New Cars Today: More Options at Lower Prices

Includes: F, GM
by: Mark J. Perry

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.