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Why Are Cars More Expensive: A High Rung

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Forge Your Wealth is meant for education and entertainment and should not be used for financial advice.

It appears that cars are becoming more and more expensive. A car that would cost $15,000 in 1960 now costs $41,751.88. Inflation has made most things are more expensive now than they used to be. It is more than just a matter of inflation though.

The reasons why cars are more expensive today are plentiful. Newer cars have new features that are more expensive. New compliance requirements force car manufacturers to add new safety features. Furthermore, with the larger supply of money from lenders and demand from borrowers car prices have jumped.

New Features In Cars

Remember the time you had to insert keys into your car or pull open the trunk? Practically every vehicle is built with features to make both of these a thing of the past. The funny part is many of these features are never used. JD Power reported that 20% of consumers never use almost 50% of their advanced consumer features including mobile routers, heads up displays, and even auto parking features.

Engineers, programmers, technical experts, and manufacturers have worked on these and they cost money. Consumers just are not as willing to pay for it.

So let’s say you are an automaker. There are features you can put in cars that raise their value and your revenue, but you have consumers who do not want to pay extra for them, what do you do? Simple, put them in the vehicle and hide the cost of the feature in the price of the car.

This is a practice practically every industry does. They add some features to something you may or may not want and hide it in the overall price so negotiations are less frequent and less successful. It’s like how a car insurance company adds “free” accident forgiveness to your insurance but you find out your rates increased by $10/month.

These Features Are Pretty Universal

Have you driven a 2000s car versus a 2010s car? I have, there are many differences. Many of the 2000s cars use analog speedometers, fuel gauges, and temperature gauges. In 2010s cars, at least past 2016, every single one of these are digital. It could be argued that these gauges never needed to be digital. However, these gauges can help diagnose a car. Although I think people have been able to survive without the estimated miles left display, a digital display showing how many miles you have left with the fuel in your car. Apparently, every car after 2016 appears to have that.

Furthermore, almost every car I have seen after 2016 has a screen on the dashboard that allows your car to become essentially a less portable cell phone on wheels. I know a few car people who deep down hate these, but these are found in almost every new car. You either have to go with an older car, or a very specific car to avoid these.

These features are now part of newer cars. It may be best to get used to it. Enough consumers want them and manufacturers do not mind making a little extra profit from these. They will add a little cost to cars and make them more expensive. Oh well.

Safety Features In Cars

You probably want to drive safely. But have you seen what is required for a car to be safe now? The NHTSA has developed a system to rate how safe a car is given many scenarios. There is the frontal crash, side barrier crash, side pole crash, and rollover scenario. Chances are you never even considered some of these scenarios, you may not even know exactly what these scenarios are.

These may sound ridiculous, but many people need to consider these scenarios. You probably never considered these scenarios in your teens or 20s because you felt invincible. Other people need to consider these. Cars can be very lethal. There are many engineering feats put in cars to make them less lethal, but accidents happen and there are some accidents that no amount of engineering can save that person from.

However, when people either experience the fear of mortality or more likely need to consider the safety of loved ones in their vehicle they tend to opt for more safety features.

These can be anything from a few extra airbags, but some people include crash detection devices and blind spot monitors on this list. It depends on the person, but I would say if the feature prevents injury or accidents leading to injury it should count as a safety feature.

More Safety Features Could Be Required

While cars have become more expensive than since the 1960s, they have also become much safer because of these features. In fact, some safety features halved the lethality by half including seat belts. Some of them are now legally required, you may have never even seen a car without seat belts. I bet you are thankful for that.

So imagine we would go a few decades in the future. Do you think governments would require these more advanced safety features? Do you think you would be considered stupid for driving a car without a crash avoidance system like how you may think people who drive without seat belts are stupid?

Times change and people tend to want a life where they need to think less actively about safety. Eventually, general populations will want measures that increase safety. This is happening today. Every heard of accidents caused by negligence? If your car is not checked or meets certain standards you could be held responsible for an accident even if the other carries at least some fault. This includes situations where lights or brakes do not work. Do not be surprised if in the future you must add a few extra airbags or crash avoidance systems to pass an inspection.

More Auto Loans Than Ever

More people are buying cars with auto loans. Even most used cars are purchased with an auto loan. Despite being the largest wealth killer most people cannot avoid these loans.

Even worse, 72 month, 84 month, and even longer loan terms are becoming more common. Almost a third of new car loans and about 19% of used car loans have a term longer than 72 months. All so people can have more affordable monthly payments (not necessary more affordable purchase).

In general, there is much credit going to car loans. Credit is essentially artificial demand. This helps to bring down the supply of a service/product. This allows price to grow by the rules of supply and demand alone.

The only good news is that the APR has generally decreased, but only for loans that last 60 months or less. With people taking on longer term auto loans the average APR has increased.

Final Thoughts

Cars are becoming more expensive. But they are also becoming more than just a machine to take you from point A to point B. They also have many features that do so much from entertain you to make your car experience more convenient. They are now not just a little more than an engine with wheels and axles, they are smart devices within a little more than an engine with wheels and axles.

Older cars can be death traps. In fact, cars older than 1968 may not even have seat belts. Sure maybe a car from that time would cost less, but would you even buy a car without seat belts? Even if you are ok with no seat belts, the cops would not be. The tickets and eventual installation of a seat belt is likely going to cost hundreds, maybe even more than a thousand.

Furthermore, the extension of auto loans has made buying cars with debt even more expensive.

How To Buy A Newer Car For Less

The best way to buy a car for less is to aim for cars with fewer of the advanced features. This will be difficult though since many advanced features are now a default. Case in point, do you know a car younger than a 2016 that is not a push to start car? I do not.

However, hands down the best way to make buying a car less expensive is to avoid the auto loan, or at least a long term one. You should aim to have a loan term no longer than 48 months, although 0 months would be preferable. You are buying a consumer good, aka a depreciating asset and even the lowest auto loan APR beats the inflation rate. Buying a car on an auto loan is just losing money by losing more money.

However, buying a car is all but an inevitability. That or you will probably use rideshare frequently or bum rides frequently. It is harder and harder to live a life without a car.

Keep in mind, even the worst cars are a large mass of engineered metal and other materials brought together in a concerted process by either multiple workers or advanced machinery. Cars are never supposed to be cheap.

Ultimately, the cost of a car is more based on your decisions than others.

Author: Papa Foxtrot

Most of my life I was careful with money and learned where I should invest it. I was very lucky to have parents who taught me financial literacy when I was young. Unfortunately, I am very lucky because many people lack the financial literacy I know. The purpose of Forge Your Wealth is to teach people who are just starting out in life how to obtain their wealth or anyone who just realized they may need to learn more to handle their finances. I currently have a PhD in biochemistry, just started a job in industry (will not disclose where exactly for personal and professional reasons) and am currently married to the love of my life. I am one of the lucky few people in America who graduated with no student debts, my wife was not. Over the series of a little over 3 years we paid for our wedding with no debt and paid off her federal student loans.

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