Following up on comments to the post “Where did all the affordable cars go”, a typical new vehicle bought in 1960 was $1900; in October 2025, it was over $50000. What does that mean?
Figure 1: CPI-new autos (blue), average transaction price of a new auto (red), both in logs 1960M06=0. Source: BLS, Cox, and author’s calculations.
It means that the quality of new cars has advanced tremendously, and the mix has moved towards larger, more amenity-laden, vehicles. Holding constant those factors, the price of a new auto has only risen by some 125%, compared to 325% using just the average price (both in log terms).
The relative price of autos has declined:
Figure 2: CPI – new auto to CPI, in logs (1982-84=0) (blue). NBER defined peak-to-trough recession dates shaded gray. Source: BLS, NBER and author’s calculations.
The relative price of autos, quality/mix adjusted, has indeed fallen. However. what’s true is that to the extent that autos are tradable (and were more tradable under NAFTA/USMCA pre-IEEPA), one should expect the relative price of cars to fall (Balassa-Samuelson!). The question is whether they could have fallen more if tradability was enhanced (maybe by opening up to EVs).
Heck, having more EV’s might even make the US economy less susceptible to self-inflected oil-based price-cost shocks…
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