How Automobiles Show A Misunderstanding In Price Increases
Have you ever noticed how people always talk about rising prices. Yes, it is evident right now we are seeing a massive price run up. This was to be expected when the entire global economy is nuked and the supply chain were mostly shut down. Nevertheless, it is easy to not understand what is taking place when only looking at pricing.
Automobiles show this precisely. Some of the younger readers might not be old enough to remember some of what is being described here.
To start, we must say that the idea of comparing a car from the 1970s or 1980s to today is pretty absurd to begin with. Nevertheless, this is what people do so we will go with it.
Secondly, few things economically are as simply as people like to make them out to be. Usually, if it can be wrapped in a neat little model, it does not cover what is taking place.
Finally, this applies to a host of other products. Yet, for the sake of our discussion here today, we will limit it to automobiles.
Aging Car Fleet
A new car today is at least a 4x or 5x compared to the cars of a few decades ago. This is something that is hard to dispute when lining the two side-by-side. A car today is apples to oranges compared to one in the 1970s. In this manner, albeit not as stark, it is like the computer industry.
Before getting into the specifics, we need to take note of what is taking place.
This is from an article on CNBC:
The average age of a car on U.S. roads rose to 12.1 years in 2021, according to IHS Markit. The average age had been 11.9 years in 2020. In 2002, the average age was 9.6 years.
That is a pretty significant jump in roughly 20 years. How does that compare to the decades previous?
Looking at this chart, here is what we can see:
In the 1970s, the average vehicle age hit a low of 7 compared to the 12.1 of today. This is an increase of nearly 73%. This means that the average person keeps the vehicle 73% longer than half a century ago.
This is not a surprise. For those old enough, there was a time, even into the 1990s, where people unloaded a car at the 50K mile mark. Why did they do that? The depreciation after that was sharp because the vehicles were shot by 100K or 125K.
Today, a new car rolling off the line should be good for 200K if taken car of. We are still dealing with ICE vehicles. EVs could add another dimension to this.
Therefore, it is pretty easy to see why the average age of the vehicles would be increasing. The cars are still running and not requiring as much maintenance as their counterparts in the past.
This next section is something few consider. Yet it does factor into the costs of cars.
For example, how many reading this know what a mini-tune up was? This was maintenance that had to be done on the car between the "major tune ups". It was common for cars in the 1970s. We also saw those vehicles rolling out with 35K mile tires as compared to the 50K or 65K that come standard on cars.
We also see a host of other options that were not available in the 1970s:
- Back up cameras
- Cruise control
- Power windows/locks
- Phone connectivity
- Shatter-proof windshields
- Over the shoulder seatbelts
- Seat belts in the back seat
- Collapsible fenders
- Air conditioning
Also, when is the last time you saw a transmission shop? Muffler shop? It was common enough for people to have issues in these areas that shops catered to that area. This is no longer the case.
The cars did come standard with ashtrays.
We also saw gas mileage improve greatly. Back then, those big old Pontiacs and Buicks got about 8-10 miles per gallon. They were called gas guzzlers for a reason.
Today, a new car will pump out 30 MPG at a minimum. It is not uncommon for some of the smaller cars to top 40 MPG and even push 50.
Of course, the cheapest cost per mile is to not drive it. We notice that, in the United States, we are driving less over the last decade plus than we did before.
Notice this chart ends, pre-COVID. Anyone want to bet that it is down further since the lock downs took place? Do you think the remote work concept is going to affect this area also?
Of course, there is also the fact the cars are safer today than they were half a century ago. This is resulting in an decline in the fatality rate on a mileage basis.
Just guessing at the chart, but it looks to be roughly a 75% decline from the 1970s. Certainly, we can presume this is not due to better driving skills or more focused drivers. In spite of road rage, distracted driving, and urbanization, we still see a major decline. It isn't just a Volvo that will keep you alive anymore.
If you want to learn what it was like, just find yourself a mid 1970s Chrysler Cordova and drive that around for a while. You will quickly see the difference in features as well as in your wallet when you go to the gas pump.
Of course, we all know smartphones are more expensive than this top seller of yesteryear. But is there really any comparison?
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