mad anthony

Rants, politics, and thoughts on politics, technology, life,
and stuff from a generally politically conservative Baltimoron.

Monday, April 04, 2005

Is my car properly inflated?

A month or so ago, I was talking with two slightly-below-middle-aged or so coworkers about the price of cars. They had said that they felt that the price of cars had gone way up, way past the price of inflation.

I thought that was interesting because of my own car experiences. I've only had two cars in my life or so. The first was a 1987 Chrysler LeBaron sedan that was handed down third-hand. This was replaced a couple years ago with a brand-new 2002 Chrysler PT Cruiser Limited.

The owner's manual in the LeBaron said that it cost $14,500 when it was new. I plugged that into the handy Inflation Calculator and got that the car would be $22835.46 after inflation if purchased in 2002. That is right around even with inflation, so you could argue that car prices have kept pretty even with inflation. After all, both vehicles were the smallest/cheapest Chrysler badged car at the time.

But such a comparison would miss the great improvements in cars in the last 15 years in terms of standard and optional equiptment. The LeBaron's safety devices consisted of seatbelts (shoulder in the front, lap in the back). The PT has front and side driver and passenger airbags, plus rear lapbelts. The LeBaron left the factory with an AM/FM radio. The PT has a CD and tape player, plus decent speakers. The LeBaron's engine put out 95hp, the PT 150hp. The PT also has leather seats, keyless entry, tinted windows, heated seats, power locks, power windows, a power sunroof, chrome alloy wheels, traction control, and an alarm. The LeBaron lacked any of these. The PT also handles better, looks better, and has much better interior ergronomics.

So comparing cars based only on price misses the biggest improvement. Cars might not be getting cheaper, but they are getting better, faster, and more comfortable.

Some inflation calculations, like the Consumer Price Index, try to calculate inflation based on a "market basket of goods", which is always a challange since some things, especially things like cars and technology changes. This makes it hard to gauge how much of the increase is due to actual increases in price and how much is due to better quality and increased features. Virginia Postrel has looked at this in relation to hotel prices - when a hotel price goes up after a room renovation, is it because the room has improved aestetics-wise or because of inflation? My anecdotal evidence suggests the dilemna with cars is similar. Feel free to plug your own car ownership history in the inflation calculator and make your own conclusions - and feel free to leave comments on your results.


At 7:55 PM, Anonymous Anonymous said...

This type of issue is a good example of the difficulty of measuring inflation. The goods we are buying today are not the same things were buying twenty years ago, so how do you compare them and say if the price has really gone up or down?

I would ignore the improvements in the car and simply try to answer the following: what percent of the median U.S. salary is needed to buy an entry level car? After all, it matters not to the guy who can't afford a car that the car he can't afford has a better stereo then one from twenty years ago.

At 9:07 AM, Anonymous Anonymous said...

The CPI actually does a very good job of adjusting for quality changes in autos. To do this they take advantage of the fact that improvements usually first appear as optional equipment. The BLS can use the price of the "optimal equipment" to adjust the cost of a new car when that optional item becomes standard equipment.

At 10:44 PM, Anonymous Anonymous said...

Thank you, very interesting!


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