Real Prices for New Cars Keep Going Down 14 comments
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Thanks to an anonymous comment for the link to this Dept. of Energy website with data on the Average Price of a New Car from 1970 to 2006, in both current and constant dollars. The chart above shows the real, inflation-adjusted average price of a new car from 1976 to 2006 (in constant 2006 dollars).
What's interesting is that the real price of a new car fell by 10% from 1998 ($25,186) to 2006 ($22,651), and decreased in 7 out those 8 years, or by a total of $2,535 during that period.
Note that this measure of retail car prices does NOT adjust for the continual quality improvements over time in new vehicles, while the CPI: New Cars measure does (see below).
In the face of all of the bad news about rising gas prices, here's maybe some good news: The real cost of new cars is actually declining.
Here's why: In the last 30 years since 1978, consumer prices on average [CPI: All Items] have increased by about 3X (see chart above). During that same period, the CPI for Gasoline Prices has increased almost 6X, meaning that the real cost of gasoline has risen. But the CPI for New Cars has only gone up by less than 2X, meaning that the real cost of new cars has been falling, offsetting some of the sting of higher gas prices for consumers.
Another way to look at it: If new car prices had risen at the same rate as inflation since 1978, new cars would be more than 50% higher than today's prices. And if new cars had increased annually at the same rate as gasoline prices, they be more than 3X higher than current car prices! If the real price of gas is rising, but the real cost of new cars is falling, is it possible that the overall cost of owning and operating a car might not be changing that much?
Update: IRS guidelines allow 50.5 cents per mile deduction for vehicle expenses in 2008. At 12,000 miles per year, 25 mpg and $4 gasoline, that works out to about 16 cents per mile in fuel costs, leaving 34.5 cents for non-fuel related expenses. In percentage terms, that's 32% for gasoline and 68% for non-fuel expenses, including the cost of the vehicle, financing, depreciation, etc.
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This article has 14 comments:
To proseadvocat:
Isn't the usual knock against the govt CPI number that it is too low, thus UNDER-reporting inflation? If the real CPI is higher than what is reported, then cars are even cheaper now than stated in the article, using inflation adjusted numbers of course.
I'll bet you are one of those folks that thinks inflation is really 10%. Of course, if that IS true, then the real cost of a car is even LESS now compared to the cost in 1980. You cannot have it both ways.
Add in the fact that any car you bought in 1980 was LUCKY to last 5 years without needing significant repairs (>20% cost of the car), and a car today will easily go 8 or more years without needing such repair and the TRUE cost of a car now is MUCH less than it was then.
But if that IS true, and the government includes that in the calculation of inflation then inflation might ACTUALLY be lower than all the ten percenters think. BLASPHEMY!
It doesn't sound like you have had many car repairs done over the last 8 years or more. Not only has there been a huge increase in cost, but car repairs have become much more specialized. Try taking your car to the neighborhood mechanic for major repairs. In most cases they will send you to the new car dealership's service dept. Take your life savings with you! If you really want to have a heart attack, get a price on auto body work. By the way, auto body work although inconsistant, is a very real expense of owning an automobile. To further complicate matters (in the opposite direction) consider that auto manufacturers since about 2007 have increased their warranty periods. Finally, domestic auto manufacturers have cut way back on the (very) low profit margin sales to rental fleets. In the very near future this will influence new (& used) auto prices upward. I can elaborate on that if you would like. Finally, all three domestic manufacturers are hurting right now, however, contrary to some popular belief, it is not because they are selling inferior products (like they did in the 70,s and going into the 80,s. They have been strangled by employee benefit packages & wages. That's changing, too. So the domestics are going to have to raise prices and profit margin or become extinct. It therefore becomes a more complex matter, however, I am of the opinion that real car prices will move up dramatically as soon as the consumer finances and borrowing power have recovered.
TERRY - TKTK53