Why Is An Average New Car So Expensive?

Autos today are built better and last longer. As a result, consumers are trading up.

According to Kelly Blue Book, the average price of a new non-luxury car in the U.S. at the end of 2022 was about $45,000. In 1926, a typical manufacturing worker earned about $1,500 annually and could buy a Ford Model T for about $500.  

Today, the average annual income of that manufacturing worker is $31,000, so an equivalent car today should cost around $12,000. But today’s vehicles are roughly three to four times more expensive than cars from the beginning of the mass production era, adjusted for inflation. So where is the $10,000 car? Jim Anderton comments. 

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Episode Transcript:

According to Kelly Blue Book, the average transaction price of a non-luxury new car in America at the end of 2022 was $44,584.  

Now, that number shocked me—and not just because I’m cheap and buy used cars—mainly because of the implications for the industry in general. Forty-four grand is a lot of money for an ordinary car, but the light truck and SUV segment is seeing prices out the door of seventy thousand and up, for machines that are far from luxury vehicles.  

Did everyone win the lottery? Obviously not, but consider this: in 1926, if you were in the market for a family car, you might have bought a Model T Ford for about $500. If you worked in manufacturing, you earned about $1,500 dollars annually. Today, according to ziprecruiter.com, the average annual income of that manufacturing worker is $31,000. This means that an equivalent auto today should cost around $10,000 and go out the door for something like $12,000.  

Today’s vehicles are roughly three to four times more expensive compared to cars from the beginning of the mass production era, adjusted for inflation. Why? They certainly are better than the wooden-bodied, cold, slow and uncomfortable machines of the past, but technology has advanced greatly in those years.  

So where is the $10,000 dollar car? We all know that it can be built, and built profitably, but the U.S. market has firmly rejected cheap, simple autos. The Honda Fit, Chevrolet Spark, Ford Festiva, Hyundai Accent and other entry-level vehicles are gone or about to be discontinued due to lack of demand. But why?  

When I talk to people I know in the industry, the general consensus is that auto manufacturers have simply done too good a job building modern vehicles. When I started driving, 100,000 miles was the generally accepted life expectancy of a car, and as a teenager, I bought a 5-year-old Pontiac with 90,000 on the clock for $600. And, as expected, it needed engine and transmission work before it hit 100,000.  

Today, 200,000 miles or more is common. This means that a $50,000 vehicle, financed over seven years at about $650 a month might have over half its useful life ahead of it at the end of the financing period. So, consumers go big, then drive home in style.  

The economics of it are insane, if you ask me, but that’s the world we live in. The cars last, and as a result, people spend crazy amounts of money to buy them. I drove to the studio today in a Honda Element with just over 200,000 miles on it. It doesn’t burn or leak oil. It has good compression. All the accessories work. It rides and handles well. That’s remarkable. I almost wish something would break so I can take it apart. Almost.

Written by

James Anderton

Jim Anderton is the Director of Content for ENGINEERING.com. Mr. Anderton was formerly editor of Canadian Metalworking Magazine and has contributed to a wide range of print and on-line publications, including Design Engineering, Canadian Plastics, Service Station and Garage Management, Autovision, and the National Post. He also brings prior industry experience in quality and part design for a Tier One automotive supplier.