The 'Starter Car' Is Headed To The Economic Scrapyard
Why is America missing the bottom rung in so many markets?
I was in Discourse Magazine a few days ago writing about “starter cars”—the small, cheap cars a lot of motorists will buy early on. Specifically, I wrote about the disappearance of a lot of “starter cars” from the market in the last 5-10 years.
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.
The Chevy Spark, too, which no close replacement. Other smaller cars, like the Mazda5 mini-minivan, have also been axed, that one in 2015.
The proximate spark for this piece was a news item: the discontinuation of the Mitsubishi Mirage, identified by Cox Automotive as the last car in the U.S. market which generally sold for under $20,000.
What struck me is that this raft of small-car axings looks a lot like the downzonings we experienced throughout the 20th century: the banning or squeezing out of all sorts of basic starter-home typologies. Yes, we have a housing price problem. But to some extent at least, those high prices are downstream not only of a general supply constraint, but also from the fact that inherently affordable types of homes are greatly underbuilt.
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.
So that’s interesting: the same phenomenon that we see in housing is happening in the car market, and with much of the same effect.
There are two objections to my argument here.
The first is that decent used cars, not new tin cans, are and mostly have been the true starter car. This is true, but the used market is inflated too. Some of this is because of general inflation and acute pandemic-era shortages in car components, which restricted new-car supply, forced new-car buyers into the used market, and caused a price spike. (The same exact thing that occurs in housing, when new housing is not built, and demand is forced into lower rungs of the market, inflating prices of more modest homes.)
Those elements of the used-market blues will ease. But if there’s no longer any new car selling for $20,000—and if the new-car market increasingly switches to large, expensive vehicles—then the supply of the sort of used cars that traditionally served as starter cars will eventually dry up. It’s like how a Christmas tree shortage now indicates a shortage of tree plantings a decade ago. In housing terms, what’s happening to used cars now is what we call gentrification.
The other objection is that $20,000 is an arbitrary number. Inflation is always operating in the background. Of course we’ll eventually reach a point at which no car sells for $20,000—just as we reached a point some years ago where no car any longer sold for $15,000, or $3,000. Just like how a hotdog isn’t five cents anymore.
And I have two responses to this. One is that we’re talking about products, not prices per se. The news item isn’t that the Mirage is now going to sell for over $20,000; it’s that it isn’t going to exist. Cheaper cars aren’t, because of inflation, becoming expensive cars (though they are); cheaper cars are just not being made. And, because of the decrease in these types of cars going forward, the ones that remain will be less cheap going forward too. This is—again—a less severe version of the $2 million midcentury ranch house in Silicon Valley.
My other response is to hop into the time machine (the BLS inflation calculator.) Forget arbitrary numbers. What did the original subcompact car actually cost, when you do adjust for inflation?
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.
The Mirage was one of the closest analogues to the Gremlin still on the market in the U.S. And even before being discontinued, it already cost a couple, or a few, thousand more.
My own car, a compact sedan, sold new in 2015, when I got it, for a bit over $22,000, adjusted. The same car, new today, costs a little more, closer to $23,000. There used to be a subcompact underneath it, which, in its last model year, could be had new for about $18,000. But it’s gone now. Not only do the same cars creep up in real price year over year—the more basic cars that customers might eventually downgrade to have been pulled.
This isn’t just car-market analysis. It’ mostly been covered as automotive news, or as financial news, but it’s a much, much bigger story:
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.
And then there’s the more conceptual element here. I wrote a bit about regulation and then added this:
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 brings to mind the spooky insights from a guest letter I published here, not long after I started this newsletter. It was from a 34-year-old father who drives a 1992 Buick Roadmaster:
The interesting thing about driving a car from 30 years ago built to plans from 50 years ago is that you’re inhabiting the very different assumptions made by a culture very similar to yours….
It floats over the road and you float over it, on soft and uncontoured bench seats. Sometimes I feel like I’m using alien technology, or at least that Roman concrete for which we lost the recipe; it’s just an entirely separate, very pleasant way to conceive of driving….
My wagon feels smaller inside than a minivan, but it barely fits into a normal garage; three of its eight seats, the two wayback jump seats and the front-middle spot on the bench, are places American adults mostly don’t want to sit anymore, almost in the same way they don’t want to ride on the handlebars of a bike….
It’s difficult to see our parents and grandparents eating out a third as often as we do, or wearing the same clothes for years, and easy to see that their restaurants seem nicer and they’re all wearing suits.
Because they’re so durable, cars and houses really force those trades into the light; I hope that writing like yours helps people disaggregate the things about modern life they wouldn’t miss from the things they will find it unexpectedly difficult to give up.
His point is that there is a sort of inexorable logic of getting richer and demanding more safety and comfort and convenience, and that this has real benefits but also subtle costs.
I made a similar point here about the switch from box fans to air conditioning, and how, in this case, what happened was that we were left with only the cheapest, most perfunctory box fans. (Different from the situation with cars—perhaps because box fans are viewed as obsolete, while cars are effectively required in America.)
When the widespread adoption of air conditioning kills the profit in heavy, high-performance box fans, it’s the people stuck in buildings with broken or poorly-performing air conditioning systems who are forced to rely on the diminished fans that are still produced. Being at the mercy of a teacher in the classroom, or your own two feet, or the weather, has a natural leveling effect. By obviating these conditions for a few, technological progress can increase inequality for those who are stuck with them.
Not everyone has been lifted by this general rising tide. The problem isn’t that we have more and better options now—that the ladder has gotten taller. The problem is that the ladder hasn’t gotten taller—as the top rungs have multiplied, the bottom rungs have been sawed off. Those who cannot reach the new, higher bottom are left with no good options.
This is what has happened to housing over the last century, with tiny homes, accessory units, small-lot homes, various kinds of multifamily structures, residential hotels, and SROs squeezed out by zoning in most localities, on most private land.
There are obviously both regulatory and economic explanations for this. But I can’t help but think there’s also something cultural here, something almost philosophical. We may not want a small car or a small house; fine. But it seems that we do not even want to see them. We somehow view the mere existence of the bottom rung as a threat to the top. We view sawing it off as a kind of economic self-defense.
It’s almost like we forget who we were. We want to rewrite our history. We were always rich. We were collectively born, as I put it in the piece, with a silver Mercedes in the garage. We now view as trappings of poverty what we once viewed as engines of opportunity. We lose tolerance for discomfort, for gradual and incremental improvement, for making do, for being hardscrabble and resourceful.
And, in turn, we make life artificially and needlessly harder for those who are still willing to exercise those virtues, or who have not become affluent enough to dispense with them.
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I wonder if there's a smaller, third reason for the disappearance of these cars from the market. Statistics in recent years show far fewer teens getting drivers licenses than previous generations. To the extent that these cars (new or used) were often for new drivers, if that market is shrinking that might contribute.
I've *always* wanted a small car, preferably a sedan or hatchback. My last wagon, as a young parent, was a Toyota Corolla (which was discontinued eons ago). I've had two more cars since then, and each time they're bigger -- both wider and longer, even though they've both been sedans/hatchbacks.
This has other real-word consequences. I live in a house built in 1905, with a kitchen/garage underneath added on sometime around the 1920s or 30s. My Toyota wagon fit easily in there. The VW Passat was wider, but still manageable for 2 people to enter from the garage. My current (and possibly last) car is a Nissan Leaf, which screams at me entering and exiting my garage because of how close I am to the edges. I have to pick up any passenger outside the garage. It feels -- and drives -- more like a mini SUV than a sedan.