Discussion: (20 comments)
Comments are closed.
The public policy blog of the American Enterprise Institute
View related content: Carpe Diem
The five charts below provide evidence that there’s never been a better time for a typical American to own and operate a car — they last longer than ever before, they’re more fuel efficient than ever before, our highways are safer than ever before, financing costs for cars are lower than ever before, and the cost of purchasing a new car has fallen by more than 50% since 1995 after adjusting for inflation and quality improvements.
Here are the five car charts:
1. The first chart above shows that the average age of cars on the road in the US reached an all-time high this year of 11.4 years, which is a full 3 years longer than the average age of cars in 1995. Reason? The average age of cars today is higher because vehicles last so much longer today compared to past models, thanks to the significant improvements in quality, durability, and reliability that have happened consistently year after year.
“People are keeping their cars… because cars are just lasting longer,” said Mark Seng, an R. L. Polk and Co. vice-president in this Detroit New article “Quality helps Americans keep old cars longer, data firm says.”
2. The second chart above shows that cars today are not only lasting longer than ever, they’re more fuel efficient than ever before. Ward’s Auto is reporting this week that the average fuel economy for US light vehicles in July reached 24.5 mpg, establishing a new all-time record high for fuel efficiency. Compared to 1975, cars and trucks today are almost twice as fuel efficient on average (13.1 mpg vs. 24.5 mpg, data here). In just the last six years, average fuel economy has increased by 19%, from 20.6 mpg in 2007 to 24.5 mpg this year. Increased fuel economy translates into lower fuel costs for consumers.
3. Americans traveling by car are also benefiting from the fact that US highways are getting safer all the time, as the third chart above illustrates. Motor vehicle fatalities in the US, adjusted per 100 million vehicle miles traveled (VMT), have consistently declined over time, according to data complied by the National Highway Traffic Safety Administration (available here). In 1950, there were 7.24 highway fatalities per 100 million VMT, and last year there were only 1.16 fatalities adjusted for travel miles, an 84% reduction in fatalities in the last 63 years. Although it’s not shown here on the graph above, the 1950 figure of 7.24 deaths was about one-third the level of more than 24 highway deaths per 100 million VMT in 1921. And even over the last several decades, the adjusted number of highway fatalities has been reduced by 50%, from 2.08 deaths in 1990 to 1.16 deaths this year.
(Note: the graph shows that the significant increase in cell phone usage over the last 20 years has been accompanied by a decrease, not an increase, in traffic fatalities adjusted for travel miles. This recently published research paper, using a more rigorous statistical analysis, finds no empirical evidence that increased cell phone usage leads to an increase in accidents.)
4. Financing a new car has never been cheaper, according to data from the Federal Reserve on the 48-month loan rate for new autos, see fourth chart above. In 1981, when the car loan rate peaked at 16.8%, the monthly payments on a $20,000 car loan would have been $575. At today’s rate of 4.1%, monthly payments on a $20,000 loan would be only $452. Over the four years of financing, a 4.1% car loan rate today would save a borrower more than $5,900 compared to the 16.8% rate in 1981.
5. Here’s maybe the most amazing car chart of all — the fifth chart above shows the monthly Consumer Price Index (CPI) for all items vs. the CPI for New Cars vs. an index of the Average Hourly Wage for Production and Nonsupervisory Employees in the Private Sector. All three variables have been adjusted to equal an index value of 100 in January 1995.
Since 1995, wages have increased more than 75%, and prices for all consumer goods and services have increased by almost 55% on average. In contrast, the CPI for new vehicles has remained almost flat for the last two decades and has increased only 4.4%. That means that after adjusting for inflation and quality improvements, the price of new cars has fallen by more than 50% since 1995! And compared to the increase in wages, the price of new cars has fallen by more than 70%!
Bottom Line: We hear all the time about the struggles of a stagnating middle class in America trying to make ends meet on stagnant wages, declining household incomes, diminished opportunities for upward mobility, etc. But when it comes to owning and operating a vehicle, Americans, including the middle class and low-income groups, have never had it so good. The cars we buy today last longer than ever before, they’re more fuel efficient than ever before, our highways are safer than ever before, financing costs for cars are lower than ever before, and the real cost of purchasing a new car has fallen by about 50% since 1995 and by more than 70% compared to average wages.
Today’s motor vehicles that are more affordable than ever before are part of the “miracle of manufacturing,” which continues to deliver cheaper and better goods to American consumers year after year, which translates into a higher standard of living for all Americans, and especially for lower and middle-income households. If we wanted to identify a “golden era” of prosperity for middle-class America based on the affordability of the vehicles that are owned by 95% of US households, today’s consumers are many times better off than the consumers of any past decade, including the 1950s that Paul Krugman and others wax so nostalgic about. The significant reduction in the cost of purchasing and operating an automobile for average American households is one reason that the “good old days” are now — and not some previous decade! We’re now in the “golden era” of automobile affordability, value, durability, reliability, and safety.
Comments are closed.
1150 17th Street, N.W. Washington, D.C. 20036
© 2015 American Enterprise Institute for Public Policy Research