How Inflation Has Affected The Price Of Cars

By Greg McFarlane | April 29, 2012 AAA

Cars are indispensable for most of us who don't live in New York City. While it's common knowledge that car expenses traditionally rival only dwelling expenses in the standard household budget, is it true that cars have gotten correspondingly more expensive over the years?

Henry Ford achieved business immortality by democratizing the car. Of his achievements, his signature one was putting the Model T within the reach of ordinary people. Two speeds, open wheels and an actual driver side front door (on later models) were more than enough to entice the horse owner whose automotive choices were not exactly plentiful. Plus, you couldn't beat the Model T's price. In 1909 it sold for just $850, and you didn't have to worry about the salesman offering to upsell you on rustproofing or a fabric protection package. Such options didn't yet exist.

Model T's Success
The Model T enjoyed overwhelming market share for decades, as largely the only car available to the common wage-earner. Of course, the car industry isn't static. With every model year, and every technological progression, more features became available. The market stratified through the decades, and cars started running the gamut from luxurious to entry-level.

By the '60s and early '70s, with a historic oil crisis at full pitch and gas now selling at unprecedented prices, small fuel-efficient cars became more popular than ever throughout North America. The ubiquitous Volkswagen Beetle was among the continent's most popular cars, with the bare-bones model selling for $2,000 in 1972. Cars such as the AMC Pacer competed with the Beetle, keeping prices low and offering consumers even greater choice.

Today Vs. the Past
With regard to price, how do today's cars stack up against yesterday's and yesteryear's? We'll examine the answer, but with a qualification. Since there's no limit to the features manufacturers can add, but something of a minimum list of requirements for a new car to be drivable, it makes sense to focus on the least expensive roadworthy cars over the years. All it takes is one Maybach Landaulet to skew today's numbers high.

Each vehicle manufacturer offers a starter car, intended for newly licensed teenagers and other budget-conscious drivers. Their names are familiar, and as supply and demand would dictate, the cars themselves are ubiquitous. Examples include the Ford Fiesta, Chevy Sonic, Chrysler 200 and the Honda Fit. However, the least expensive new car sold in the United States today is the Nissan Versa. The sedan model (the Versa also comes in hatchback) starts at $10,990. Although such determinations are always subjective, it's not hard to argue that the Versa looks considerably more robust than the ballyhooed Smart Car – which costs $1,500 more than the Versa.

For that $10,990 you get a car that a driver from a generation ago would marvel at for being loaded with so many extras. Front and side airbags, child restraints, air conditioning, a rear window defroster and an auxiliary audio input jack. Together those might not be enough to dissuade today's discriminating Lexus driver, but they certainly go well beyond four wheels and a chassis. As recently as a decade ago, an automatic parking system was merely an engineering fantasy and a voice-activated iPhone dock was nothing more than a series of unrelated words. To the average car buyer, push-button starting sounded as exotic as vertical take-off and lift. Today, it's hard to imagine a time when electric windows or cupholders were "optional," and it's safe to assume the cars of the near future will be even more richly equipped.

Back to that groundbreakingly cheap Model T from the pre-First World War era, the one that sold for $850. In 2012, using the Consumer Price Index (CPI) to adjust for dollar value, that equals about $22,000. With increased efficiency, the synthesis of cheaper and more durable materials, and economies of scale, the real price of economy cars ought to decline with time. That Vietnam-era Volkswagen Bug sold for the equivalent of $10,500 in 2012 dollars. Give or take a monthly payment or so, and that's about equal to what you'd pay for a brand-new Versa. Except that real income has increased slightly since the Beetle's heyday, and markedly since the Model T's. Henry Ford used to boast that the average working man could own Ford's car for less than a year's salary.

The Bottom Line
In terms of the most fundamental of currencies - time spent toiling, rather than dollars handed over - today's basic cars are unquestionably less expensive than yesterday's. They're also more stylish, safer, better equipped, faster, more powerful and longer-lasting.

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