1996 was a big year for minivans. While modern minivans had been around for about a decade by that point, 1996 marked a turning point. That year Dodge introduced what is referred to as the “third generation” of its Caravan, and it won Motor Trend’s car of the year award. That’s the first, and only time, that a minivan ever won this award. If you drive a minivan today or see one on the road, you are seeing the look, style, and features that were first introduced in 1996 (interestingly, that year also seems to have marked the peak in sales for the Chrysler family of minivans).
If you wanted to buy the cheapest possible Dodge Caravan in 1996, you would have paid about $18,500. You could always pay more for more features, as with any car, but if you wanted this “car of the year,” and you wanted it new and cheap, that was what you paid.
Dodge continued to produce the Caravan for the US market until 2020, when it was discontinued in favor of other nameplates (though it still lived on in Canada). In 2020, the base model Caravan was about $29,000 (and now only available in the “Grand” version, an upgrade in 1996).
Oren Cass has used the prices of these two minivans to make a point about price indexes, quality adjustments, and affordability. If you look at the raw prices, clearly it is more expensive. But the consumer price index tells us that the price of new cars was flat between 1996 and 2020.
So what gives?
Well, the CPI (and most price indexes) adjust for the quality of goods. The Caravan costs $10,000 more than 1996, but (say the price index adjusters) it’s got about $10,000 more in features. In Cass’s words, it has more “widgets and heated seats.”
I think that, first, it is useful to look at what those extra features were. There are plenty of widgets, but the base model (SE) Caravan did not include heated seats. For that you had to buy the highest level of trim (SXT) and pay for the optional “Driver’s Convenience Group” package. The family buying the base-level model was not paying extra for heated seats.
So what were they paying for? Let’s compare with the clear upgrades from that famous 1996 Caravan. First, you are getting a V6 rather than 4-cylinder engine. If you think this is merely a frivolous upgrade, ask the mother trying to merge onto the highway with this 5,000-pound beast.
In 2020, air conditioning was a standard feature. I know this may shock us today, but even in 1996 (car of year!), in the base and mid-level Caravan, air conditioning was an optional feature. It was only standard in the highest trim level (LE) in 1996.
The 1996 base-level Caravan only had 5 seats. Yes, we think of minivans as 7 (or 8!) passenger vehicles today. And 7 seats are standard in the 2020 Caravan. You could upgrade to 7 seats as an option, but the base level only had 5 seats. The point of the minivan is that it’s supposed to be big enough to haul around your family and all their stuff, but even mid-sized sedans seat 5 people!
There were some upgrades that we might see as not-totally-necessary. Take the sound system. The base model 1996 Caravan only had an AM/FM radio. That’s it. Want a cassette? That’s optional. The 2020 model has a very nice sound system, with CD player and Sirius XM radio. But hey, that’s just luxury.
What isn’t a luxury is the safety features. By 1996, front-seat air bags and anti-lock brakes were already standard, so that model did have some modern safety features that the 1980s versions did not. But by 2020, there were many more improved safety features, including “advanced” air bags, side-curtain air bags, back-up camera, blind-spot monitoring, and tire pressure monitoring. Some of these safety features are due to regulation, and I won’t make the broad claim that they all pass a cost-benefit test. But the bottom line is that this thing is loaded with safety features. Not just heated seats.
Given all these improvements, including useful features, safety features, and some luxury features, surely this vehicle must be harder for the typical family to purchase? But no!
Using Cass’s preferred income measure, median weekly earnings for men 25 and older, it would have taken about 31 weeks of work to purchase the 1996 Caravan. By 2020, it only took about 26 weeks of work. It actually got cheaper, in real terms! Without any quality adjustments! If we use a broader set of workers (including women and young workers’ median earnings), the drop is even larger, from 38 weeks in 1996 to under 30 weeks in 2020.
But wait, there’s more. A typical family is not going to pay cash for a minivan, not in 1996 and not in 2020. Families don’t typically have half a year’s income saved in the bank. Instead, they will finance the vehicle. In 1996, interest rates for a 48-month car loan were around 9 percent. In 2020, they were down to 5 percent. This is a huge difference.
Financing the 1996 Caravan at 9% would give you a monthly payment of $460, or about 19 percent of your 4-week income. Financing the 2020 Grand Caravan at 5% would cost about $668 per month, or just 15 percent of your 4-week income. That’s a lot of your monthly budget left over to spend on other things like healthcare and education (which are more expensive, though probably not as much as you think).
All things considered, the 2020 Dodge Caravan was both cheaper (in real terms!) and much improved over the 1996 “Car of the Year” version. And not just widgets and heated seats.
Economist Writing Every Day 