The Falling Real Price of New Cars

In all of the discussions on the U.S. auto industry, GM, Ford (F), and Chrysler, etc., we shouldn't forget about the biggest beneficiaries of the intense global competition in the car industry: American consumers. The top chart above shows the CPI for new cars, which increased annually between 1973 and 1996 at the compounded rate of about 4% before leveling off and falling at a rate of -.50% per year for the last 12 years.

The bottom chart shows the CPI for All Items (4.6% annual inflation rate) vs. the CPI for New Cars (2.6% annual inflation). Since 1973, the CPI has increased by 5 times, compared to only a 2.5 increase in the CPI for new cars. If new cars had increased at the same rate as the CPI for all goods and services, new cars would be twice as expensive today (adjusted for quality). American car consumers have never had it so good - new cars are better and cheaper than at any time in history.

Comments

[Raution:]

Thanks for a good insight...it does make sense and speaks about the intense competition and matured auto industry.

Mar 31 02:54 AM

[Dave Wrixon:]

The main reason for the increase in quality is imports and transplants.

Indeed the main reason for the improvement in value is imports and transplants.

The problem with imports and transplants of course is that they have devasted an indigenous industry that just was not able to respond.

So what next then? Microchips? Software? Financial Services?

Mar 31 03:28 AM

[strutzma:]

What Mark neglects to tell you is that Real Wages are zero to negative during this same period. There is no benefit to American Consumers over this time period except the availability of new and more exotic debt instruments that have buried Joe America to his eyebrows. You'll have to draw the flat line for wages across your computer screen for a better comparison, because Mark isn't going to reveal this dirty little secret.

Mar 31 05:50 AM

[atlasman:]

This is another good example of the impact globalization has had on the economy. It just isn't socks sold at Walmart but products of all sizes and types. You can argue all day long as to whether it is good or bad for the US economy but it does not really matter since it is the reality we face. The real question is how do we combat global competition. We can protect ourselves via tarriffs, import regulations, and other protectionist ways or we can work to make the US more competitive. I would argue that the latter option is the only real solution. Gov bailouts do not solve the root problem.

Mar 31 06:32 AM

[ain't no fo...:]

the people who pay mark would prefer he keeps his dirty little secrets to himself imhfo


On Mar 31 05:50 AM strutzma wrote:

> What Mark neglects to tell you is that Real Wages are zero to negative
> during this same period. There is no benefit to American Consumers
> over this time period except the availability of new and more exotic
> debt instruments that have buried Joe America to his eyebrows. You'll
> have to draw the flat line for wages across your computer screen
> for a better comparison, because Mark isn't going to reveal this
> dirty little secret.

Mar 31 10:32 AM

[zagrebzagreb:]

I had no idea that the CPI average since 1973 was 4.6%...! I would have guessed closer to 3%.

Good lord, and we all know the CPI is a somewhat 'fixed' number as well, designed to reinforce government fiscal policy.

Anyway, yes, comparing wages to inflation is critical... never mind other figures like tax rates, debt to income, etc. Let's see if we can get someone to put all of this together. Any volunteers?

Mar 31 11:40 AM

[CJJ:]

Wow, Joe America has been buried by debt? Actually I'm Joe America and I'm not stupid enough to take on debt just because its fun. Maybe instead of blaming salespeople you should blame the morons who took the bait.
There's plenty of blame to go around, stop funnelling it only one way. I'm sure you'd also describe yourself as a Free Market champion and a Capitalist except you are defending the consumer as a stupid being who cannot possibly say no and cannot possibly be blamed for their errors.
Don't know, sounds like a socialism ideal to me.

Cars are cheap folks. The prices are going to rise as the US citizen refuses to buy American cars(which as much as you want to disagree are quite competitive right now with imports.)



On Mar 31 05:50 AM strutzma wrote:

> What Mark neglects to tell you is that Real Wages are zero to negative
> during this same period. There is no benefit to American Consumers
> over this time period except the availability of new and more exotic
> debt instruments that have buried Joe America to his eyebrows. You'll
> have to draw the flat line for wages across your computer screen
> for a better comparison, because Mark isn't going to reveal this
> dirty little secret.

Mar 31 02:25 PM

[EEB:]

It's a great time to buy a car if you have a job and are certain about keeping it in the future. But if you think that you might lose a job soon, then you would be crazy to buy a car or a house right now unless you are independently wealthy. Job destruction is definitely greater than job creation at the moment. Until that ends, it doesn't really matter how "affordable" things are.

Mar 31 10:19 PM

[CJJ:]

Agreed, but again, why I don't really sympathize with the "renters and savers" as victims in this crisis. For people with savings the bargains abound.

I surely will not buy a house right now for the exact reason you mention and I don't need a car. But I am doing more discretionary spending than ever as long as I keep my job. That is exactly what people with jobs and savings should be doing.

On Mar 31 10:19 PM EEB wrote:

> It's a great time to buy a car if you have a job and are certain
> about keeping it in the future. But if you think that you might lose
> a job soon, then you would be crazy to buy a car or a house right
> now unless you are independently wealthy. Job destruction is definitely
> greater than job creation at the moment. Until that ends, it doesn't
> really matter how "affordable" things are.

Apr 01 12:07 AM