The $50,000 Question: How Did Vehicles Get So Expensive?
In September last year, new vehicle prices broke a record, passing $50,000 for the first time. Personally, I think this seems far too much for the typical household to spend on a new vehicle. But normal people do it all the time. Is it a problem? How did we get here?
Many factors contribute to the high price of cars. Policy certainly has played a role. However, a substantial part of the path to the $50,000 vehicle is due to consumer preferences.
Does this mean consumers have little room to complain? Turns out that consumers are both getting what they want and have some legitimate reason to gripe. It’s a bit paradoxical. But the important thing is, more affordable vehicles are possible.
Sticker Shock
What’s up with prices?
Let’s start with the data. There are two main measures we will look at. Depending on which measure we use, new vehicles are either extremely expensive or more affordable than ever.
For now, I am not adjusting for overall inflation so that we can look at the nominal sticker prices that have people so upset. We will talk about the role of overall inflation later.
Average price: This is simply the annual mean transaction price of a vehicle sold in a particular year. I measure by combining two data sources. For 1990 forward, I use data provided by the National Automobile Dealers Association (NADA), an authoritative and often quoted source. In the instances where I want to look earlier than 1990, I project that series backward using growth rates of average vehicle prices from the Bureau of Economic Analysis (BEA).
Average prices do indeed show a dramatic rise over time that approaches $50,000. If we go back 30 years, new vehicle prices were just over $20,000, meaning they’ve gone up 122 percent in the last three decades. The post-pandemic surge has been particularly strong, with prices up 25 percent since 2019.
Quality-adjusted prices: The consumer price index (CPI) produces monthly estimates of the price of new vehicles that adjust for quality. This method looks at how much prices have gone up over time, holding constant the mix of models sold and also attempting to control for changes in quality (more on that later).
The CPI for new vehicles is much less dramatic than average vehicle prices. This measure remained shockingly flat for over two decades, reflecting no growth in quality-adjusted prices. That has changed since the pandemic, however, and vehicle prices are now up 24.2 percent over the last 30 years.
The gap between these two measures is massive. Did the price of vehicles rise by one-fourth or did they more than double?
The slow death of the car.
An important factor driving up average prices is that consumers are shifting away from more affordable types of vehicles.
This is apparent in the long, steady decline in the share of vehicle sales that are cars. Consumers have gradually pivoted to what the BEA calls “light trucks,” a broad category that includes basically everything else: trucks, vans, SUVs, and crossovers. Thirty years ago, cars accounted for half of all new vehicles. Today, it’s 16 percent. This is a long, slow-moving trend that goes back to at least the 1970s.
This shift away from cars has serious implications for average prices because cars tend to be substantially less expensive than light trucks. Consumers pay, on average, 50 percent more for a new light truck than a new car. Yes, crossovers are in many ways more similar to cars, but this is how the BEA categorizes them, and the gap between cars and everything else is large. While overall prices have famously rocketed up to $50,000, the BEA estimates consumer prices for new cars average just under $32,000.
One way to see how the decline of cars has affected average prices is to consider the following thought experiment. If households today bought the same mix of vehicles that they bought in 1996, but the prices of cars and light trucks were exactly as high as they are now, average prices would be 16.8 percent lower. In short, things would look a lot more affordable if people still bought cars.
While the death of cars is clearly driving up average prices, it has no effect on the CPI for vehicles. This is because the CPI measures price changes for the same model over time. So if the price of a Toyota Corolla sedan goes up, that shows up as an increase in the CPI for autos. But if consumers switch from buying Corollas to more expensive Tundra trucks, that does not show up. Though it will change how much weight autos get in the overall CPI over time.
Quality matters.
Another reason that vehicles have gotten more expensive is simply that they have gotten nicer. Or at least they include more stuff that consumers seem to value.
The CPI attempts to remove price changes that are due to increases in quality. The Bureau of Labor Statistics (BLS) does this by working with automakers to measure how much extra stuff they put in their vehicles every year. Statisticians can then subtract the retail value of that stuff from the change in price so that the prices are “quality-adjusted.”
For example, in its report for 2026 model-year light trucks, the BLS found manufacturing costs went up by $187.93 compared to the previous year for reasons attributable to quality change. The retail value of these changes was $201.93, which it broke out into the following categories:
- $12.98 for improvements to safety equipment.
- $33.03 for improvements to infotainment systems.
- $155.92 for other changes, such as improvements to powertrains and changes in levels of standard or optional equipment.
Over the past 30 years, the BLS has measured total nominal quality improvements of $6,048 for light trucks. This is 28 percent of the $21,883 increase in nominal retail prices included in those same BLS reports. For cars, it’s 29 percent. In other words, between a quarter and a third of the increase in nominal prices over the last 30 years is from measured quality improvements.
If these numbers sound like a lot, consider that the average vehicle weight within specific models went up by 21 percent from 1996 to 2018. Two examples can be seen in the graph below, with the average weight for a Toyota Corolla and a Ford Explorer, which are both up around 20 percent. Likewise, average horsepower within models has gone up by 54 percent, and fuel efficiency has improved by 6 percent.
Another sign of improved vehicle quality over time is that vehicle lifespan has increased. Vehicles on the road were an average of 12.8 years old in 2025, up from 8.5 in 1996.
On the other hand, it’s certainly true that not all changes to vehicles that cost manufacturers money are improvements from the consumer’s perspective. The BLS tried to address this by not including costs that are for the purpose of meeting air quality standards.
However, safety standards are often mandated and still included as quality improvements. These costs can be substantial. McKinsey estimates that between 2001 and 2010, government requirements necessitated $400 in new components for safety in the typical midsize passenger car. If consumers valued these changes less than the cost, the CPI for vehicles would be biased down.
