The automotive business has traditionally been a cyclical industry, and car price has always been subject to the ups and downs of the economy in relation to costs of materials, labor and fuel.
Technology has always been a driver, so to speak, of new cars. Each successive brand or model introduced offers new ways of enhancing the automotive experience. When we think back to our first cars, some of us will remember the lack of air conditioning, advanced stereos and displays of vital data, such as engine status. While some of these types of improvements are evolutionary, all of these factors can add to the cost of the car and its maintenance as well. Improvements in driving and safety also contribute to the additional costs, such as airbags, anti-lock brakes or limited-slip technology. Comfort has improved vastly over the years as the car became not just transportation but sort of a second home as personal and work schedules became busier. It is not uncommon to find leather seating, DVD players and even dining trays in some larger vehicles today.
While many traditional factors can determine the price of a car, some external influences can sharply increase the price or offer the buyer an opportunity to get a nice car at a hefty discount. In the late 1990’s the driving public began seeing the Sports Utility Vehicle (SUV) as a new type of vehicle which offered the room of a minivan with the allure of being safely surrounded in a truck with the ability to go off road or the power to pull loads such as a boat. Prices at this time were ever higher due to the popularity, with hard to find models often selling for list price or more.
Effects of Fuel Prices and Availability
Many of us have read about or can remember the oil shortages in the 1970’s leading to a spike in prices of all types of fuel including gasoline. The effect on car prices then, as it is today, often drives pricing trends for certain models of vehicles. The most recent episode was the abrupt end to the popularity of the SUV and large truck-based vehicles whose sales were guided by the price of fuel. These larger vehicles that often had mileage ratings in the teens, were now too expensive to serve as just transportation. People started realizing that basic transpiration could be had for a lot less, especially when pulling up to the pump. Suddenly fuel-efficient cars were the rage and buyers were paying more than list price for new technologies such as hybrid and electric vehicle which required little to no gas to operate.
Dealers have not always depended on the buyer to purchase a car to earn a profit. Services and add-ons traditionally served as profit since the sale of an automobile by itself generated little income. As new technology enabled cars to last longer, this and other factors such as competition, prompted dealers to offer vehicles at a lower profit margins to sell more cars. Although this appears to make vehicle cheaper to buy, in the long run maintenance and upkeep of newer technologies gave more profit to the dealer as they were the only ones equipped by the manufacturer with machines to diagnose and repair these vehicles with computerized engine systems.