Thursday, September 8, 2011

Cars and Income

This is a non-IT post...mostly. I have been interested for a long time in how the cost of car ownership has managed to consistently take a large share of earned income. Historically speaking. In contrast with many other depreciable assets, notably consumer electronics like personal computers, cameras, sound systems, video systems, and also the huge majority of appliances, or tools, just to name a few categories, the purchase and care of the personal automobile has somehow always managed to eat up roughly the same fraction of the median income.

One would almost think that the automobile industry has things planned out like this.

Before discussing reasons and factors, let us look at some rough numbers. I have simply pulled some data from the interesting website The People History. I will start with 1955 - it is pretty much the right timeframe for my Dad to have had his first car.

I have invented an average cost of new car / average yearly wages ratio, in percent, and call it CaPoI  = Car as Percentage of Income.

1955: average cost of new car $1,900, new house $11K, gallon of gas 23 cents. Average yearly wages $4,130, average monthly rent $87. CaPoI = 46%

1965: average cost of new car $2,650, new house $13,600, gallon of gas 31 cents. Average yearly wages $6,450, average monthly rent $118. CaPoI = 41%

1975:  average cost of new car $4,250, new house $39,300, gallon of gas 44 cents. Average yearly wages $14,100, average monthly rent $200. CaPoI = 30%

1985: average cost of new car $9K, new house $90K, gallon of gas $1.09. Average yearly wages $22,100, average monthly rent $375. CaPoI = 40%

1995: average cost of new car $15,500, new house $113K, gallon of gas $1.09 (yes, still). Average yearly wages $35,900, average monthly rent $550. CaPoI = 43%

2000:  average cost of new car $24,750, new house $134K, gallon of gas $1.26. Average yearly wages $40,340, average monthly rent $675. CaPoI = 60%

For very recent stats I'll go to other sources. For a 2010 median US household income, $54K is about right. This is all households, any number of income earners. For the average cost of a new car right now, the National Automobile Dealers Association estimates this at $28,400 for 2010.

So the CaPoI is about 53% for 2010.

To be more realistic, the People History site may have used genuine individual average income. Because of the increasing prevalence of two-income households, my 1985, 1995 and 2000 CaPoI figures should probably be somewhat lower. Nevertheless, the 2010 CaPoI is still 53 percent, so a counter-argument could be made.

Point being, with the exception of a (possibly spurious) ray of hope in 1975, the cost of ownership of a car has not come down in over half a century.

The usual explanation for all this is simply that we have got much better cars. Better engines, better electronics, better frames and bodies, and so forth. That is all well and good, but manufacturers in all areas are accomplishing similar things, and their prices are plummeting. Also, one thing that car manufacturers have not done is improve the longevity of their cars; despite popular conceptions to the contrary, this statistic may have not gotten worse, but it absolutely has not improved. These days, according to reliable sources, the average age of the US car is about 8 years, and vehicles tend not to last past 13 years.

Manufacturers and dealers tout not only engine performance and efficiency improvements, but safety features. Again, that is all well and good, but how much longer are they going to ride that particular gravy train? The numero uno safety feature is the good old safety belt, which was mandated for new cars just about the same time as our informal survey started, in 1955 or so. Airbags are another major safety value-add, but they have been around for a long time too. Good tires and proper inflation are significant for safety, but these are not directly affecting the price of a new car. Past all that, it is arguable as to whether we need to make an average passenger car survivable like a NASCAR hotrod. Let the consumer spend their money on proper maintenance and the occasional defensive driving course instead.

Although there is not incontrovertible proof in these numbers, and one would rather cynically have to believe that the car makers and dealers care about profit, the evidence does strongly suggest that the industry has identified the consumer pain point, and is using it to the maximum. Cars are now essentials, not luxuries. They support how we live. And the industry knows damned well that they have a captive market.

Best counter to this: maintain your car. Baby it. Make it last 20 years. Or longer. And watch the industry cry. Although they can always pressure politicians to outlaw really old cars. But for now, try and make your car last 20 years. Please.

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