Jackson Pedersen
The price of cars affects all of us. Just about everyone at some point will own a car, so what makes them so expensive when there is such a large supply and such a large demand for this product. Huge demand and huge supply with dozens of competing manufacturers is usually a recipe for the streamlining of production and sales, however cars can still reach absurd prices. In this blog post I will discuss the various reasons why cars are just so expensive. This is because cars last a very long time, they are not a repeat sale item, there is a huge increase in personal customization and a mind boggling amount of new features, and massive regulation of the industry.
The first problem when trying to lower a car's price for the manufacturer is that one person is not buying a new car every year. There will never be a massive demand from people for their brand new model year after year because cars last a long time. According to autolist.com on average people are keeping their cars for 6 years, which is decreasing rapidly however it will never get to a point where people can buy cars as frequently as they buy candy bars. Therefore as soon as you buy a car, you will no longer have to buy one again for 6 years. That is why the price can seem so high for us trying to buy these cars. The manufacturer needs to take into account that as soon as they sell a car to someone, that person will not become a potential customer for 6 years.
As a consumer you want all the features you want. You will desperately shop around to find the right car that fits you, and if you can not find that you and many others may order a car made to your specifications. This is another thing that drives up the base MSRP. When someone does this the base price of the car shoots up. That car is not much more expensive to purchase. So as someone wanting to buy a car these cars with huge amounts of customization and features are drastically more expensive than the base model. Personally you may spend more to get the things you want for the next 6 years. These features are another way car companies can drive up the price by thousands without you realizing it. Car manufacturers have good reason for this, you as a consumer are trying to make their business model less efficient by making them do extra work. Therefore, it is only fair that they mark up to price off these features by a steep margin to compensate for that. So another personal finance tip would be to order a base model and have a third party or dealership install these features on to your car, or ask them for a car on the lot that already has these and has been a cancelled order, or a car that has been sitting for some time.
This last point however is probably the most underlying culprit for why your car costs as much as it does. This is the rise of safety, and the rise of regulatory oversight. The NHTSA or National Highway Traffic Safety Administration is the agency with the task of regulating how companies make their cars. They have to meet an extraordinarily long list of safety features to be able to sell their cars. This video is showing a 2009 Chevy Malibu being crashed with a 1959 Bel Air. As seen you as a driver would survive in the malibu, or get your skull crushed in the bel air. This is due to new regulations and safety requirements that jack the price up immensely. When cart companies have to meet these requirements they have to spend money to do so, therefore your car is much more expensive but also much more safe. This also goes along with various other requirements such as size and emissions which also increase the cost.
Ultimately, the reason your car costs so much is not in your control. It is due to a variety of factors discussed above. There will never again be a 325 dollar Model T. Cars have increased too much technologically to make a low price feasible while still being a competitor in the industry, so you as a consumer will be forced to fork up at some points 61 percent on average of your yearly net income just for a new truck.
Works Cited
Huffman, John Pearley. “Why Are Cars so Expensive?” The Drive, 22 Apr. 2017, www.thedrive.com/new-cars/9578/why-are-cars-so-expensive.Matthew.lynberg.ctr@dot.gov. “Laws & Regulations.” NHTSA, 1 Apr. 2020, www.nhtsa.gov/laws-regulations.
I always have asked the question why do cars have to be expensive but thanks to this blog post it answered the question. When it comes to owning a car it can be expensive for the maintaince of it like new transmission which cost me $463 and pay it out of your own pocket and not having your parents helping out. Good blog post Jackson and I learned a lot about why cars are so expensive.
ReplyDeleteI have also wondered why cars are so expensive because i my self have purchased a car very recently. during this time of purchasing I was so confused on why it was so expensive because there were so much cars to choose from. I did not know how much the little demand was due to the longevity of the car and in hindsight that completely makes sense however, why do companies seem to pump out so many new models? are they not losing more money?
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I really couldn't have said this any better. Even though I am pretty well versed in cars and economics I can't find any flaws or improvements without taking a deep dive into this specific topic. I think your blog nailed it! One thing that you might have not mentioned is inflation but even removing inflation your points still stand.
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