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My “Pickup Truck Price Index” Crushes “CPI for New Vehicles”

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Via Wolf Street

A total mind-blower. Actual prices skyrocket even as CPI for new vehicles has been flat for 22 years.

By Wolf Richter for WOLF STREET.

I started stirring the pot a few weeks ago with the Toyota Camry, the best-selling car in the US. I compared Camry LE prices for the model years from 1990 through 2020 (now in showrooms) and found that the base MSRP increased by 70% while the CPI for new vehicles increased by only 22%, and more disturbingly, that this 22% increase happened entirely between 1990 and 1997, and that since then, the CPI for new vehicles has been flat with a dip in between. Now I’m going to do the same analysis with the best-selling vehicle of all times in the US, the Ford F-150 pickup truck. And you know what is coming: a total mind-blower.

Price increases consist of at least two factors: The loss of purchasing power of the dollar (inflation, a monetary phenomenon) and the costs of quality improvements, for example going from a 4-speed automatic transmission in 1990 to a shiftable eight-speed-automatic. To isolate the loss of purchasing power of the dollar, the costs of quality improvements are removed from the CPI via “hedonic quality adjustments.”

But that hardly explains the enormously billowing price of the F-150, which totally blew past the Camry’s price increases.

This year, the Camry will clock in with around 340,000 deliveries in the US. Ford’s F-series trucks – from the F-150 through the F-750 medium-duty commercial truck – will get close to 900,000 deliveries. The F-150 has the lion’s share of those deliveries.

Americans have fallen in love with “trucks” in all forms: pickups, SUVs, car-like compact SUVs, and vans. Since 2014, “truck” sales have soared 44%, while car sales have collapsed 40%, a phenomenon I have come to call Carmageddon (my chart of Carmageddon). This shows up in the price gains of the F-150, which totally blow away the price gains of the Camry, which in turn totally blow away the CPI for new vehicles.

The stunning price increases of the F-150 XLT.

The MSRP (manufacturer’s suggested retail price) for the 2020 F-150, now in showrooms, ranges from $28,495 for an XL to… well, I had some fun and specced out a mean piece of equipment on Ford’s website, a 2020 F-150 Limited SuperCrew Cab (4-door) 4X4 with the EcoBoost High Output Engine, electronic 10-speed automatic transmission, and all the bells and whistles I could stick on it. It came to $76,935 MSRP.

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There has always been a huge price range between the base version of the F-150 and the top end. Back in the early 1990s, there was the stripped-down “S,” now extinct, plus the XL that still exists, the XLT, which has been the most commonly sold model, plus various high-end versions. For this study, I will stick with the XLT.

For the 1990 model year, the base MSRP of the F-150 XLT was $12,986. In the 2020 model year, it’s $34,160.  That’s a price gain of 163%.

Let that sink in for a moment. Over the same period, the CPI for new vehicles (green line, right scale in the chart below) rose just 22%:

Note that from 1990 through 1998, the CPI for new vehicles closely tracked the price increases of the F-150. But this surge in CPI was too disturbing, apparently, and so the CPI methodology was enhanced with aggressive hedonic quality adjustments and other methods to bring CPI down, and it actually fell from 1997 through 2009, even as new vehicle prices were soaring.

Also note the 12.8% jump from the 2003 model to the 2004 model. This was the year of a redesign – “exciting” engine options, “bigger and bolder” exterior, “refined” interior, offering “a revolutionary level of comfort and spaciousness that was unparalleled in a pickup truck,” the Ford enthusiasts at Blue Oval Tech gushed at the time:

Ford thought it could get away with jacking up the base price by nearly 13% — only to end up backing down over the next few years. The MSRP didn’t get back to that price level until 2009. Big price increases following a redesign are common, as is the failure to make them stick in the following years. But this up-and-down was extreme.

Why MSRP?

No one pays MSRP as automakers heap on rebates and incentives and dealers give discounts. But this was also the case in 1990. MSRP and dealer “invoice” are set by the automaker at the beginning of the model year and don’t change for the model year. What changes are the incentives, rebates, and discounts. But MSRP, being fixed for the model year, allows us to approximate year-to-year price changes.

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The price face-off: F-150 XLT v. Camry LE.

In 1990, the Camry LE was more expensive ($14,658) than the F-150 XLT ($12,086). In 2001, the F-150 XLT ($20,225) about caught up with the Camry LE ($20,415). And today, the F-150 XLT is 38% more expensive. This chart shows all three: The F-150 XLT (blue columns, left scale), the Camry LE (red squares, left scale), and CPI for new vehicles (green line, right scale):

The theory is that CPI should only track the monetary phenomenon of inflation – the dollar losing purchasing power – when it takes more dollars to buy the same good or service over time. When a truck gets more expensive because it gets bigger and more powerful and safer and more comfortable and what not, the costs of those goodies are not inflation. They’re improvements. So they’re removed from the CPI via these “hedonic quality adjustments.”

And there have been countless “improvements” in safety, performance, comfort, convenience, etc.:

  • Engine: The 1990 base XLT came with an antediluvian 4.9-liter inline 6-cylinder engine that produced 150 hp. Today, the base engine is a 3.3-liter V6 that produces 290 hp.
  • Automatic transmission: The 1990 XLT came with a 4-speed automatic. Today, the XLT comes with a 6-speed shiftable automatic with three selectable modes (Normal, Tow/Haul, Sport); a 10-speed automatic is available at the high end.
  • Wheels went from 15-inch steel to 17-inch aluminum.
  • Air conditioning transitioned from basic A/C to a computerized Climate Control System.
  • Airbags: From two airbags to a confusingly large number of airbags all around the driver and passenger.
  • More goodies that were unheard of in 1990: Tailgate power-lock, pre-collision assist with automatic emergency braking, automatic high beams, fade-to-off interior lighting, WiFi hotspot as part of the entertainment system (from just an AM/FM radio in 1990), rear-view camera with hitch assist (you see the trailer hitch on screen); tire-pressure monitoring system, and on and on.

The additional costs of these quality improvements are estimated and removed from the CPI for new vehicles over time.

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But wait…

The Camry too has undergone major redesigns, most recently for the 2018 model year, and it too benefited from myriad improvements in performance, safety, comfort, convenience, etc. Why did its price rise 70% since 1990 compared to 163% for the F-150?

It boils down to this: Americans are in love with trucks and are willing to pay more – a lot more – for pickups than for cars; and this willingness has grown in recent years. This has led to the phenomenon where profit margins for automakers are huge on pickups but slim on cars.

Ford proudly points this out at every earnings call, as it emphasizes how it’s selling ever more high-profit-margin “trucks.” Other automakers are doing the same thing. And this willingness by normally astute American consumers to pay so much for trucks and allow the manufacturer to make such fat profit margins is fairly rare for a mass-produced high-volume item (the iPhone is another example).

When you squint just right at this phenomenon after the costs of the quality improvements have been removed, it looks suspiciously like a big dose of inflation in a special part of the US economy – truck sales – where consumers willingly or even eagerly submit to it even as they fight inflation in other products by switching when the price goes up, thus forcing the seller to back off. But not with trucks apparently.

Used vehicle sales are declining again, after having risen for years. Wholesale prices slip year-over-year for first time in 33 months. But “cars” still dominate “trucks.” Read… What’s Going on in the Used Cars & Trucks v. Carmageddon?

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