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‘Starter Cars’ Go the Way of Starter Homes
All of us will need the bottom rung of the ladder at some point in our lives
Recently, Auto News reported that Mitsubishi is pulling the Mirage—“the only vehicle in the U.S. that transacted under $20,000 in July, according to Cox Automotive”—from the U.S. market. “Five years ago, there were a dozen models of new cars that sold for less than $20,000,” Ben Foldy writes in the Wall Street Journal. “In 2023, there was only one: the spartan Mitsubishi Mirage hatchback, which accounted for about 5,300 of the 7.7 million new vehicles sold in the U.S. in the first half of the year.” Well.
The Nissan Versa—which still lists at a little over $17,000, and looks more like a car than the Mirage—generally sells for over $20,000, as do a couple of other remaining small cars. My own car, the Hyundai Elantra (a compact, not a subcompact) is nicer than any of these bottom-dollar models, and it sold new, all told, for around $17,000 back in the mid-2010s. Of course, there’s been some inflation, so that isn’t $17,000 today, but that kind of value is vanishing. Much like the starter home, the starter car is on its way out.
Smaller (And Cheaper) Cars in the Rearview Mirror
The overall high prices for cars, new and used alike, have garnered a lot of news coverage. In addition to housing prices, car prices are a major component of recent inflation. They’ve driven car payments through the roof (or, if you have a convertible, above the roofline), such that in nine states, at least 20% of new car payments are over $1,000 a month. Commercials advertising $150 interest-free monthly payments are as obsolete as buying a 1990s Subaru Legacy for $2,000. (More than one of my college friends—in the early 2010s—drove such a vehicle, and that’s about what they paid.)
But car prices are not just being driven up by scarcity, labor issues or other economic disruptions. They’re also escalating because of the removal of smaller—and less profitable—cars from manufacturers’ product lines. The station wagon essentially evolved into the minivan; other common models, like the Subaru Forester or the Toyota Corolla, have grown subtly larger; and, most significantly, smaller cars have disappeared from the market.
For example, the Chevrolet Sonic and the Toyota Yaris were discontinued in 2020; the Hyundai Accent was discontinued in 2022; the Ford Fiesta, and now the Mitsubishi Mirage, have been discontinued in 2023. Some of this factory space was retooled for electric cars; some was changed over to production of popular and profitable SUVs. In April, General Motors announced the discontinuation of the Chevy Bolt, a small electric car—one of the only affordable electric models on the market—to free up space for electric SUV and pickup truck production. The backlash was intense enough that in July, GM backtracked and announced a re-release of the Bolt.
This particular element of the auto prices and auto market situation seems like a greatly underdiscussed story. Small cars have never been the most popular choice in the United States, but they have been an option ever since the 1970s: America’s first subcompact car was the AMC Gremlin, introduced in 1970. That preceded the 1970s oil crisis. Adjusted for inflation, its list price at release was just north of $15,000. Now, such an option has all but evaporated.
Losing the Bottom Rung
This phenomenon—not of prices increasing per se, but of the smaller and more affordable versions of a product disappearing from the market—is strikingly similar to that of housing, and in particular, the disappearance of the starter home. There’s no single explanation for this. Is it corporate greed or the unforeseen consequences of regulation? Maybe both.
In the case of housing, zoning distorts the market in favor of large houses or large projects, such as luxury apartment or condominium buildings, in two ways. One is obviously single-family zoning, which prohibits all other types of housing. But the other is a bevy of additional rules, which raises the cost and complexity of development, and makes it harder and less profitable for smaller, more affordable projects to get built.
The types of situations that would have served as starter homes—backyard cottages, small detached houses or, for renters, places like walk-up apartments over stores—are widely banned or effectively discouraged. The small builders that might have brought those housing options to market are squeezed out by a regulatory regime sized for large developers with time, money and lawyers.
This is not exactly analogous to the starter car, but the result is the same. Automakers make more money selling larger cars, and regulations—safety regulations, but particularly the loophole by which SUVs escape higher fuel efficiency standards—skew the incentives even further toward large cars.
The other element, of course, is consumer preference. But whose preferences, and at what stage of life? One of the problems with the disappearance of the starter home is that it makes it harder for young people and young couples to get a foothold. Many people fear that zoning reform would reduce the supply of single-family homes, which many people eventually want. Fair enough. But eventually is the key word here. Having a prize at the top of the ladder is no use if you can’t reach the bottom rung and start climbing in the first place. And that’s exactly what squeezing out the supply of basic, affordable homes does.
We don’t talk about cars in this way exactly: People don’t talk about working their way up to a nice SUV, for example. But it’s all strikingly similar. Most, or at least a large plurality, of motorists might eventually want an SUV, or a larger or fancier sedan. But few new motorists can afford to buy—or, increasingly, even lease—the car they’d eventually like to have. Without the starter car, the eventual desired car becomes a distant, unlikely possibility. You have to walk before you can run. Or, you know, the car equivalent.
This is all even more ironic given that America’s land use regime is almost perfectly designed to make public transit expensive to build and inconvenient to use. And so we drive. Our car culture and our land use are mutually reinforcing. But we are now seeing the loss of both affordable housing and the loss of an affordable set of wheels to navigate our sprawling country. We can fix our land-use problems—which I’d love to see—or we can get cheap, basic cars back on the market. Maybe we can do both. But a country designed around the car and a highly inflated car market is not sustainable.
Why are we losing the bottom rung of the ladder in housing and cars alike? Why do these things get bigger over time, privileging those with means and disadvantaging those who are perfectly willing to work their way up but are no longer reasonably able to? The answer isn’t that nobody wants a small car or a small house. Or, rather, we may not want them but some people, and almost all of us at some point in our lives, need them. “Deregulation” is a dry and unsatisfying way of putting the answer, but it is nonetheless true that if we made it easier to deliver these bottom-rung products to market—by reforming zoning, for instance, or closing the SUV fuel-efficiency loophole—more people would do just that.
In the meantime, people are resourceful and markets are smart. Electric bicycles are close to competing with the erstwhile small car, at least in dense urban areas. In rural areas, some farmers are responding to the supersizing (and super-pricing) of pickup trucks by turning to Japanese-made imported “kei trucks,” or compact pickup trucks. But when you compare the U.S. auto market to that of Europe or Asia, it’s clear that in this country, we’re missing the whole bottom segment of the progression from tiny city car to small family sedan to minivan, SUV or work truck.
Perhaps those determining housing policy and regulatory policy did not themselves have to work their way up, and so view the bottom rung as something of an abstraction. Perhaps we’d all like to pretend we were born with a silver Mercedes in our two-car garage. But life is hard, and there’s no reason for red tape and poorly crafted regulations to make it harder.