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Are Cars Getting More Expensive to Buy?

calendar Published on: Wednesday, 23rd November 2022 | male icon Author: Jack Dreyer

If you’re in the market for a new car, you might be surprised at the cost of a shiny new drive. We’ve all been there, walking around the showroom with our eyes popping out at the price tag. Surely this is wrong, surely the prices haven’t always been this high?

It’s natural, then, to assume that car prices are getting higher.

The short answer to this is: yes, car prices go up every year.

The reason why is a little more complicated – and we need to have a quick look at that before deciding whether cars are getting more expensive to buy.

Inflation happens yearly

You’ll likely have heard of inflation – it’s a complicated metric to try to gauge how much the cost of something, or an entire economy, has gone up or down over the year relative to the previous year.

There are lots of reasons why inflation happens, the most commonly given reason is that increased demand results in prices being raised. This is a reasonable enough cause of individual product price inflation, but the inflation of whole economies is considerably more complex and involves things like government spending, creation of money, and pivotal international events like, say, a pandemic that disrupt supply chains.

But, for fear of this turning into an economics lecture, all you need to know is that general inflation is a rough metric for the change in overall prices.

Due to yearly inflation, for example, £15,000 in 1935 would now be worth £1,260,776 – which seems like a dramatic increase, but it’s worth remembering that the cost of things inflated along with that. To us today, £15,000 doesn’t seem like a huge amount compared to £1.2m, but the point here is that, in 1935, £15,000 could have likely bought you a vast country estate and manor. In the 50s, at least, £15,000 could have bagged you around eight average new build homes.

What seems like a huge increase, then, is essentially putting £1.2m-worth of money in the bank and pulling it out almost a hundred years later. So, car prices go up every year roughly in line with inflation (or, depending who you ask, are raised every year and contribute to inflation).

We have to define “expensive”

What’s crucial, then, is how much different the rate of inflation is compared to the rate of growth of wages. This is because “expensive” indicates a cost relative to a means to pay for that cost.

Or, otherwise, if your income goes up at the same amount as the cost of things goes up, you have the same purchasing power. That is, you might be 2% richer, but everything else is 2% more expensive.

A key example here is the UK property market since the early 1980s. The average UK house price was £20,268 compared to today’s £281,161 – which is a staggering 1287.22% increase. You’d expect average wages, therefore, to have gone up a similar amount. But from an average yearly wage in 1980 of £14,000 there has been a modest 130% increase to a median wage of £33,000.

The question, then, is: have cars become more expensive relative to incomes?

Unfortunately, yes, cars have become more expensive

The cost of new cars has increased up to five times more than wages have increased in the last decade. This is likely due to a number of things such as increasingly high-end technology, new designs, and more availability of finance-payment options. But it also comes with the problem of an increase in the cost of second hand cars.

By the end of 2021, the cost of a second-hand had increased by 23.9% compared to the previous year. To add salt to the wound, the pandemic threw supply chains into complete turmoil and largely resulted in a price increase of up to 90% on some replacement parts.

Maintain your car

If you’re looking to change cars and all these rising costs are worrying you, the best thing you can do is make sure you’re maintaining your current one. Regular servicing helps to ensure everything stays in great condition for as long as possible, which will ultimately result in your car holding its value better.

Get in touch with your local Tyre Pros centre to book a service.

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