Do new cars cost too much? by Alex Taylor III @FortuneMagazine October 17, 2014, 7:05 AM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons The redesigned 2015 Ford Mustang F just arriving at dealers has received a stable-full of praise for its style, engineering, and refinement. “Takes a huge leap in sophistication inside, underneath and out,” purred Car and Driver. But almost no attention has been paid to the feature that is uppermost in the mind of most prospective Mustang buyers: its price. When it was introduced in 1965, the original Mustang created a sensation with its sporty style and race-car inspired features that disguised its homely Falcon underpinnings, and were available with an average guy base price of $2,427. If you adjusted the price today for 50 years of inflation, it would still be a bargain at $18,326. The 50th anniversary Mustang may still be a good value, but no one would call it a bargain. While it arrived with that same long hood, short-deck design, driver-oriented controls, and middle-of-the-market aspirations that made the early car so popular, its actual base price would be unrecognizable—and unaffordable—to many of its original owners. The 2015 Mustang starts at $23,600, representing nearly a 30% bump over the inflation-adjusted price of the original. (All calculations were provided by Edmunds.com.) It is becoming as predictable as death and taxes: The price of new cars keeps rising—often faster than inflation. According to the National Auto Dealers Association, the average retail price of a new vehicle rose three percent in 2013 to $31,762. That’s a big chunk of change and it is putting a stress on the market. To keep sales, perking car makers and lenders are responding by stretching out loan terms to seven or eight years, which will lead more installment buyers to find themselves upside down and delay their replacement cycle. No one questions that today’s cars are superior in quality, durability, and safety, but how much money are they really worth? What is their real value? “Have prices gone up? You bet,” says Edmunds.com senior analyst Ivan Drury. “But modern vehicles are more efficient, faster, safer and have the ability to receive more than just AM/FM radio stations. 1965 Ford MustangCar Culture—Getty Images To explore that question in depth, I decided to look at the original Mustang and its successor a half-century later to see what kind of value buyers are getting. The Mustang made a convenient choice because its basic format—a two-door, front-engine, rear-drive sporty car—has changed little over the years. The same goes for its position in the market as a stylish alternative for the average consumer. The arrival this fall of an all-new model 50 years later provided a convenient bookend. The 2015 Mustang is a lot of car. It is wider, longer, and taller than the original, and nearly 1,000 pounds heavier. Blame the greater weight on increased use of steel to meet government crash requirements, bigger brakes, wheels, and tires, and all the electric motors and wiring that goes into a modern car. Despite the increased weight, the new car is far speedier. With its fuel-injected, 3.6 liter V6 producing 300 horsepower, it can accelerate to 60 miles per hour in less than six seconds. The old car, which had a 2.8 liter inline six fed by carburetor and spitting out 101 hp, needed several more seconds to get up to the same speed. The new car also comes equipped with a boatload of standard and optional equipment that wasn’t readily available in earlier times, including power windows, seats, and locks, remote locking, cruise control, and tilting and telescoping steering wheel. Government regulations and customer demands have also led to huge gains in safety accompanied by technology and higher prices. Air bags—eight of them—anti-lock braking, adaptive cruise control, and stability controls have become standard equipment. Also available are crash avoidance, line departure warning, blind spot detection and other systems. The audio system offers satellite radio, a CD player, and 12 speakers—electronic equipment that was science fiction stuff 50 years ago. The ’65 car was even missing a lot of things buyers back in the day took for granted: the glove box has no lock; the wipers had only a single speed; the passenger’s seat is not adjustable fore-and-aft; and the passenger does not have his own fresh-air vent. The new Mustang is just a far better car all the way around. An independent rear suspension replaces an old solid rear axle, improving ride and handling. A six- speed transmission replaces the old three-speed, giving a boost to performance as well as fuel economy. The chassis is stiffer, the body more aerodynamic. Aluminum and high-strength steel have replaced baser metals. The Mustang will start regularly, run reliably, and last longer. Rust is no longer a problem. The average car on U.S. roads nowadays is more than 11 years old—more than double the average in the 1960s. In its way, the 2015 Mustang is as advanced beyond the 1965 car as that car was over the 1908 Model T. But unlike in Henry Ford’s day, car prices go up over time, not down. The Mustang isn’t alone in displaying a 2015 sticker price that’s higher than its inflation-adjusted number from an earlier era. The Edmunds.com analysis showed that at $22,645, the Chevrolet Malibu costs 23.7% more than its 1965 inflation-adjusted price, and the Chrysler 300 was 14.6% higher. In fact, customers should get used to paying more. Meeting 2025 corporate fuel economy standards of 54.5 mpg will require new technology, and new fuels, and incentives to steer customers to high mileage cars. Estimates vary widely, but expect to pay $3,000 to $5,000 per car. If it is any consolation, cars aren’t the only big-ticket item whose prices have gone up faster than inflation. Look at real estate. Says analyst Drury; “Just like cars, we know they don’t make them like they used to but the median home price in 1965 was $20,700 (inflation adjusted $156,303). Today it is $269,800.” At least no one has come up with the vehicular equivalent of “house poor.” Yet.