Advertisement

Analog Angle Blog

Are electronics driving car costs too high?

If you have looked at new cars lately, you’ve seen that their prices have increased significantly in the last few years. According to reliable data (see References), the average new car sold for more than $36,000 in February 2018, up 29 percent from the same month in 2009. Used-car prices, which are roughly correlated to new-car prices, have moved up right alongside their new-vehicle counterparts, increasing by an impressive 36 percent to $24,499 in 2018 from $17,980 in 2009. Both increased rates are higher than the general rate of inflation, of course. Further, car loans now average about six years (with many at seven) in contrast to the traditional three-to-five-year period (Table 1).

car finance data
The basic car-related “financials” tell the undeniable story: monthly payments have gone up even as loan lengths have also increased. (Source: Edmunds)

 

I am normally very skeptical of using “averages” for assessing trends, as this simple statistical calculation can easily obscure important details; in this case it’s probably a reasonable marker. Also, although I tend to ignore most trend-related stories since they are based on anecdotes, estimates, guesswork, and erratic surveys, I make an exception for numbers related to cars. The reason is that most data related to cars is fairly solid, as nearly everything related to the car technology, sales, and financing is formally reported and made public, and there’s detailed data available through registrations, while any gaps are fully researched by the many research firms that analyze the auto industry.

What accounts for this dramatic rise in car pricing? It’s more than just updated appearance (Figure 1) or increased manufacturer margins (if that is even the case). Although it would be nice to point to one primary cause, it’s not that simple (it rarely is, despite what some pundits like to say).

cars over time
Figure 1. Much more than just the outward appearance of cars has changed over the years; what’s underneath the hood and body is also dramatically different. (Image source: Piximus)

First, cars have gotten much better with respect to both initial quality and long-term reliability. For example, you don’t see many “rust buckets” out there due to improvements in metals, processes, and finishes, nor do you see as many cars broken down on the road. This is not just anecdotal; for example, the aggregate data from tens of thousands of cars as reported by readers of publications such as Consumer Reports provides solid evidence. (The late, much-missed Bob Pease kept a log of which cars he saw broken down on the road. In his last years the list got shorter and shorter, he remarked in one of his columns, which I can’t locate now.)

Also, there are emission-control mandates and safety features such as rear-view cameras, tire-pressure sensors, and more; you can make your own extensive list. There’s more on the way, too, as there’s regulatory activity and a preliminary agreement to outfit cars with some sort of scheme to detect if a child has been left in the back seat (the nature of this system is still unclear, as is whether it will have the same basic form across all cars). Many of these features are lumped under the term ADAS (advanced driver assistance systems).

Finally, there are many convenience, comfort, and connectivity features that owners and passengers have come to expect and demand, such as power windows, doors, and seats; air conditioning; entertainment apps; connectivity; and more—again, you can make your own list. Call it feature creep: enhancements such as power windows were only available on higher-end or fully loaded mid-range cars just 20 years ago, but now they are pretty much standard.

Whether you regard these many enhancements as worthwhile due to the safety considerations, or nice to have or even must have, isn’t the point. It’s that adding all of these, whatever the reason, does add to cost. Even though electronics have gotten less expense per function, the cost curve is bending up, partially because so many of these are being added.

Further, there’s an aspect that’s not obvious to those who only think of declining cost/digital function. Yes, prices of digital gates and ICs have dropped dramatically due to process improvements, smaller feature size, and larger wafers. But many of these car-related enhancements are also heavily dependent on sensors and analog circuitry, and those—especially the sensors and transducers – haven’t scaled down in cost as quickly as digital-only ICs have. Plus, actuators and motors (a typical new car has several dozen) don’t follow Moore’s “law” and their support circuitry (power supplies, gate drivers, MOSFETs, and protection circuitry) also bring added costs.

Despite the sharp increase in new-car and used-car pricing, there’s some associated good news which may, in fact, be partially due to the increased initial cost. The average age of a car on the road—termed VIO for vehicle in operation by the industry—has also gone up identically, to 11.8 years in 2019 from 8.5 years in 2005. This is apparently due to the improved reliability and the longer loans. Again, averages can lead to simplistic results, as there are plenty of people who “trade-in” after 4 to 5 years, and many who keep their car going until it falls apart.

A fascinating and depressing article in The Wall Street Journal looked at people who purchase new cars before they have paid off the loan on their existing one, “rolling over” their outstanding balance into the new car’s loan so they may owe $40-$50K in aggregate or more on a $25-$35K car. This doesn’t end well, of course, as the new car is repossessed, and they often have to declare bankruptcy as well.

