Friday, June 25, 2010

Why Do Cars Cost So Much?

This connects to a site and group that I'm in the process of developing (slowly since I have other projects higher up the list), suggesting that it should be possible to profitably build and sell a safe, reliable car in the US that retails for less than $5,000.

I was just reading a letter about a $4,000 car that GM was developing last year, but only to sell outside the US. The requirements imposed by the Federal Government, it is said, make it impossible to sell a car at such a low price here.

And, to a certain extent, this is true. But the auto makers are padding the statistics by overstating the cost of the government's requirements as well (and now that the US Government owns a substantial amount of GM, this is unlikely to change). I mean, if you really think about the technology, labor, and physical material that goes into these systems, they really shouldn't cost nearly as much as they do.

For instance, I can walk into my local Home Depot and get a 5,000 BTU air conditioner that will easily cool a small bedroom for about a hundred bucks. A small bedroom is 960 cubic feet of space. A small car contans less than 50 cubic feet of occupant space. So why does an air conditioner for a car cost over a thousand dollars?

And then why should we believe an automaker that tells us that the airbag systems required by law add $1,000 to $1,500 to the cost of a car? Why does this component cost so much?

While the rest of new technology has plummeted in price, especially in inflation-adjusted dollars, the cost of technology used in cars has remained high. Is this a matter of necessity? Or is this just because auto makers can get away with it?

Just as I've said that an electric car that is practical and affordable will not come from any car company you already know, a truly affordable low-end car will come from out of left field. It will be a tough fight, against the power of the entrenched automotive industry (remember the Tucker!), and it will only be won if American consumers demand it.

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