The Unspoken End of the Entry-Level Segment For years, the U.S. and other mature automotive markets have witnessed the quiet disappearance of affordable, small cars. Models like the Honda Fit, Kia Rio, and Hyundai Accent have been discontinued, while the Mitsubishi Mirage is slated to bow out after 2025. This strategic abandonment of the sub-$30,000 internal combustion engine (ICE) segment is not merely a reflection of changing consumer taste; it is a calculated economic retreat by manufacturers who recognize that the low-margin model is no longer financially viable. This retreat confirms that cheap cars are structurally incompatible with modern high fixed costs, input volatility, and aggressive safety mandates. OEMs are instead strategically focusing capital and production capacity on high-margin trucks and large SUVs. Understanding this shift requires analyzing the severe profit squeeze faced by manufacturers and the macroeconomic forces that have made large, expensive vehicles paradoxically affordable to the average buyer.
Of a new vehicle's total expense fixed by initial design and engineering
EBIT margins for top OEMs in Q3 2025—down 60% from 2021 peak
The Structural Profitability Squeeze In the modern manufacturing environment, profitability depends heavily on minimizing cost variation and maximizing pricing flexibility, resources conspicuously absent in the budget segment. Fixed Costs and Marginal Returns Automakers operate under the constant pressure of design costs, with nearly 70% of a new product’s total expense fixed by its initial specifications and engineering. Consequently, even the highest-volume manufacturers struggle to achieve cost reductions, often attaining only 1% to 2% annual savings on raw materials, far below the competitive target of 3%. For large, expensive vehicles, this marginal cost-cutting is tolerable; however, for cheap cars, the thin profit margin offers no buffer against rising commodity costs. This pressure is evidenced by the declining overall profitability of the industry’s manufacturing core. Through the third quarter of 2025, the earnings before interest and taxes (EBIT) margins for top Original Equipment Manufacturers (OEMs) fell to 3.9%, down almost 60% from their 2021 peak. This decline is being driven by factors like softening demand and persistent high input and financing costs, forcing many OEMs to intensify cost-reduction programs that are felt throughout the supply chain. Manufacturers thus prioritize resources on models where a profit margin still exists. The Tariff Tax on Affordability For the U.S. market, affordability is further hampered by tariffs, which disproportionately affect the low-cost vehicle segment. Of the inventory of new vehicles priced under $30,000, 92% are built outside the United States, typically in countries like Mexico, South Korea, and Japan. Tariffs impose an extra layer of cost that low-margin vehicles simply cannot absorb.
Of sub-$30,000 new vehicles built outside the US, subject to tariffs
Average new vehicle transaction price in early 2024
Manufacturers have resorted to two primary responses: either shifting some production to the U.S., which inevitably raises prices due to high labor costs and existing material tariffs, or simply discontinuing the low-margin models altogether. The effective reduction in volume of these cheaper cars is a tactic used to protect profitability, contributing to the soaring average transaction price, which hovered over $47,000 in early 2024. Macroeconomic Drivers of Upsizing The abandonment of small cars coincided with macroeconomic and financial trends that made larger, more profitable vehicles deceptively accessible to the average consumer. The Age of Cheap Credit Historically, during periods of high inflation, like the early 1980s, high interest rates (peaking at 17.36% for car loans) forced consumers to prioritize lower-priced, fuel-efficient cars. However, after the Great Financial Crisis, interest rates remained low, enabling buyers to manage rising vehicle prices by extending loan terms, sometimes stretching payments beyond 60 months. This financial engineering allowed buyers to hide the true pain of rising prices, making a larger, more expensive vehicle only marginally more expensive per month than a small car. This created a feedback loop where manufacturers focused on larger products, and consumers shifted en masse to more luxurious pickup trucks and SUVs. The average new EV, for example, is priced above $64,000, well above the industry average.
Average price of new EVs—well above industry average
The Superiority of the Used Market New ultra-cheap cars are generally unable to compete with the sheer value proposition offered by the massive, liquid market for reliable used cars. As modern vehicles are engineered to last significantly longer, often exceeding 200,000 miles, the incentive to buy a bare-bones new car has diminished. For the same price as a new, bare-bones vehicle (like a discontinued Mitsubishi Mirage priced near $17,000), many buyers can acquire a two- to four-year-old certified pre-owned car offering superior features, comfort, safety, and proven dependability. These used cars have already absorbed the steepest part of their depreciation, offering the buyer more emotional security and better long-term financial predictability by minimizing the primary hidden cost of ownership.
Typical lifespan of modern vehicles, making used cars more attractive
Conclusion: The Inescapable Consequence
The disappearance of the entry-level ICE vehicle is a consequence of manufacturers prioritizing profit over volume, a rational response when supply chain disruptions and input costs are volatile. The fact that only two models in the sub-$30,000 segment—the Honda Civic and Toyota Corolla—are still built in the U.S. suggests that only vehicles with colossal sales volume (over 200,000 units annually) can justify domestic manufacturing amidst high labor and fixed costs. For the average consumer, this translates into a severe affordability crisis. The strategic abandonment of the cheap segment confirms that this traditional low-margin model is no longer economically sound, forcing consumers who cannot afford the high average transaction prices into the more volatile used market or toward the new generation of electrified options.