Are new cars getting more expensive?

In the US there is concern that the average new is now over 40,000 U.S. dollars. For many families, a new car is now out of reach, and as a result, consumers are holding on to their older cars for longer. This in turn means higher levels of pollution because instead of the fleet moving to newer lower emissions vehicles, existing vehicles are being held onto longer. Older cars tend to be more polluting than newer cars, and older cars tend to be less fuel efficient than newer cars too.

The price of an average new car globally has seen a significant rise over the years due to factors like supply chain disruptions, increased specifications, increased crash safety requirements, increased demand for larger cars, increasing emissions standards and therefore higher production costs.

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Some commentators, Boost Auto included, have bemoaned the lack of newer affordable cars. So, we asked the team at Red Book New Zealand to help ascertain which makes and models had been hit hardest. The results may surprise you.

Firstly, we looked at three key mainstays of the NZ new market place; Ford Ranger, Toyota RAV4 and Corolla. Then we added in a few more nameplates for good measure. For the analysis, we chose an automatic gearbox wherever possible, and we tried to identify our best to identify a trim level or sub-model and engine that was relatively consistent throughout timeline we have studied.

There are clearly challenges with the data, for example. Ford Ranger 10 years ago was not the New Gen. Ranger model that is available today. The new model has more power and more tech, with lower emissions that the 3.2L 5 cylinder model of old. The Toyota RAV4 is now one generation newer also, and is now only available as a mild hybrid (which also means it gains AWD). The Corolla is also now only available as a mild hybrid.

Vehicles have almost all gained an impressive (or annoying) suite of ADAS or autonomous driving aids, and well as larger infotainment screens and tech like Apple CarPlay.

We rounded out the list by including the Golf GTI, and a specialist hot hatch, the Honda Civic Type R, Nissan X-Trail, Mini Cooper, Subaru Forrester and a couple of smaller BMW models, 118 and X1 to give a cross section of price points and vehicle types.

Inevitably there were other data challenges too. There are a couple of notable outliers. For those who enjoy browsing and digesting car specifications and pricing (look no further than the author of this article) an observer will know that PHEV or Rex (E-Power) carries a significant penalty over a mild hybrid MHEV, and that MHEV carries a price premium over an ICE engine. For example, Nissan X-Trail for example, is now E-Power, which is an expensive tech more akin to a PHEV than a mild hybrid (HEV).

It's also worth noting that in 2015, Toyota sold to consumers via the via the traditional retailer and distributor model. But in 2016 or thereabouts, they moved to an agency model, and that resulted in a lower RRP (now called TDP or Toyota Driveaway Price) which also meant that On Road Costs became included in the price. The shift to TDP alone represents a saving in the region of $1000-1300 that no other brand offers.

Adding a further dimension is the impact of inflation and the strength of the New Zealand Dollar. A dollar coin might always be a dollar a coin, but despite the volatility over the last ten years the Japanese Yen and British Pound are still worth close to what they were at the start of the ten year analysis window. The same is not true of the US Dollar. However in our study the vehicles are mainly Japanese or European (noting that the Ranger is neither, it is built in Thailand).

Source: Red Book.

The results are surprising. Ten-year inflation is around 26%. Noting that the way that CPI is calculated is an index, and that it is essentially a basket of goods, means that the real rate is a little lower, and that not all items will have increased at the same rate. But for a typical household a dollar is worth 26% less than it was 10 years ago.

Only four vehicles in our study have increased by 20% or more. The Nissan X-Trail, BMW 118i, Honda Civic Type R and Mini Cooper. The X-Trail’s price jump can mainly be attributed to the cost of the e-Power (worth about $5000). BMW 118 pricing is challenged by the model availability, and between the time of the first draft of this article and the time it was published the 118 has disappeared to be replaced by the more expensive 120. Mini Cooper pricing, virtually static for such a long time in R56 guise (which had a very long model run), jumped up in price with the new F65 variant. Conversely this meant R56 models, may have had a high MRRP, but transactional price became much lower late last year when stocks were being run out.

At the other end of the scale the two Toyota models have shown remarkable inflation resistance. RAV4 and Corolla were only up 8% over the ten year period. Its worth noting that the switch to TDP reduced the selling price – this can be seen in the table and at the same time absorbed on road costs. No other vehicle in the table has on road costs included and so the real inflation rate is probably two percent lower, from ORC inclusion alone.

The sleeper model in the pack is the Subaru Forrester. At just five percent increase, this vehicle is the relative bargain in the pack versus inflation.

The Ford Ranger has maintained its MRRP, with just a 7% rise over the period, while noting that its most expensive variant, once the Wildtrack has been usurped by the Ranger Raptor V6 with a list price of $96,490. This breadth of the Ranger range illustrates one of the dynamics of the market.

None of the models chosen are entry levels. The quiet deletion of smaller models and entry trim variants alongside the introduction of more highly specified upscale models has shifted the centre point of the new vehicle landscape. Model for model there is surprising consistency.

Cars are becoming more expensive. That’s the effect of inflation; however they are becoming relatively more affordable at the same time. The price increases in some cases is being outstripped by inflation. The key here is not to be seduced by specification creep.

Last but not least, there’s a slow culling of entry level vehicles. The last generation of MG3 is being replaced by a significantly better but more expensive replacement. Nissan Micra and Ford Fiesta bowed out several years ago, and Mitsubishi Mirage has left the building. That aside, the New Zealand market place makes cars consistently affordable. We even have with relatively low new car prices compared to many international markets (China excepted). But that's the subject of an earlier blog.

Notes: BoostAuto would like to acknowledge the support from Red Book New Zealand in accessing this data and making this article possible.