Vehicle prices have risen more than many consumer goods, but the margin isn’t as wide as you might expect
While walking through the Canadian International AutoShow something stood out to me: the prices of the vehicles on display.
There has been no shortage of recent commentary discussing the affordability of car ownership, but I began to wonder — are things really as bad as some say? Are the increases in vehicle prices a legitimate phenomenon, or simply the result of general inflation affecting all consumer goods? How can you measure it?
I’ve spent quite a bit of time in the auto industry — roughly half of it working for OEMs — I’ve had direct experience with setting vehicle prices. It is not easy.
Pricing a vehicle involves delicately balancing financial targets for the OEM, while ensuring the price remains attractive enough to bring consumers into dealerships.
In the distant past I also studied economics, and I still (oddly!) recall lectures on inflation. Inflation is typically measured using a “basket of goods,” comparing the cost of the same set of items at different points in time. The difference in price — while a simplification — is essentially the rate of inflation.
This got me thinking — what if, instead of a basket of goods, I created a “basket of cars” to measure vehicle price inflation over time? I could compare the cost of cars today to their prices 10 years ago.
The process wasn’t simple. I had to select 10 vehicles that have been consistently available over the past decade with the same trim name. After careful selection, I compiled a dataset with these 100 data points covering model years from 2014 to 2024.
According to StatsCan, a basket of goods that cost $1.00 in 2014 would now cost $1.29 in 2024, reflecting a general inflation rate of 29 per cent.
To establish a baseline, I referenced data from Statistics Canada’s Consumer Price Index (CPI). According to StatsCan, a basket of goods that cost $1.00 in 2014 would now cost $1.29 in 2024, reflecting a general inflation rate of 29 per cent.
The CPI accounts for a broad range of items, including food, housing, household goods, clothing, transportation, and fuel. For my comparison, I selected ten high-volume non-luxury vehicles in the Canadian market and tracked their MSRP over the past decade.
What I discovered was that “car-flation” or my Vehicle Inflation Index (VII) — outpaced general inflation, but not by an extreme margin. My index came out to 1.40, meaning that a car that cost $1 in 2014 now costs $1.40 in 2024. That’s roughly 12 percentage points higher than the general Consumer Price Index.
To put this into perspective, a $30,000 car in 2014 would, on average, now cost $42,120. If it had followed the general rate of inflation, it would be priced at $38,554 today. The difference — $3,566 — is significant, especially for a high-cost item like a vehicle, roughly $60 a month in car payment over 72 months at 5.00 per cent.
So, why have car prices risen? There are many contributing factors.
Material and labour costs, currency fluctuations, and supply chain disruptions all have played a role. The biggest culprit I see is that automakers frequently add new features — often referred to as “content” — which increase both the cost and retail price of a vehicle throughout its lifecycle.
These additions can include mandatory safety features or the latest technological advancements, most recently much larger infotainment screens and Apple CarPlay and Android Auto come to mind. Cars from the 2024 model year definitely have more “stuff” in them than the typical mode of 2014.
One aspect of the market that my study doesn’t capture is the disappearance of lower-cost models from the Canadian market over the past decade.
Many affordable cars, including budget-friendly entry-level SUVs and crossovers, have been discontinued. I view that as a more serious problem for consumers and retailers.
For example, one of the vehicles I analyzed for my index had a front-wheel drive manual transmission trim in 2014. Today, that model — while significantly improved — starts at 60 per cent more, with no manual transmission and only AWD available.
In 2015, there was a car available at $9,998, the Nissan Micra. Today, the most affordable car in Canada is still a Nissan, but the starting price of the Versa is now $20,798 — more than double the price of the Micra just a decade ago. Just a sign of the times.
Many OEMs have rationalized their lineups to focus on more profitable models, and to invest in bringing more zero emission vehicles to market. To invest scarce corporate resources in a low-cost car is a hard sell.
So, the next time someone is complaining about car prices I would counter with:“The increase is only about 12 per cent more than inflation, and there are a lot more features than 10 years ago so maybe it is not quite as bad as you think it is.”
