Entry-level car shoppers face a budget crunch

As consumers move away from passenger cars in favor of SUVs, options are shrinking for buyers on a budget.

Automakers love to sell larger and more luxurious vehicles because they can make more money on them, and U.S. consumers have been largely accommodating. The question is, are entry-level buyers being left behind?

Jeremy Acevedo, manager of industry analysis for Edmunds, said affordability clearly has become an issue.

"In terms of affordability, there's just so many less options for people who are in this space," Acevedo said. "When you look at the industry when it emerged from the recession, definitely small cars were the priority, and it was foundational to the business model. … We've seen that dry up."

Consumers shopping for a less-expensive new vehicle might turn to a subcompact SUV, but it still could be thousands of dollars more than a subcompact car.

As the shift to SUVs has happened, transaction prices have been increasing on many vehicles, according to Sam Abuelsamid, an analyst for Navigant Research.

"With the shift of [a lot of] manufacturers away from cars to SUVs and trucks, that's likely to increase," Abuelsamid said, noting that with fewer cars available at lower prices, "it's probably going to be even more of a challenge going forward."

Those price increases have played out over a number of years. In 2012, 54% of new vehicles that were sold cost less than $30,000. That number has dropped to about a third. Meanwhile, the number of vehicles sold above $50,000 has jumped from 6% to 23%, according to data from Cox Automotive, which called it a mind-boggling statistic.

While domestic automakers have abandoned many of their car lines, some others have not.

"The major Japanese automakers are kind of keeping their portfolios intact, really leaning on their cars to do their fair share of sales for the company," Acevedo said, noting that their passenger car sales volumes are likely to benefit from the U.S. carmakers' move away from cars.

It's not the first time Detroit has shifted its focus to larger vehicles. Micheline Maynard's 2003 book, "The End of Detroit; How the Big Three Lost Their Grip on the American Car Market," notes; "GM, Ford and Chrysler shifted en masse in the early- to mid-1990s to focus most of their attention on pickups, SUVs and minivans. As a result, they ignored the car market, claiming that trucks were where consumers' tastes had shifted."

There are differences today, however. Foreign automakers are more heavily reliant on SUV sales in the United States than in the past. Gas prices have fallen, and even if the high rates return, SUVs are no longer the gas guzzlers they once were.

Of course, consumers have options other than buying a new car. Used cars are one possibility, although data show that consumers are financing more to get into a used car, which could have implications if even more people turn to the used market. Another option, aside from public transportation, which can be much more cost-effective in many cities, is leasing.

Paul Richards, owner of a Honda dealership in Michigan, said leasing is a popular option because lower payments are possible. The option is good as long as someone isn't likely to go over the mileage limits.

"For a good chunk of the market, it's just affordability — 'I just want to have the most car for the lowest payment,' " Richards said.

He said he's watched as new vehicle prices have climbed over the years.

"I think we're all feeling competitive pressure toward the affordability side," he said, noting that the expense of owning a car doesn't stop with the payment, but also includes the price of fuel, insurance and potential repairs. "Everybody wants to lower their payments as much as they can."