Cars today: Consumers get more for their money

When it comes to buying a new car, most German car buyers would probably say it’s too expensive and opt for a used car. No surprise, since for years about two thirds of all cars traded in Germany have been used cars. The reason is simple: prices for new cars have been rising distinctly for decades. The first VW Golf’s cheapest version cost just under 8,000 Marks in 1974. That’s about 11,000 Euros in terms of current purchasing power. Today, you can’t even buy a new VW Polo for that.

But why have cars become so expensive? The answer: new cars are higher value, and they are much better equipped today. Safety systems, assistance systems, technology for comfort – many of the things that are taken for granted today, even in small cars, were not available a few years ago. Or were only available in the luxury class – at best. But these features cost money.

For the higher prices today, however, you not only get more extras, but also more performance and significantly more of the car itself. Above all, however, the cars have become much more durable, economical, and safer – a clear added value. Especially safety standards have risen massively across all segments. Accidents that were fatal in the 1970s usually have a mild outcome today. This positive development is certainly worth paying for.

Compact cars have become 63 percent more expensive since 2002

But how much have the prices of sold models risen exactly? JATO Dynamics has taken a close look at the development of list prices* since 2002 in two popular segments: small cars (B-Segment) and compact cars (C-Segment). We also used selected examples to compare how the size ratios of vehicles in the B and C segments have changed.

The average list prices of small cars such as the VW Polo, Ford Fiesta or Opel Corsa have risen by about 59 percent between 2002 and 2020. Whereas a model cost just over 13,000 Euros in 2002, by 2020 it had already risen to almost 21,000 Euros. Prices for compact cars rose even more sharply in the same period. In 2002, the average price for a VW Golf, Ford Focus, Opel Astra and similar models was 18,400 Euros. In 2020, it was already almost 30,000 Euros – an increase of about 63 percent.

The models with alternative drives have also contributed to this development. Looking only at the prices of models with combustion engines, the increase in the C-segment was about 56 percent.

As a representative of the two segments, we have analyzed the price development of the popular Volkswagen models Golf and Polo. Between 2002 and 2010, the average price of the VW Polo registered throughout Germany increased by 18 percent. The upward trend was even faster in the following decade with the price rising by a further 35 percent between 2010 and 2020.

What is interesting here is that there were still lower-priced variants on offer, but customers tended to opt for the more expensive ones, especially in 2020 (see chart: The size of the colored spots shows the number of registrations. The more vehicles with a certain list price were sold, the bigger the color-patch). One reason could be that private leasing is now a lot more common. A higher monthly leasing instalment for a Polo with a list-price of 20,000 instead of 15,000 Euros is possibly less of an obstacle than the difference in the total price.

The VW Golf also experienced a similar development. Between 2002 and 2010, the average price rose by 22 percent. From 2010 to 2020, it even increased by 37 percent. In addition to the reasons already mentioned for the Polo, the bestseller also has an extended range. In 2020, the compact model was also available with battery electric drive (BEV) and as a plug-in hybrid (PHEV). Both variants are considerably more expensive, but still sold well. The VW Golf was also still offered in cheaper and more expensive variants. However, buyers opted for the higher-priced models more often, which ultimately resulted in a higher average price.

Electric models drive up average prices significantly

However, the average price of registered models with internal combustion engines actually decreased slightly by 3.6 percent between 2002 and 2010. At the same time, the first BEV variant came onto the market – at a price of almost 35,000 euros. This was about 52 percent more than the average price of the diesel and petrol-engined Golf registered in 2010 and ensured the higher average price of all variants. The price of the battery-powered e-Golf fell by 8.6 percent to almost 32,000 euros by 2020. At the same time, the plug-in variant was also introduced, at an average list price of just under 40,700 euros. This caused the average price of all Golf models to rise even further. In 2020, only 79.6 percent of all registered Golf had a combustion engine (9.3 percent of which were mild hybrids). BEVs accounted for 14.8 percent and PHEVs for 5.6 percent. 

But at least customers are getting more for their money: The 2020 Polo is wider than a 2002 Golf and has become 10.2 centimeters (+ 6.2 percent) wider in 18 years. In terms of length, the Polo has grown by as much as 16.5 centimeters (+ 4.2 percent) over the same period. And the Golf has also grown considerably.

Conclusion: The price increases are in line with the usual developments in the segment. However, customers today expect more from a vehicle and are therefore prepared to pay more for it than they did 20 years ago. They mainly opt for the better-equipped and thus usually more expensive vehicles. In addition, there is growing interest in BEV and PHEV models, which is another price driver. However, it is important to bear in mind that electric vehicles are subsidized by governmental incentives. This means that the subsidy must be deducted from the average list prices. The prices paid by customers for the BEV and PHEV models are therefore lower than the average weighted list prices from the first chart.

* List prices are volume weighted. This means that vehicles registered in high numbers influence the price more than those registered in low numbers. This reflects the actual demand more realistically.

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