Why are New Cars So Expensive?

Jessica Shea Choksey | Sep 11, 2020

Over time, the cost of buying a car has increased considerably due to advancements in engineering, technology, safety, and design. Sticker prices today compared to those 30 years ago are significantly higher after adjusting for inflation. In turn, this means car buyers are stretching their budgets now more than ever.

2021 Ford Explorer Platinum White Front Quarter View

A case in point is the Ford Explorer, which has been in continuous production since 1991. When the Explorer was introduced in the early 1990s, its base price was $30,755 in 2020 dollars compared to its current base price of $32,765. The $2,000 difference is noticeable, but that gap widens considerably moving up the model range to the higher trim levels. In 1991, the top-level Explorer Eddie Bauer started at $42,089 in 2020 money compared to today’s top trim level, the Explorer Platinum, which has a starting price of $58,250. That is a difference of more than $16,000.

This kind of general cost increase has been a common trend across the entire auto industry for decades. There are many reasons why newer cars are more expensive than their counterparts from years past, the primary one being they have evolved into better products overall.

Convenience and Comfort

Modern cars have more features than ever, from hands-free power-opening liftgates and backup cameras to heated steering wheels and ventilated seats. The days of touting power windows and air conditioning as up-level amenities are long gone. Even in base trim, many vehicles come well equipped with features that enhance convenience and comfort in new and surprising ways. Many of these bells and whistles add a noticeable premium to the car’s bottom line. Furthermore, the higher the trim level, the more high-end content there is to be had, giving automakers the opportunity to charge higher prices and enjoy larger profit margins.

Engineering Advancements

Giving a vehicle greater performance and capability means more investment for engineering research and development (R&D). As R&D budgets go up for carmakers, those costs are passed down to the consumer. The current Ford Explorer with its standard EcoBoost powertrain yields far more output, efficiency, and towing capacity than the 1991 iteration. But for every additional horsepower or mile per gallon achieved, the buyer will inevitably endure an increase in price.

Structure and Architecture

Structurally, vehicle design has come a long way thanks to the use of high-strength steel. The result is a vehicle that is stronger and lighter, yielding better performance, more efficiency, and a higher level of occupant safety. Extensive use of higher quality steel is becoming the standard, but at a higher cost. Furthermore, from an architectural standpoint, many SUVs have gone from a truck-like body-on-frame chassis to a car-like unibody setup, like the Explorer did in 2011. A unibody offers advantages in safety as well as ride and handling, but it costs more than traditional frame structures to design and produce.

Sizing Up

As vehicles get larger, it takes more material to build them. More material costs more money. The 1991 Ford Explorer was 184 inches long, 70 inches wide and 67 inches in height. To compare, the 2020 Ford Explorer is 198 inches long, 79 inches wide, and 70 inches in height. As vehicles get longer, wider, and taller, base prices will continue to go higher.

Entertainment and Connectivity

In-vehicle entertainment has transformed from simple six-speaker stereos to sophisticated infotainment systems, such as Ford Sync 4. These modern systems utilize large touchscreen displays and cellular based data connections to provide services such as navigation with real time traffic. In addition, many vehicles offer standard Android Auto and Apple CarPlay for smartphone functionality in the dashboard, as well as Wi-Fi internet connectivity. All such electronic systems are costly to develop and produce.

Driving Assistance Technology

Advanced driver assistance systems have become a staple in automotive safety, often packaged together in a collection similar to Lincoln Co-Pilot 360. These are increasingly offered as standard equipment, and usually include an array of technologies such as forward collision warning, automatic emergency braking, pedestrian detection, and lane-keeping assistance, all of which are designed to make accidents less likely. However, these systems not only require costly hardware such as sensors, cameras, and radar devices, but also an enormous amount of investment on the software development side.

Regulatory Compliance

Virtually all aspects of vehicle design are under the watchful eye of state and federal regulators. Whether it is safety system operation, vehicle emissions, or the bulb brightness of the headlights, automakers are always under tight scrutiny to follow government policies and mandates. Compliance in a heavily regulated and constantly changing industry creates new and unexpected expenses for car companies. Those expenses are factored into the vehicle’s price, whether it be the Explorer or any other vehicle on the market.

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