Carpe Diem

Today’s new vehicles are cheaper and more reliable than ever before in history; the middle class never had it so good

cpicars

The chart above shows the CPI for all items (blue line, data here) and the CPI for new vehicles (red line, data here), with both series set to equal 100 in the year 1989.  Over the last 23 years, consumer prices have increased by an average of 85.3% (and by 2.71% per year); in contrast, the CPI for new vehicles (with adjustments for quality) has increased by only 21% (and by only 0.83% per year), and has been basically flat for the last 17 years. Amazingly, the CPI for new vehicles has fallen by 64.3% since 1989 in real terms, and on an annual basis by 1.9% per year!

What inspired the chart above was the 2013 U.S. Vehicle Dependability Study that was released last week by J.D. Powers and Associates, which reported that vehicle dependability reached an all-time record high this year.  Here’s an excerpt from the press release:

The long-term dependability of three-year-old models has improved year-over-year, according to the J.D. Power and Associates 2013 U.S. Vehicle Dependability Study. The study, now in its 24th year, measures problems experienced during the past 12 months by original owners of three-year-old vehicles (those that were introduced for the 2010 model year). Overall dependability is determined by the number of problems experienced per 100 vehicles (PP100), with a lower score reflecting higher quality.

“In 2013, overall vehicle dependability averages 126 PP100–a five percent improvement from the 2012 average of 132 PP100–and is the lowest problem count since the inception of the study in 1989.”

In my Wall Street Journal editorial in January with Don Boudreaux, we argued that despite the repeated complaints about the stagnating middle class, the affordability of most of “life’s basics” (food, clothing, cars, and household furnishings like appliances) for middle-class Americans is actually the highest in history. The falling real cost of new vehicles makes them increasingly affordable for middle-class Americans, and their dependability is at an all-time high, which reduces the cost of vehicle maintenance.  Most cars now last for 200,000 miles or more, which was unheard for cars built even as recently as the 1980s.

Bottom Line: When it comes to the affordability, reliability and quality of new vehicles, Americans (including low and middle-income groups) have never had it better than today. Today’s cars and trucks are another example of how middle-class Americans today have more buying power than ever before, and are far better off than their parents or grandparents.

39 thoughts on “Today’s new vehicles are cheaper and more reliable than ever before in history; the middle class never had it so good

      • i don’t think many would argue that in any given class, a car today isn’t better than it was in 1980.

        my big issue with quality adjustments is that they are totally arbitrary. we can know the direction, sure, but how would one even go about determining the length of the vector?

        if we take a 2000 corolla and then a 2002 corolla, how much better is the new one? 0.5%? 2%? it’s a totally subjective made up number. how could anyone possibly find a definitive answer to the question?

        i also think that there is a real issue in combining quality adjustments with geometric weighting.

        if, due to a rise in price, i buy a bmw 325 instead of a 328, shouldn’t there also be an offsetting quality adjustment?

        i am buying a lesser car (and how do we know, because it is priced less which means the markets values it at less) thus, even if the 325 is better than last years, it is still worse than the 328 and that drop in quality is never reflected in the CPI.

        if you are going to take out the benefit of a car getting better year to year from the price index, then it seems extremely dishonest not to also take the drop in quality from a move to a lesser vehicle out when the basket weighting shifts.

        this has been a particular issue in food, especially meat, where the grades and quality of the cuts in the cpi basket have dropped a great deal. how does moving from prime rib eye to choice sirloin not entail a negative quality adjustment? if the two are really equal, why do they have such different prices?

        • my big issue with quality adjustments is that they are totally arbitrary. we can know the direction, sure, but how would one even go about determining the length of the vector?

          It’s impossible. The length of the vector is different for each individual as all value is subjective, and it can’t be quantified. There is no way to determine an average value of things that can’t be measured.

          We can only say “yes, they’re better”.

      • Thank you, Professor Perry, however, as Uncle Milton said, there is no free lunch…I quickly examined the quality link and IMHO, it is buffoonery…

        This is the manifestation of the government saying to the effect, that you are paying less than sticker price because we have determine you are receiving a higher quality item…

        Can the consumer really tell if the quality of the vehicle is better three years apart ?

