Price Creep: Entry-level cars are getting more expensive

Big players such as Jeep and Honda are “going upmarket” – and while many will still argue there are enough affordable new cars for lower-end buyers, the under $30,000 wedge is starting to look a little thinner.

Last year around 187,000 vehicles under the $30K threshold were sold Down Under – roughly 20 percent of total new-car sales.

Fast forward to 2021 and market research carried out by Wheels shows there are 33 models available to buy in Australia right now priced below that bracket. Of these, many are only the entry-level variant, with prices for higher spec models rising well beyond.

Only three featured in the top 10 most popular in recent months: the Hyundai i30, Toyota Corolla and MG ZS. Of course, this comes as no surprise. Aussies’ infatuation with SUVs and dual-cab utes is well known, however there are just three medium-sized SUVs on sale within a $30K budget: the Haval H6, Ssangyong Korando and MG HS.

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“It used to be that everyone would set their cheapest cars at $19,990 or under to get all the buyers who only had/wanted to spend $20K,” says Mark Telfer, director of finance and operations at Inside Edge Novated Leasing in Melbourne.

“Now that has changed; the deal breaker was Mazda with the 3, then because the most popular car in the segment sat above $20K it dragged everyone else up too. But the Mazda 3 wasn’t just about bringing more equipment, it was a styling thing which showed the market you didn’t need a low price point to be the most popular car.”

More manufacturers are now importing their mid-range or highest-spec cars, which feature a greater level of creature comforts such as Apple CarPlay/Android Auto and, crucially, improved safety equipment, leaving fewer options for stripped back variants in the market.

“Buyers can see the value of going for the extra spec – being price driven isn’t the only component anymore. It is one thing, but it’s just one of many components. People’s requirements for tech and safety override their desire to be a tight arse,” Telfer adds.

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Honda is one of those now focusing on higher-spec cars, with some previous base models gone as the brand looks to push further upmarket. The marque switched to the agency model from July 1 this year, and though its sales have been initially slow to bounce back, the company contends that it is not chasing numbers.

The Federal Chamber of Automotive Industries (FCAI) doesn’t believe there is a problem with the variety of models available in Australia, however it does acknowledge there are factors driving up prices and the impact it has on consumers.

“The increasing amount of tech required to get a five-star safety rating is an issue,” says Chief Executive Tony Weber.

“The idea that they put so much equipment into a car now that some people can’t afford to buy it and therefore opt for second-hand is a problem, because it ages the national fleet. It is putting a price on safety.”

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When costs are driven higher than the means of buyers, it prices many out of buying new – as evidenced by the now booming second-hand market, which has become even more popular due to COVID-19 supply disruption.

“The way to provide [new] vehicles at the price point consumers want is to eliminate barriers on cars coming here. If there is a market, and it is possible to supply in a competitive environment, then the brands will fill that gap if it is feasible from a financial perspective,” adds Weber.

"The increasing amount of tech required to get a five-star safety rating is an issue"

Peter Khoury from the National Roads and Motorists’ Association agrees.

“The choice is still in the hands of buyers, although of course the global impact of COVID-19 plays a part,” he says.

“Manufacturers can’t afford to price themselves out. That said, Australians love a bargain and also love holding onto their cars – which means our fleet is the second oldest in the Organisation for Economic Co-operation and Development (OECD). We do pay more for our cars here than overseas, and having extra regulation such as the Luxury Car Tax (LCT) doesn’t help.”

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According to the Australian Bureau of Statistics (ABS), as of May this year, the average Aussie earns $1737 a week before tax.

While the more affluent among us will be unfazed by increases in pricing, there will also be a section of our society who are more sensitive to the bottom line.

“There are now checks in place to stop buyers taking out a lease and going beyond their means. We regularly see people who are thinking they want to go upmarket, but are held back by the lenders because they don’t have the capacity to pay,” says Telfer.

“As a result, those who can’t afford a new or used car that’s say, two or three years’ old, hang on to what they have for longer – until they are let down and repair is not an option.”

Top 10 cheapest cars in Australia*