What’s your view? Are we adding so much electronics-related “good stuff,” whether mandated by well-intentioned safety and pollution regulations or simply for comfort and convenience, that we are setting the industry up for a major fall when things get a little tougher out there? Or are these enhancements worth it as cars last longer, so the cost of ownership per year is actually more tolerable? Is there a place for a basic reliable vehicle without all these add-ons, or is the nature of the consumer and vendor business model such that it’s just not viable, except perhaps for a very small segment of buyers? Are there other significant factors driving car pricing beyond the electronics?

References

  1. IHS Markit, “Average Age of Cars and Light Trucks in U.S. Rises Again in 2019 to 11.8 Years, IHS Markit Says
  2. Edmunds, “New Vehicle Prices Climb to All-Time High in December
  3. Edmunds, Insights and Press Releases
  4. The Wall Street Journal, “A $45,000 Loan for a $27,000 Ride: More Borrowers Are Going Underwater on Car Loans
  5. U.S. Department of Transportation, Bureau of Transportation Statistics, “Average Age of Automobiles and Trucks in Operation in the United States

Related content:

3 comments on “Are electronics driving car costs too high?

  1. Measurement.Blues
    December 3, 2019

    Good timing for this article. Thanks Bill.

    I recently bought my first car that has Bluetooth, model year 2017. So far, I’ve managed to get my phones connected to the car and can play music from the phone. The car has a navigation system that may or may not be better than using Google Maps. While stuck in Boston traffic , I tried both for the same destination. Google said take the interstate while the car said take the streets. Estimated time differed by one minute. Not yet trusting the car, I went with the interstate.

    Next day, I figured out how to get the car to see my phone’s address book. (Does that mean the car used the phone to send all my contacts to a foreign country or some marketer?) After that, I tried the hands-free dialing. It worked, but to get there, I had to wait for the car to give me it’s entire list of things you can control through voice. Getting sick of that, I told the voice to shut up. It didn’t.

    I will eventually figure it all out. That will be the easy part. The hard part will be getting the rest of the family to learn to use the car’s features. Mass. recently passed a “hands off” law that has yet to go into effect. We’ll see how that goes.

    The hard part for me is remembering to connect the phone to the car before heading out.

    The car needs another feature to save me from myself: It needs to remind me that I’m about to leave the phone in the car.

    I do like the blind-spot sensors, but you can’t get complacent and rely on them totally. An LED lights up when a car is detected in the blind spot and you get a beep if you turn on a turn signal when the sensor is detecting a vehicle. The sensors help, but are no substitute for looking around. It won’t detect an oncoming bicycle when you pull out of a parking space. In fact, the blind-spot sensors work only when the car is traveling over 20 mph (30 km/h).
    The car does not sense when you drift out of a lane.

  2. Tucson_Mike
    December 9, 2019

    Great article Bill
    Of course the component vendors applaud this feature rich trend and devote considerable staff to support it. For myself (being a bit of closet luddite) my dream is an affordable EV down the road that is electronics lite. I predict a market for “unconnected” transport might emerge at some point (do we really need your car communicating constantly with opaque software vendors) lightening up the cost and anxiety burdens. I am not optimistic, but maybe Volkswagon will come thru here.
    The other obvious backstory (for us, front story for those involved) is what happens to the aftermarket repair infrastructure?

  3. sixscrews
    December 10, 2019

    Great article.
    I worked in auto repair back when VW beetles, leaded gas, rust and broken cars were common and, yes, reliability has improved greatly in 50 years.
    However, the corresponding factor, repairability, has not. Many older vehicles suffer from what I call ‘electronic rot,’ throwing often spurious check engine warnings, lamp failure messages and TPMS messages, among others.
    Troubleshooting these can get very expensive, especially as many require a visit to the dealer whose techs, in my experience, plug in a diagnostic console, read the messages it gives then throw new parts at the problem and hit you with a large bill for a problem that, often, is not fixed.
    As a result drivers become inured to error messages so when a real problem occurs they may not react in time to prevent damage to the vehicle or a crash.
    In addition, the cost to repair a vehicle after a crash or, in some cases, minor damage to bumpers, outside mirrors and other external components tied into blind spot, back-up proximity, lane deviation, emergency stopping and other systems can run into four or five figures.
    Besides the ADAS learning curve Measurement.Blues points out, I have read articles mentioning problems some ADAS-experienced (or dependent?) drivers have when operating a vehicle without an ADAS suite.
    But, all in all, I would rather own and drive a vehicle made in the past 20 years than one I worked on 50 years ago.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.