On the other hand, vehicle improvements that do not cost more money will not be subtracted from the price as a quality change. For example, better engine performance due to innovation is not accounted for if it isn’t tied to a specific higher cost.
On net, I believe the BLS controls for quality probably underestimate the value of the improvements. If so, a true quality-controlled CPI for autos would show that real, quality-adjusted prices have fallen even more than the data suggests.
Is there anything to complain about?
To some extent, the analysis so far might seem to turn affordability on its head: Is a 20 percent rise in real average prices over 30 years really that big of a deal? Especially if quality-adjusted prices, which on net are probably underestimating quality, have fallen by a shocking 32 percent?
I do think consumers have two legitimate gripes: Progress has slowed, and the most affordable vehicles really are disappearing.
First, begin with the observation from the second chart above that the inflation-adjusted CPI for vehicles was falling much faster through around 2010. From 2010 through 2019, prices continued to fall but at a much slower pace. Prices then rose rapidly during the pandemic and have been falling at an even slower pace since then. In short, things have gotten better more slowly than they used to. That is a legitimate reason to complain, even if the $50,000 average price tag exaggerates it.
Second, the most affordable models really are disappearing, and this is not being included in the CPI for vehicles.
It might sound like a paradox, but the CPI doesn’t actually capture when affordable models disappear from the market altogether. The CPI is meant to measure quality-adjusted changes in prices of individual models over time. So when a particular model goes away, like when Ford stopped making the Fiesta in 2023, the index doesn't reflect higher prices, because the price of that model has not gone up.
It isn’t a measurement problem when individual models like the Fiesta disappear. But when the cheapest models begin disappearing en masse, then affordability has deteriorated in a real way that will not be captured by the CPI for autos.
And the cheapest models are in fact disappearing. While the affordable vehicle has not become extinct, it is on the endangered species list.
It’s not just the Ford Fiesta either. In the New York Times, Clifford Winston argues that in 2012 there were a dozen vehicles for sale in the U.S. priced below $25,000 in today’s dollars. By his count, today there are only four.
To be clear, the issue is not that affordable vehicles don’t exist at all. Affordability can often be attained by going with base models and avoiding expensive options. Toyota has a whole webpage dedicated to Corolla models with base prices under $25,000. But if you begin adding options, Corolla prices can exceed $30,000. Another example is the 2025 Mazda CX-50, which ranges from $28,950 (arguably affordable) to $43,300 (definitely not affordable) depending on trim and options.
But affordable options are definitely dwindling over time, and consumers are right to complain.
Policy matters.
Another legitimate complaint is that government policies force prices higher. The biggest is probably trade policy.
Trade costs have risen drastically during the second Trump administration. This includes a global 25 percent tariff on imported vehicles and parts, with a somewhat lower rate for a handful of countries that have negotiated deals. There are also 50 percent tariffs on imported steel and aluminum. Altogether, automakers estimate they have paid $35.4 billion in tariffs since 2025.
But that trend didn’t begin in 2025. There is also a long-standing 25 percent tariff on light trucks. The United States-Mexico-Canada Agreement that went into effect in 2020 also included a variety of protectionist measures. It included a Labor Value Content (LVC) rule that required 40-45 percent of a vehicle’s value to be produced by workers earning at least $16 an hour and mandated that 70 percent of steel and aluminum be made in North America. These rules not only raise costs directly, but add to the administrative burden to prove compliance with the rules. This sand in the gear of trade matters, given a North American automotive supply chain that can see materials cross borders multiple times before final assembly.
Another way that policy drives up prices is through a complex web of state-level dealer franchise laws. These laws prevent car companies from selling directly to the public, and they regulate entry and exit from markets and much else. As a result, such laws almost guarantee dealership profitability and survival. Estimates suggest they add around $4,000 to $5,000 to the costs of a new car.
Automakers falling behind.
Policy changes could potentially help with one issue, but it’s a complex matter: Automakers are seemingly falling behind the productivity frontier by not taking advantage of newer manufacturing techniques. At the frontier you have Tesla, and perhaps to an even greater extent, many Chinese automakers. Behind the frontier is basically everyone else. And the gap between leaders and laggards has grown a lot.
There’s not one simple reason automakers have fallen behind. The Center for Automotive Research (CAR) recently summarized a series of industry expert roundtables convened to discuss the challenges of creating affordable electric vehicles. The experts agreed that next-generation manufacturing techniques can substantially reduce the cost of cars. This includes modular design, unboxed manufacturing (a more modular approach), and gigacasting. One estimate suggests that unboxed manufacturing could reduce production costs by 25 to 30 percent.
The struggle to embrace these new manufacturing techniques is likely holding many companies back from the frontier. But this is one among many issues, including vertical integration, product standardization, and just better product engineering.
Automakers are focused on learning from Tesla and Chinese manufacturers. But so far as I can gather, nobody thinks they are there yet. Could policy help? Sketching out a plan is beyond the scope of this piece, but I think it is a serious issue worthy of consideration.
Signs of stress.
In the meantime, it is hard to blame consumers for sensing that they aren’t getting a great deal. Signs of stress are certainly apparent: Repossessions are up, so too are the share of car payments above $1,000 a month and the percentage of car buyers financing beyond five years.
Even if part of the problem is that consumers are choosing increasingly larger and higher-quality vehicles, they are doing so while facing a menu with fewer affordable options. And at every quality level, it's likely that policy and automakers falling behind the technological frontier are making things more expensive than they should be.
I don’t know what to do about consumers choosing to spend more, more, more. But there certainly is room to improve vehicle affordability even if we can’t fix that tendency.
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