Saturday, April 26, 2008

New Cars Today: More Options At Lower Prices

What is remarkable and amazing is that as "car options considered to be essential to car shoppers" have increased significantly between 1985 and 2007 (see chart above), new car prices have: a) increased much less than the general price level during that period, b) been relatively flat since about 1993, and c) decreased slightly since 1996 (see chart below). Supposedly, the Bureau of Labor Statistics adjusts for changes in quality over time, but I'm not sure that the series "CPI: New Cars" accurately captures all of the improvements in the quantity and quality of vehicle options over time.

Bottom Line: Car buyers have gotten more and more options over time, while vehicle prices have been flat, reducing the overall cost of owning a car. Gasoline might be getting more expensive, but real car prices are a baragin. Looking at the graph below, if vehicle prices had increased at the same rate as the "CPI for All Items" since 1985, new car prices in 2008 would be almost double today's prices.


At 4/26/2008 9:09 AM, Blogger spencer said...

One of the reasons the CPI for autos has been flat is that the CPI for cars is quality adjusted to account for these options being included in the price of a new car.

The current car in the CPI is not the same car as it was in 1987.

At 4/26/2008 6:51 PM, Blogger OBloodyHell said...

I'm curious, when was the last "innovatative" safety feature that became standard (or mandated) on new cars -- didn't airbags finally become standard ca. 1995 or 1996? Before that, it was ABS, and other mandated safety features. (also noted: they keep adding airbags, but I'd sort of assume these have also commoditized a bit over 10+ years to counterbalance the expense of the new ones)

I'm curious about how these additions of "insurance encouraged" and government mandated feature correlates with the rise of car prices over the last 40-odd years

At 4/26/2008 9:05 PM, Anonymous Anonymous said...

$30,000+ for a new Honda Accord that has some extras still seems like a lot of money.

I bought a new Chevrolet Camaro in 1973 for $3,000. It seemed more inline with reality than $30,000.

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At 4/27/2008 10:21 AM, Anonymous Anonymous said...

The car prices remaining flat for the past 20 years when the CPI has increase by almost 2 times be the very reason for all the labor cost issues the big 3 face today????

At 4/27/2008 2:47 PM, Anonymous Anonymous said...

What is amazing is that today's Honda Accord can beat James Bond's DB5 Aston Martin featured in Goldfinger in 1965 in a drag race. The sexy supercar of the past vs. the commoditized car of today.

Cars are no longer for the ultra rich. The technology of the S class Mercedes has come down to the public. Cars are just a way of getting from point a to point b. They are as ubiquitous as handbags.

Engineering and economics really rock! Economies of scale and competition mean that we no longer have to be James Bond to drive a car that offers safety, and high performance.

Stirred but not shaken, thanks.


PS. Obloodyhell, the single most important safety innovation has been the introduction of the seat belt which has save more lives than any other automotive safety technology

At 4/28/2008 9:46 AM, Blogger OBloodyHell said...

No argument or comment about the desirability or "worthwhile-ness" of all the added safety measures. I was just noting that, via both gummint fiat and insurance-company "discounts", a lot of formerly non-existent safety features have been added to modern cars to the point where they are "standard".

"Standard" just means that everyone pays for it whether they want it or not. This does bring some simplicity to design, and thus, cost reductions from mass production (both to the individual device and the "container" device), but it also seems to me to be a prime factor in the rise of car prices. Figuring inflation from the early 70s as ca. 3-4 times current prices, that $3000 car should be somewhere like $12000, not the 30k it is today. I am curious if I am correct that one of the main increases has been "standard" safety features.

The seat belt? That's been around since at least the 40s -- it was standard on the Tucker, and even there it wasn't "new", just never "standard" before. They really need some innovation on the four-point system -- all sorts of oddball injuries occur as a result of the current three-point (and older lap belt) designs.


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