How Inflation Has Affected the Price of Cars

Cars are essential for most of us who do not reside in New York City. While it is common knowledge that car expenses have typically ranked second only to housing expenses in the typical household budget, is it true that car prices have risen in lockstep over time?

Henry Ford gained business immortality by popularizing the automobile. One of his most notable accomplishments was making the Model T affordable to the general public. Two speeds, open wheels, and an actual driver-side front door (on later models) were more than enough to entice the horse owner, whose vehicle options were limited.

Furthermore, you couldn't top the Model T's pricing. In 1909, it cost $850, and you didn't have to worry about the salesman trying to upsell you on rustproofing or a fabric protection package. Such alternatives did not exist.

The Model T's Success

For decades, the Model T dominated the market as the primary vehicle available to the average wage earner. Of course, the automobile industry is not static. With each model year and technical advancement, new functions become accessible. Over the years, the market became more stratified, and automobiles began to range from luxurious to low-cost.

By the 1960s and early 1970s, with a historic oil crisis in full swing and petrol prices at all-time highs, compact fuel-efficient cars had grown in popularity across North America. The omnipresent Volkswagen Beetle was one of the continent's most popular vehicles, with the base model selling for $2,000 in 1972. Cars like the AMC Pacer competed with the Beetle, keeping prices down and giving customers even more options.

Today vs. the Past

How do today's cars compare in terms of price to those of yesterday and yesteryear? We'll look at the response, but with a caveat. Since there is no limit to the features that manufacturers can add, but rather a minimal set of requirements for a new car to be drivable, it makes sense to focus on the least expensive roadworthy cars over time. All it takes is one Maybach Landaulet to alter today's figures significantly.

Each vehicle manufacturer provides a starter automobile for newly licensed teenagers and other budget-conscious drivers. Their names are well-known, and as supply and demand would indicate, the vehicles themselves are widely available. Examples are the Ford Fiesta, Chevrolet Sonic, Chrysler 200, and Honda Fit.

The Hyundai Accent, on the other hand, was the most affordable new automobile sold in the United States in 2021, starting at $15,395. Although such assessments are always subjective, it's not difficult to dispute that the Accent appears to be far more robust than the much-hyped Smart Car—which, while no longer marketed in the United States, costs $9,000 more than the Accent.

For $15,395 you get a car that a driver from a previous generation would be impressed with due to its abundance of features. There are front and side airbags, child safety seats, air conditioning, a rear window defroster, and an auxiliary music input connection. These may not be enough to turn off today's discerning Lexus driver, but they surely go well beyond four wheels and a chassis.

A decade ago, an autonomous parking system was a pipe dream for engineers, and a voice-activated iPhone dock was nothing more than a collection of unrelated phrases. For the average automobile buyer, push-button starting seemed as exotic as vertical take-off and lift. Today, it is difficult to envision a time when electric windows or cupholders were "optional," and it is safe to predict that cars in the near future would be even more well-equipped.

Back to the pre-World War I Model T, which cost $850. Using the Consumer Price Index (CPI) to compensate for dollar worth, that is greater than $27,000 in 2022 dollars.

With increasing efficiency, the synthesis of cheaper and more durable materials, and economies of scale, the real price of economy cars should fall over time. Except that real income has risen marginally since the Beetle's peak, and significantly since the Model T's. Henry Ford used to boast that the average working man could own a Ford vehicle for less than a year's wage.

The Bottom Line

In terms of the most fundamental currency—time spent working rather than cash handed over—today's basic cars are certainly less expensive than yesterday's. They are also more stylish, safer, better equipped, faster, more powerful, and have a longer lifespan.