It should come as no surprise that the things we buy are consistently getting more expensive. While we often pine for the “good old days” when movie tickets were had for a nickel, a gallon of milk cost a dime, and a square meal required a single dollar bill, those days are far in the rearview mirror. When considering factors such as inflation, the cost of products will naturally climb. The purchase of a vehicle, however, has seemed to quickly outpace other products in terms of cost. While the Model T, the symbol of affordable transportation sold for $260 in 1925 (approximately $4,000 when adjusted for inflation,) the average new vehicle costs $36,270 today according to Kelly Blue Book. It has grown increasingly difficult for most Americans to find affordable transportation.
The rise of new car prices has a direct and significant impact on the average American. In fact, it was found that the average American can no longer afford to purchase a new vehicle. According to Roadloans, “New-car prices have risen in step with the economy since the Great Recession and the average price is now beyond the means of most median-income Americans, says Bankrate.com, which based its calculations on the 20/4/10 rule of a 20 percent down payment, four-year loan and payments of principal, interest and insurance making 10 percent of a household’s income.” There are several reasons that new car prices have reached record heights.
As you can imagine, inflation plays a major role in the gradual but stark increase in new car prices. According to the Wall Street Journal, the current inflation rate is 2%. The Los Angeles Times has found that the rise in new car prices over the past year to be 4 percent, double that of inflation. The Los Angeles Times also finds that the rise in automobile prices is indicative of things to come: “Auto sales were strong in January, with average prices up 4% — an early sign of an inflationary economy.”
Inflation is not the only reason that new vehicle prices are at all-time highs. As vehicles have continued to improve in quality, the list of traditional standard equipment has grown longer. Many manufacturers have decided to include what were once considered options as essential parts of a standard package, to great financial gain. This practice has led to a lack of truly affordable vehicles for the average American.
Car buyers looking for a break in the used car market are likely to find a bumpy road. According to Fox Business, “Analysts have expected used-car prices to drop as more off-lease vehicles hit the market. But in the first quarter, the average transaction price of a used vehicle climbed 2.2% year-over-year to $19,657, according to analysis by Edmunds.”
It might be impossible to get back to the “good old days,” but it’s possible to adopt some of their principles. As the average American cannot afford a new vehicle, focusing on the basics might be a good way to usher in the next generation of affordable transportation.