Explaining A Price Increase

[cabinetman]

One of the car magazines is doing a 50 year commemoration.. The then General Motors Chairman James Roche attempts to justify an increase in costs from 1967 to 1968 models: "We did not say then and we do not say now that the shoulder harness was the reason for the increase. The cars should have gone up substantially more than the $22 as a result of the increase in material costs and as a result of the addition of the shoulder harnesses which obviously cost money to add to the car."

Wow...have times changed.

[sparkeyjames]

I love it. This is of course when the price of a HIGH end model rarely approached $8000. With the average being somewhere in the neighborhood of $3500. That's cars from GM Ford and Chrysler in that time frame. I was only 8 years old at that time though.

[cwsmith]

Pricing is relative of course, but some things just seem to be way out of bounds. My first four cars were all purchased brand new and I've only owned a few cars over the years, making them stretch to the maximum.

Here's some prices:

1965 VW 1200 (Beatle). Loaded, "kid vinyl" seats, white walls, AM radio, seconday "gas" heater Price delivered: $1856. Financed at $56/month, 36 months w/$400 down. Total mileage at end of three years, 93 K. Trade in value, $1000. (Minimum wage was $1.25 - purchase would take 1,485 hours.)

1968 Plymoth Valiant 200. Slant Six engine, automatic, up-size wheels, AM Radio - 5 year/50,000 mile warranty standard. Price delivered: $2600. Financed at $60/month 3 years. Total mileage over 10 years 74 K. Gave to my brother. (Minimum wage was $1.60 - purchase would take 1,625 hours.)

1976 Mercury Monarch - 302 V8, automatic, A/C, power steering, brakes, AM/FM Radio, deluxe interior package. 2-year warranty. Price $4900, cash. Lasted only 7 years, 62 K. Trade in value $0. Rusted so bad it wouldn't pass inspection. Junked! (Minimum wage was $2.30 - purchase would take 2,130 hours.)

1984 Toyota Tercel Wagon. 4-spd, AM/FM Radio, A/C. Price $8400. 2-year warranty. Drove for 14 years, 86,000 miles. Sold for $800, still being driven by 2nd owner. (Minimum wage was $3.35 - purchase would take 2,507 hours)

1991 Plymouth Grand Voyager, (90-day warranty) purchased used with 88 K miles in 1998. Price $5000, cash. Driven for 9 years, adding 72 K. Dumped for parts, $150. (Minimum wage was $5.15 - purchase would take 971 hours)

2006 Dodge Grand Caravan (original warranty 2-years, transferable), purchased used w/26,409 miles last month. Total price $13,980 delivered. $230/month, 60 months. Future: Hopeful. (Minimum wage was $5.85 purchase would take 2,390 hours)

Of course this doesn't count maintenance, but as I recall, our total out of pocket (purchase plus maintenance) over the years has been less than what a medium priced SUV would be today.

It is funny (at least to me) that in 1965 I could buy a new car for less money than I could buy a good quality lawn tractor today. Also noteable is that the warranties have withdrawn from what they were in 1968. (Well Chrysler's new warranty in 2008 is better!)

Edit: I went back and looked at the minimum wages at the time and figured the hours it would take to make each purchase. I excluded the wage taxes to simply the math. Now, all of these cars were pretty much on the lower end of the scale and of course the last two vehicles were "used". I should add that a 65' VW was considered to be a decent quality automobile, say compared to a Ford Falcon, Pontiac Tempest, or Plymoth Valient of the time.

CWS

[Tom Slick]

Of course the median houshold income in 1968 was $8600.

I love the way the price increase was justified. amazing how much lack of safety features there were back then.

[Tequila]

Here's an inflation calculator from the BLS. It shows that in today's dollars, that 1965 beetle was only a little cheaper than the 2006 Grand Caravan.

http://data.bls.gov/cgi-bin/cpicalc.pl

[cwsmith]

Interesting. According to the BLS data (and I believe it), the 1965 minimum wage of $1.25/hr would be worth $8.25 in 2007 buying power. The problem is that the 2007 minimum wage is $5.85. Even in 2009 when the minimum wage is supposed to be raised to 7.25, low-end workers will be behind.

