also doesn’t have great news there, either:

The EIA’s own data estimates that a future scenario — where Biden-Obama emissions standards are revoked — would lead to a loss of 450,000 jobs by 2035. Jobs would begin to rebound by 2045, but not enough to overcome the significant losses suffered in previous decades.

Peter Huether, senior transportation research associate at the American Council for an Energy-Efficient Economy, said in a statement, “Drivers would pay thousands of dollars more in fuel and maintenance costs over the life of a vehicle, and businesses could lose billions annually from higher trucking costs” as a result of the Trump administration’s deregulation.

“These costs would ripple through the economy, raising prices for everyday goods and undercutting job growth,” Huether said.

Well, that seems bad.

My longstanding belief with regard to all of this is that, hey, maybe you don’t believe global climate change is happening (it is), but the slow shift towards more electrified cars (hybrid, EREV, EV) would have an obvious local air quality benefit, which is good, especially for my kid. It would likely cause a drop in fuel prices, which is also good. And it would create more jobs, which ain’t bad, either.

The downside is increased inflation, but if done slowly and carefully, that’s probably less likely. There’s also an overcapacity risk, as in China, but even before the election, it seemed like automakers were revising timetables to avoid this.

More People Are Getting 0% Financing

The Federal Reserve has kept rates elevated for a while as conditions seemed to be consistent with the Fed’s current “dual mandate” of avoiding a big drop in the labor market and, at the same time, not overheating the economy and causing more inflation.

Up until a few days ago, that seemed to be a reasonable course. That’s when Cox Automotive economist Jonathan Smoke wrote about how, even with higher rates, people have been getting better financing deals:

The move up in bond yields to start the year contributed to interest rates on auto loans increasing. The outlook for average auto loan rates to come down significantly is similar to the outlook for the 10-year. The average consumer is likely out of luck for a dramatic improvement in affordability, especially with tariffs likely to push new vehicle prices higher.

However, average auto loan rates have been declining modestly over the last two months, with the most improvement occurring on new loans to consumers with good credit. And that’s where consumers can make a difference in what they can afford without any assistance from the Fed.

More aggressive financing offers are driving the improvement in new loans this summer. July has seen a higher share of new loans with 0% interest rates than has been the case in any month over the last three years. This change is a notable shift in auto credit following very low levels of 0% offers this spring, when the tariff-induced buying frenzy caused supply to tighten.

Is there a catch here? Of course, there’s a catch here. If you have good credit then you can get a good deal. If cars are already unaffordable to you, then they will probably continue to be unaffordable.

I mentioned up top that this was written in a specific world where the labor market was strong. We’re not in that world anymore and, in fact, maybe haven’t been in that world at all for a while. The Bureau of Labor Statistics found in a revision that job growth has slowed significantly over the last three months. That’s bad for the economy, but good if you want the Fed to cut rates. The current White House might not believe that climate change is real, but they also don’t believe those numbers are real, and fired the head of the BLS.

There is an unresolvable contradiction in all of this. The White House came in promising to lower inflation and is arguing that all this tariff stuff is increasing employment and that the economy has never been stronger. At the same time, it’s arguing that rates should be dropped, which you wouldn’t do if the former were true.

There’s something that Bloomberg‘s Joe Weisenthal wrote that’s been sticking with me lately:

So if you just think about the current state of the US economy, there’s something vaguely futuristic about it. A very tiny handful of people getting generationally wealthy (and powerful). A broad swathe of people seeing their personal balance sheets improve, because the stock market’s been so hot (you could argue that the stock market has become something of a privatized UBI for people fortunate enough to have bought in). And then the only areas of actual widespread jobs growth being in areas that are tied to aging and health, much of which is sustained by widening deficit spending.

What we’re not seeing is any kind of general expansion in activity across the economy.

A bad jobs report here or there is not the end of the world. They happen from time to time, and people freak out, and then forget about it. However the specific contours of this moment feel like a glimmer of a stranger, less comfortable future.

The Stock Market-as-Universal Basic Income thing is going to haunt me, as I know people in all three tiers here, and it feels extremely true.

Elon Musk Got $30 Billion

Tesla’s revised Model Y is fully available in China, and sales are still down there year-over-year. It’s early, I guess, but I don’t think there’s been a lot of evidence to suggest the Model Y is going to move the needle enough to overcome all of the company’s other challenges.

CEO Elon Musk is, maybe, the richest man in the world. This relies on Tesla stock remaining high and, also, a lawsuit being resolved that allows Musk to get the biggest paycheck in history. Both of those are in question, so the Tesla Board of Directors voted to grant Musk an interim stock grant worth about $30 billion.

Per Bloomberg:

Tesla Inc. approved an interim stock award worth about $30 billion for Chief Executive Officer Elon Musk, a massive payout meant to keep the billionaire’s attention on the automaker as a legal fight over a 2018 pay package drags on.

The new agreement includes 96 million shares of the automaker that will vest if Musk continues to serve in the top post for another two years, the company said Monday in a regulatory filing. The restricted stock has an exercise price of $23.34, equal to the price in a prior compensation package from 2018.

Tesla said it didn’t want to wait for legal challenges to get settled, and needed to keep Musk “against the backdrop of the ever-intensifying AI talent war and Tesla’s position at a critical inflection point.”

What I’m Listening To While Writing TMD

If you want the truth, I’ve been on vacation for the last week and have, for some reason, been listening to a lot of old Mitski. Here’s “Liquid Smooth” off of her album Lush.

The Big Question

What’s the best sub-$30k new car right now?

Top photo: Subaru, depositphotos.com