The Falling Real Price of New Cars

Includes: F, GM
by: Mark J. Perry

In all of the discussions on the U.S. auto industry, GM, Ford (NYSE: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.