The difference becomes even more pronounced when examining median household income in the United States. In 1970, it was around $35,000 (in today’s dollars), but for the last few years it has stabilized around $42,000 – not a huge increase, and certainly not large enough to explain the discrepancy in pricing. It’s not as simple as saying that car companies now charge more for their vehicles because the market can bear higher prices.
One of the most telling components of new car prices are the increased cost of labor. In the 1980’s and 1990’s, American automakers fought a losing battle against trade unions representing the workers in their plants. The result of these confrontations were increased costs not only in the salaries paid to workers, but also in the benefits that workers were entitled to. In some cases, these benefits are paid out long after the employee has left the assembly line and is no longer economically contributing to the company. General Motors actually loses money on many of the cars they sell, and for a long time only generated profits based on their automobile financing company.
Japanese car companies don’t have these same labor issues, yet their pricing remains competitive with domestic car companies. This indicates that employee costs are not the only driving factor when it comes to car price increases. The implementation of technology is another part of the pricing puzzle.
Cars of today are technologically advanced over those of three decades ago to an almost extreme degree. Anti-lock brakes, airbags, stability control systems, drive-by-wire – all of these features were expensive to develop in terms of research and testing, and they also contribute to increased manufacturing costs, due to the more delicate techniques and expensive materials required to implement them in modern vehicles. The increased demand for fuel efficient engines which produce minimal emissions has also forced automakers to invest in their engine programs to a much larger degree than they have in the past.
It seems that peeling back the surface of today’s automobile pricing reveals an intricate web of dependent financial concerns that together make up the cost of driving a brand new car in the United States.