Indexes of Retail Prices of New Cars-Consumer Price Index

Abstract

TH automobile has maintained its position as the most important consumer durable good in the United States economy for a considerable period of time. In shopping for a new car, the consumer has often found it difficult to obtain the exact market price. Although Congress passed legislation in 1958 that required that the list or retail price suggested by the manufacturer be prominently displayed on each new car until it is sold, new cars seldom sell at list price. Moreover, few dealers offer identical percentage or cash discounts to all prospective buyers, different salesmen at a particular dealer often quote different prices to the same customer, and there are differences in prices quoted by different dealers. Many dealers will lower the original asking price when the consumer engages in bargaining for a reduced price. The Bureau of Labor Statistics (BLS) has recognized the fact that consumers allocate a sizable share of their disposable income to the automobile and has included automobile prices as an integral part of the Consumer Price Index (CPI). Since the consumer has difficulty in gaining knowledge about market prices for new cars, it should be interesting to view the methods by which the BLS collects this type of data. In analyzing the price information gathered by the Bureau for the CPI-U.S. City Average Indexes of Retail Prices of New Cars, three main questions should be considered: Is the method for collecting prices of new cars adequate? Is the sample size adequate? Is a similar product being priced over time? The major purpose of this report is to investigate the method of data collection and to suggest modifications if they seem warranted. A brief description of the sample used by the BLS and how the Bureau deals with the problem of similar products is treated first.