        Will the Baltimore Ravens now be able to charge more for their tickets but still claim that due to quality improvements (wining the Corporate Bowl) the end user is really paying less…

  1. I agree with the article — when it comes to cars (and PCs and you can throw in a few more things other than vet bills since the ’70′s to today: I need MediCare for dogs/cats). I have pretty much bought the same type of car since 1978-1980 — a four-door family sedan with a little extra umph (sometimes a 6-cyl instead of a 4-cyl); from Chevy X-car to Honda Accord/Toyota Camry. Prices in 1978 to 1980 were around $8K to $12K. Today’s car would run around $25K to $30K. Reliability is a lot better today for just average driving. I used to do tune-ups myself back in the ’60′s and ’70′s — the whole thing: valve adjustments, brake adjustment, change wheel bearings, etc. Other than change oil and some minor stuff, I haven’t touched maintenance in a couple of decades — and I keep cars over 10 years and drive them 100K to 150K.

  2. in the private sector, goods and services get better and cost less continuously, and become more user-friendly.

    In the public sector, including the military, goods and services cost more every year, and become more complicated and Rube Goldberg-esque.

  3. forget cars.. it’s cell phones

    at the food pantry.. the parking lot is filling with not only cars but people yakking on cell phones…

    friends took a trip to Africa out in the boondocks… and every time they came to a small village that had a store there would be locals barefoot in traditional garb…on their cell phones…. how they do the cell towers is beyond me.

  4. You bump your vehicle against another at 5 km/hr and there is a $4,000 bill to fix the damage. How is that better quality? Your alternator goes bad and you are paying $500. A timing belt change costs $400. Insurance that increased astronomically because of the rising parts costs. You really think that poor people find it easier to own vehicles today than they did 20 years ago?

    • Poor people in Texas do not pay $500 for a replacement alternator. They do not pay $4000 to fixd the damage from a 5 m/hr collision.

      Here in Dallas, the immigrant community provides outstanding vehicle repair and service for a fraction of the cost at a dealership.

      Poor people today make use of auto salvage yards in order to cut costs on parts. That’s no different than my brothers and I did forty years ago.

    • Efm: ” I wonder which ones grow faster”

      Next time you start wondering about that, go to this website:

      http://www.bls.gov/cpi/tables.htm

      You can discover that, for 2012, medical care services, homeowner’s insurance, and municipal utilities (water, sewer, trash) had all exceeded the overall rate of inflation.

      • Isn’t it interesting, John, that the areas with the highest CPI increases are the ones with heavy government involvement (education, health care, housing, utilities)?

        • Oh yeeeeaaaah? Well, without our political overlords we wouldn’t even have ejumacation, health car, houses, roads or clean water!!! We’d be just like SOMALIA (oh, yeah….I went there!).

      • so, medical care services, homeowner’s insurance, and municipal utilities (water, sewer, trash) are not “life’s basics”?

        I guess rent goes up as well, so not owning a house doesn’t help.

        • I didn’t expect you to do much work before replying, so I’m not surprised at your comment.

          Professors Boudreaux and Perry wrote an editorial about how spending for “most of modern life’s basics: (that’s most, not all) has fallen as a percent of disposable income over the past 60 years.

          Rather than do any work yourself – work that might have revealed which of life’s basics have gotten more expensive over 60 years – you jumped on the single year datapoints I generously provided for you. You somehow exxpect readers of this blog to pay any attention to your comments, even though you have basically contributed nothing to the discussion here.

          Do some research of your own, Efm, and try to prove that the assertion of the professors is incorrect. But know that the rest of us will hold you accountable for any data you provide in support of your arguments.

          • The graph shows that cars’ prices grow slower then CPI.
            Gooood. but what the point?
            Isn’t CPI an adequate measure?
            If not, say so.
            If yes, what’s the point of cherry-picking?

