Car prices haven't changed in 20 years, no inflation?

Lassie Fair 10/11/2018. 9 answers, 8.959 views
inflation price united-states manufacturing

I notice that there seems to be little or no change in car prices over the last 20 years and they seem to be unaffected by inflation.

For example, a Toyota Camry sold for about \$23,000 +/- \$2,000 (MSRP) around 1999-2000, and currently it sells for about the same.

Why is this?

9 Answers

EnergyNumbers 10/12/2018.

Inflation is measured against a basket of goods. It's a symptom of what's going on in markets. Some products go up in price over time. Some go down in time. Some stay the same price, but change their specification.

So it's looking down the wrong end of the microscope, to ask why inflation hasn't affected car prices. Car prices are part of inflation. Changes in car prices affect inflation.

The causal link the other way is very very weak. Inflation puts pressure on wages. If this causes wages to rise, then the cost curve shifts, and equilibrium prices change. But for cars, wage costs are a very small part of total car manufacturing cost. And the market for labourers in the industry has shrinking demand and over-supply, so upward pressures are very weak.

The inflation experienced by car manufacturers is very different to the inflation experienced by the public. We've been through a global financial crisis and a super-cycle in commodities. A general-public inflation measure is a very poor measure of input-cost inflation for car manufacturers.

Jayson 10/11/2018.

You also didn't look at car prices in general but rather just the Toyota Camry. For example a 2001 BMW M3 was ~\$46,000 while a 2018 BMW M3 is ~\$66,000.

Most cars have increased in price over the last 20 years, but some manufacturers will always have a cheap car in their lineup .

Guy Louzon 10/12/2018.

Specifically treating car prices, well, the prices are determined globally and not necessarily in dollars

In the last 20 years:

Car manufacturers move factories across borders to save costs, China and India have become major market player both as major manufacturers and as a major consumers

As a result of these causes, an additional major impact was added, which is the exchange currencies' exchange rates.

For the last 10 years:

Following the global economic crisis, interest rates dropped to practically zero worldwide, trying, among other things, to encourage local exports, in what was called a "currency war".

The last major impact, that I can add, might sound trivial, but it's there: the technology improvements implemented in car factories over the past 20 years, must have dropped the cost of manufacturing, for the same vehicles. meaning: either vehicles cost remained similar but cars got better, so products are not that comparable.


Vehicle manufacturing in the same place, over time got cheaper.

Beanluc 10/12/2018.

You're not considering that today's $23,000 car might not be the same car as the one from 20 years ago, or that the costs of its manufacture might not be the same.

While the "basket of goods" another answerer referred to has simple items in it like rice, soap, tee-shirts and hammers, a car is a very poor item to measure inflation with, because of its complexity. Hundreds of parts and indeed hundreds of different types of materials go into it. Many dozens of different raw commodities are involved. Scores of different kinds of worker inputs are involved, with probably thousands of different individual contributors adding value along the way before you get your car.

Today's \$23,000 car is probably made with cheaper materials. A 20-year-old Camry today probably feels cheap-o compared to a brand-new one, but, at the time, a brand-new Camry at that price point 20 years ago probably felt reasonably decent compared to other Camrys at lower trim levels and other cars at lower price points. Today's $23K Camry on the other hand feels cheap-o compared to the premium trim Camry and compared to other cars at higher price points with more premium materials.

That's one factor. Another is, today's cars are produced with 20 years' worth of production efficiency improvements. So even with the 20 years worth of technology improvements which make today's Camry a more advanced car than the 20-year-old one, it's still cheaper because cheaper ways to automate production have been found.

Products like this are really really bad things to use to judge inflation. Today's iphones cost about the same as those from 10 years ago too (in nominal dollars), but they're clearly way way more phone for your money. Something today with five million times the computing power of something which took a Congressional appropriation 60 years ago costs a five-millionth as much as that dinosaurian system.

Certain things work against the inflationary trend, on the surface, but really tell you nothing whatsoever about inflation.

Dennis Jaheruddin 10/12/2018.

A quick search led me to this (rather outdated) page indicating that average new car prices actually went down for some time, when corrected for inflation.

So it is definitely not the case that prices don't increase, but perhaps not as fast as you see other things increase.

My personal intuition is that in the period of 1988 to 2006 cars have become less of a luxury good and more of a commodity. Which is why they became not as expensive as they could have been.

Arthur Tarasov 10/12/2018.

I do remember Camry's around $25k in the beginning of 2000s!

If our memories don't fail us, you are right the inflation hasn't touched Camry's price. This phenomenon in fact happens very often mostly for these reasons:

  • Production technologies improve and the companies can produce the same unit of product with less resources. This effects high tech products, e.g. some cars, computers

  • Production process improves: supply chains improvements, outsourcing, etc.

  • Quality of the product decreases. E.g. some processed foods contain less protein now and more sugar and fat

  • Patents expire

  • Regulations, taxes, tariffs, etc. are lowered

There are many more of course but these I think are the most common and significant. I won't attempt to guess how many, if any, of these affected the Camry price. Probably a few. Sometimes several factors pull in different directions and some outweigh the other.

Yiqun 10/12/2018.

Price is just a signal indicative of the money supply, and the product market supply & demand. It may not carry any information on quality or intrinsic value. The cars today have in general much better functionalities than 20 years ago, so I think the comparison is rather on the value of a personal transportation vehicle, not on the cars itself. Something like medical oxygen or diamonds that is mostly homogeneous might provide better comparison.

Jamie Clinton 10/13/2018.

Manufactured goods become cheaper over time. Fiat currency loses purchasing power over time (due to a generally increasing supply).

In this particular case (which is further complicated by government regulations and consumer emotions), the two sides seem somewhat balanced.

sanaris 10/12/2018.

Lets start from the beginning, there is no such thing as inflation/economic growth ( TINSTAIEG, similar to TINSTAAFL ). Because when you expose the methodology, you get arbitrary view which depends on the judge who defines methodology. One rule have worked for ages, but only for long-long-distance - price of Money, i.e. the price of Gold/Silver troz. But this classic approach, though free from third-party risks, does not answer the question "What is inflation anyway?" entirely. Merely it does another definition.

If we go with the car price in gold ounces, we are having slow deflation over last decades. High gasoline was holding car sells in emerging markets, because of that many Korean manufacturers were bankrupt. Some of those are now Tata Motors - in India. In Russia major car maker AutoVAZ-Renault, was having problems in last 20 years to even sustain the quality of product.

From the other side, there is even more pressure in the market, Tesla is pushing with heavy weight to shift the market to their side, if Tesla succeed in the end, they will destroy traditional market. But they are fighting heavy battle with arabs, who control the petroleum market. Todays cars are mostly just the arm of petroleum "big politics".

High oil price will return, and it really does hold the car price. Inflation flows, just the other way.

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