Petrol, water, electricity, groceries ... the price of everything is out of control, right? You probably think everything has become monumentally more expensive in the past two decades, right? Not exactly: new cars have halved in value. Halved. True story.
If you think you can’t afford a new car, you’re probably wrong. And, if you think the old car you’re driving right now is worth a decent sum of money, you’re probably wrong. These two wrongs make the cost of new cars exactly right, and you don’t get that very often.
This is the exclusive story of the brain-bending, never-before-repeated, affordability of new cars.
Ordinary cars have never been cheaper
Let’s take the second-most boring car on Earth: The Toyota Corolla. And let’s do the whole Jules Verne thing, and go back in time. I’m thinking after the death of the brontosaurus but before Twitter. To a time scientists refer to as … 1993. Twenty years ago. Back then, a base-model Toyota Corolla cost $19,200. The average worker earned $523 a week. And that means - it took eight-and-a-half months of average weekly earnings to park a shiny new world’s second most boring car in your driveway.
Fast-forward to the present day. Have a guess how many months you have to save your average weekly earnings to do the same thing with a contemporary poverty-pack Corolla.
So: Eight-and-a-half months - 37 weeks - of average earnings to buy the povvo pack world’s second-most boring car 20 years ago, in 1993. Same thing today: four months. Did you get it? Eighteen weeks. Thirty-seven weeks back then; 18 weeks right now. The absolute dollar value of the mighty Corolla is almost the same - $19,990. But two decades worth of devaluation has slashed the cost in real terms.
Average workers got $523 a week back in 1993. Twenty years later, the average pay packet has risen to $1115. And that means spending $100 back in 1993 was like spending $213 today. In ballpark terms, the buying power of every dollar in your stylish man’s handbag has been halved in 20 years - so spending $20,000 in 1993 would be like spending around $40,000 today.
Actually, the 20-year-old poverty pack Corolla has a lot more in common, on fundamentals, with a car like today’s Kia Rio S - currently $13,490 drive-away. The 20-year-old Corolla - 37 weeks of average weekly earnings - can’t hold a candle to the Rio, which represents just two months and three weeks worth of average earning capacity. Call it 12 weeks. That’s two-thirds off, in real terms. It’s a serious discount.
The thing that bends your brain here is that the kinds of cars mere mortals like us can afford haven’t really moved that much in absolute dollar terms, for 20 years. The entry level Corolla was about $20 grand back then; it’s still about $20 grand today. But it’s twice as affordable. Base-model Mazda 323 was just under $21k back then, and Mazda3 that replaced it kicks off at $20,490 today - same bucks, near enough; twice as affordable.
You want something spicier, right? Subaru WRX. Nice. The WRX rolled out for the first time in 1994 and cost $42 grand - that’s 77 average weekly pay packets right there. Call it 18 months of average earnings. Your base model WRX today is $39 grand. That’s just 35 weeks’ earnings. Call it eight months. Eighteen months of average earnings 20 years ago; eight months today. WRXs have quietly become two-and-a-quarter times more affordable - plus they got 35 per cent more power and 30 per cent more torque. Not bad, for less than half the cost, in real terms. Fleeing from a ram raid or a drug deal gone bad was significantly more expensive back then; that’s for sure. It’s much cheaper now. What this means is: You still get ‘fully sick’ - but you pay only half as much for the privilege. So, that’s nice.
What about luxury cars?
Meanwhile, up at the big end of town, cars the rest of us will never afford are definitely cheaper as well, but not quite as profoundly. Back in 1993, a big, fat S 600 Mercedes-Benz (think: perfect Armenian drug lord’s car) cost a smidge over $339,000. (Which is like spending almost three quarters of a million dollars today.) That was about 12-and-a-half years of average weekly earnings back then. That’s right - all an average worker needed to do was save every cent, not eat, not pay the rent, not pay any tax - and in just 648 weeks, the S 600 could be yours.
Interested in a cheap Mercedes-Benz? Learn how the cheap new Benzes are really a rip-off here >>
Today, the flagship big, fat Benz is still the S 600, albeit with a host of improvements - three more gears, 100 more kilowatts, lots more fruit … things like that. Just right if you’re a Gold Coast property developer with exquisitely bad taste. And today, the S 600 is just $415,000. What a bargain. That’s 42 per cent off, in real terms. If you start saving the average pay packet right now, today’s S 600 can be yours in just seven years. That’s five-and-a-half years cheaper. Mercedes-Benz never actually uses the ‘C’-word in relation to the S Class. That’s ‘verboten’. Anyway, the unattainable has become significantly cheaper. (But it’s still unattainable.) The S Class you’ve always wanted is tangibly nearer, but yet still so far…
Cars that buck the 'cheaper' trend
Most cars are dramatically more attainable - in both real and absolute terms. But, of course, some cars have really dropped the ball on affordability. The entry-level Holden Commodore cost 39 weeks’ average earnings back in 1993. The base-model Commodore costs 31 weeks of average earnings right now. It’s 20 per cent more affordable, sure, but that’s not nearly enough. Commodore is playing on a field where the opposing teams have run on at less than half the real cost. So it just can’t compete. And that’s part of the problem.
And the Land Rover Discovery: what are they thinking? 93 weeks to own the flagship Discovery 20 years ago. A V8 with 134kW. Shameful - today’s Mazda3 goes better than that. 99 weeks to own the flagship Disco 4 today. It’s one of the few that’s actually become more expensive. From 93 to 99 weeks for the works burger of Discoverys. If affordability is a torrent flowing from high cost to low cost, the Land Rover Discovery is the off-road salmon swimming upstream to spawn. Good luck with that.
Cheap, cheaper ... cheapest
That base-model Kia Rio I mentioned earlier - 12 weeks’ earnings. $13,490 drive away. If you own it for five years and write it down over that time, you can sell it for five grand when the warranty expires, and just go again. Recycle it; repeat. If you amortise the cost over five years, that little Rio’s depreciation - and, I know, it’s hardly an S 600 - the depreciation cost is just $4.65 a day. To me, that’s not very much for new-car smell. Just kick caffeine, and you can afford a new car. And when you go again in five years’ time, it’ll be even cheaper.
The big challenge for the car makers is: how the hell do you make money out of cars that are monstrously more affordable, in a hyper-competitive market like Australia? And the answer is: Who cares? That’s their problem. It’s great news for you if you’re a potential new car buyer.
So: Where will it end? There needs to be some discontiguity, an asymptote, a limit, perhaps even an event horizon. A level below which the price of a new car simply may not ever fall. Otherwise, prices will continue to plummet in real terms, over time. Saving for a new car will become obsolete, like typewriters. You’ll be able to afford a new car before you even conceive of buying one. In the few seconds it takes those synapses to frame the notion of new car acquisition you will have been able to save the requisite average earnings to facilitate the transaction. There will be no lag. You’ll be able to tell your grandchildren stories about growing up in a time when people actually used to save up for hours - sometimes even days - for their next new car. To them, your stories will all seem as improbable as growing up with black and white TV, and no tweeting.