          • actually jon, i think efim has a point.

            if you are going to make a claim like “Today’s new vehicles are cheaper and more reliable than ever before in history; the middle class never had it so good”

            then CPI as a whole, not just cars seems like the right metric.

            mark’s “cherry pick” for households is also a fair criticism. it does not include healthcare, education, etc which are other home expenses, fails to account for things like crowding out or substitution or the change in consumption patterns due to urbanization (fewer cars, less furniture, less food at home as you eat out more, etc)

            read my comments on mark’s other post on this.

            i’m not saying the middle class is worse off, but what i am saying is that these metrics are a very questionable, incomplete, and likely slanted way to look at it. mark’s wsj piece has no particular relevance to the middle class. it could be fueled by a big jump in income for the top 25% and the bottom 25% while the middle falls apart.

            i’m sure some of this is just semantic carelessness, but the evidence here simply does not support the top line claims mark is making. it could support it, it’s not inconsistent with it, but it could also be consistent with many other scenarios as so is not really up to carrying the burden of proof here.

          • Morganovich,

            I don’t want to speak directly for Professors Boudreaux and Perry, but the article they wrote and the post above seem very consistent with the point both have made many times in the past: that free market capitalism has improved our standard of living and continues to do so.

            Furthermore, the examples you have just provided – education and health care – exactly support the long term message which Don and Mark have espoused: that government interference in free markets prevents the improvements in living standards we would otherwise have realized.

          • Professors Boudreaux and Perry wrote an editorial about how spending for “most of modern life’s basics: (that’s most, not all) has fallen as a percent of disposable income over the past 60 years.

            No they didn’t. They wrote an article on the ratio between a “basket of basics” and aggregate disposable personal income. Then they extrapolated the decline in that ratio to the “middle class” which they neglected to specify and without considering income skew.

          • john-

            i’m not even arguing that it hasn’t. i think our standard of living has gone up.

            however, i also think that the metrics used by mark and don do not prove the points they keep making eg “the middle class never had it so good”. they are consistent with such an outcome, but are also consistent with a large number of other outcomes including one where the rich get dramatically richer, the poor get far more free stuff, and the middle class gets screwed, changes in consumption patterns due to urbanization, substitution etc.

            the metrics they laid out are not proof of anyhting about the welfare of the middle class. the aggregates cannot even break it out.

            i find myself (to my own surprise) in agreement with marmico here.

            further, healthcare and education do not support the point here. i agree completely that they have been badly disrupted by government interference, but, as people still buy them (and far more buy secondary and private education) they are still a part of middle class (and societal) welfare.

            i think that you and mark and i would all agree that they would be cheaper if the government stopped distorting their markets, but that is really a separate issue. the fact is that they have been distorted and consumers must face the costs.

            the auto market has been distorted too. it has been bailed out twice at great expense keeping capacity high, price low, and us companies in business at all.

            yet the price of a car is included in the list of “good things” without including the price of the bailouts. the US auto industry has made about 22mm cars since the last bailout. the bailout was $35bn. that’s around $1600 a car which is no small amount.

            absent the bailout, production would likely have been lower and price higher.

            if we are going to count the interference that keeps prices low, we need to include the interference that keeps prices high too.

            what about all the farm subsidies and tax credits for homes and cars etc etc? surely that is affecting the price of these goods. what about ZIRP, and QE and freddy and fannie all but nationalizing the mortgage market?

            the government is having a significant effect on loads of markets.

            we cannot count just one side of the interference.

  5. I buy used cars but I agree, quality per dollar much better. In 1994 I bought a 3 year old Buick Park Avenue with 50,000 miles on it for $16,000 and ran it up to last year when I replaced it with a 2011 Chevy Impala (a somewhat smaller car) with 22,000 miles for $13,000.

    The Chevy is a much better car and has a good repair record. My gas mileage although better by 1 mile per gallon isn’t really good enough; GM should have improved that. Never-the-less using 3% per year for inflation that Buick would have cost me $26,000 last year whereas I paid 1/2 of that for a better lower mileage though smaller car. I got a hell of a deal from a dealer no less.