I never attempt to look at the $$ wage, in itself, as being important. It's what you can buy for that dollar. Basically, the buying power of U.S. workers has been constantly falling for the last forty years.

I know we often hear ourself talking about "slave labor" wages in many countries, but that's not always the case. It's not the wage, but what you can buy with it.

Back in 2000, I had a young man from Moscow visit our plant and I was responsible for coordinating his training and his 6-month stay here. On the very first day, I took him to the local Wegman's to show him where he could buy his food (we had gotten him an efficiency apartment).

Immediately noticed his look of shock... and of course I took it as "awe". Afterall, we here in America have much to be proud of, and surely he would be most impressed. The more we walked around the more disturbed he seemed to be. Finally I asked him what he thought... and to my shock, he exclaimed, "These prices are horrible, how do you afford to buy food here!" I explained that it wasn't what it cost in money, as much as it was how long one had to work to earn it. He countered that Moscow prices were much, much cheaper.

A month later, he came to my office very upset... apparently he just got his phone bill. He showed it to me and exclaimed that this could NOT possibly be correct.

I looked at it and there was the installation charge as well as several phone calls to Moscow. I basically said, "My friend, what did you expect, this is very reasonable... you had several calls to Russia!"

His response was that it was "MUCH TOO LOW", he expected it to be several hundred dollars and expected his phone to be disconnected if he did not pay the proper amount.

We called MCI and confirmed that the charges were indeed correct. When he hung up he grabbed me by the shoulders and exclaimed, "I LOVE AMERICA!... you can talk on the phone for nothing, but you can't afford to eat!"

(Of course that was only in Moscow... much of the other areas of Russia, I am guessing were probably terrible.

Point is that while we like to think that we have the best of everything, that is not always the case. Overall it probably balances out, but somethings here are quite expensive and the buying power on the low end of the income bracket, are simply not keeping up.

There are many examples of course (on both sides of the argument), but take just one item... Bread! In 1965, a loaf cost 20 cents. For the base minimum wage (excluding withholdings), you could buy six loaves. Today, bread from that same manufacturer, costs $2.00 a loaf. At today's minimum wage you can buy only 2 and a half loaves. In 1965 that bread was fresh, delivered the same day from a local plant. Today, it is at best three or four days old, has a "best by" date of almost two weeks, and comes from a central plant 200 miles away.

Things do change.

CWS

[LCHIEN]

the problem with minimum wage

the problems with minimum wages that is often stated, is that it sets a price on that which in an otherwise open and free market would be at market prices.

There are some people whose work is only worth $5/hour and if the MW is set to $7.25 then one of two things will happen, either that person will be unemployed or if the work is absolutely needed to be done and all the workers are arbitrarily priced at $7.25 then there will be inflation of prices devaluing their wages until the workers get what they are worth.

It follows as a corrollary that if prices don't rise as they must then the other, better workers earning $7.25 will have no incentive to work harder.

I hope this is not considered politics, just plain old economics.

Other things in the old to new calculation are just not comparable as CWS stated. What do we pay in monthly "communications" fees? I have most conveniences but stay on the low side... Home phone, internet, cell phones for every family member, cable TV. Add in Sat Radio, Tivo, and other electronics services; what did we pay for these things or the equivalent in 1960? I don't see how you can compare.

[Tequila]

Other things in the old to new calculation are just not comparable as CWS stated. What do we pay in monthly "communications" fees? I have most conveniences but stay on the low side... Home phone, internet, cell phones for every family member, cable TV. Add in Sat Radio, Tivo, and other electronics services; what did we pay for these things or the equivalent in 1960? I don't see how you can compare.

The BLS data is meant to be a general measure of buying power. There are more detailed reports on specific sectors, like food, durable goods, etc. They come up with the numbers by comparing the price of a "shopping cart" full of goods over time. The items in that cart do change over the years - there obviously wouldn't have been anything comparable to internet services in 1960, but I'm sure some old timers here can think of things that they had to spend money on in the 1960's that aren't even around anymore.

So no, you can't compare today's cellphone bills directly to 1960, but you can compare the things that were around then to similar things now in a more general sense.