    • Norman: “My gas mileage although better by 1 mile per gallon isn’t really good enough; GM should have improved that.”

      Why should GM have improved the gas mileage on their vehicles? Do you think that GM is earning less profits than they would have if they had produced vehicles with even higher mileage?

    • Norman: “My gas mileage although better by 1 mile per gallon isn’t really good enough; GM should have improved that.

      Translation: “I would prefer to get better gas mileage, but all things considered, it’s good enough, or I wouldn’t have bought the car.

      • Correct. Its good enough (though they say 19 mpg instead of the 17 mpg I’m getting) because the car was so darn cheap. Gotta look at the total picture.

  6. something to wonder about:

    i wonder just how much the prices of cars have been held down by a shift in buying and financing patterns?

    more cars are financed and dramatically more are leased than in 1980. the automakers have entered these financing markets aggressively.

    this has become their big source of profitability and, if you have a 5 year loan at 6%, you will wind up paying about 16% more for the car. leasing is often a much worse deal.

    i wonder to what extent this has held purchase price down as the car makers are making the money on the financing side and on parts.

    i also wonder how much 2 huge rounds of bailouts has helped keep capacity high in the market and kept prices lower. should we be including the price of the bailouts in the price of the cars?

  7. Let me raise a sub point, how much is electronic stability control and anti lock breaking worth. It very much depends, if it prevents you from falling off a cliff in an accident its worth a lot. I guess here you take the number of lives the feature is supposed to save, and multiply by the price of a life (around $6 million for these purposes), and then divide by the number of cars involved, to get the effect of one such feature. One can continue the issue for each safety feature. Comparing the carburetor to todays fuel injection, how much is reliable starting worth, and no carb icing, that is harder to place a value on, but is a big improvement imho.

    • I thought I read somewhere – following on Lyle’s point that modern cars have tremendously reduced auto deaths and injuries – BECAUSE of things like air bags, ESC, ABS, blind-spot and back-up sensors, etc.

      that alone should produce some kind of a real cost-benefit

      • ironically, it also increases accidents.

        http://mjperry.blogspot.com/2006/11/automobile-safety.html

        mark actually spoke on this a ways back i had an econ professor who loved this example. if you have airbags, you drive faster and take more chances.

        it’s simple econ. if the cost of an accident drops (due to better safety from airbags) then you will consume more. if you want to reduce accidents, put a spear point on the steering wheel. no see how carefully you drive.

        this same trend has been seen with helmets for skateboards etc.

        try it yourself. get in the car and do not fasten your seatbelt. go for a drive. see if you drive more slowly and carefully. bet you will.

        so the cost benefit there is not entirely clear.

        http://www.sciencedaily.com/releases/2006/09/060927201332.htm

        when antilock brakes were introduced, accidents went up, not down.

        “And the 2005 National Highway Traffic Safety Administration fatality data released last month indicate that fatalities per mile driven in the United States have actually increased, which adds some aggregate validation of our findings.”

        keep in mind that kinetic energy is a function of mass X velocity squared. things that make you comfortable enough to drive faster (and we drive a lot faster now) also really up the danger of you crash.

        a crash at 80 has 50% more KE than a crash as 65.

        be careful making assumptions here.

  8. So True!
    I have a family of six. When I couldn’t fit 3 car seats in the back of my Delta 88, I had to buy a minivan.

    I purchased a 5 brand new mini vans since 1997.

    In 1997 I bought a basic Plymouth Voyager
    In 1999 I bought another basic Voyager
    In 2001 I bought a stripped Dodge Caravan. They stopped making Plymouths.
    In 2003 I bought another Caravan.
    In 2010 I bought another Caravan.

    ALL 5 vans were purchased for around $19,500.

    The newest van has a bigger engine, better transmission, disc vs drum brakes, more airbags and many other improvements, too many to mention.

  9. horse and buggy… model t passing through the light of technology doesn’t mean middle class is getting the full value of what it produces. productivity off the charts… TWO CARS IN EVERY GARAGE

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