Monthly Labor Review • July 2008 19

Price Measures of New Vehicles

Maria Bustinza, 

Thaddious Foster, 

Tod Reese, and David 

Yochum are 

economists in the 

Office of Prices 

and Living Conditions 

and Daniel Chow is 

an economist in the 

Office of Field 

Operations, Bureau 

of Labor Statistics. 

E-mail: 

chow.daniel@bls.gov, 

foster.thaddious@bls.

gov, 

reese.tod@bls.gov, 

yochum.david@bls.gov

Maria Bustinza 

Daniel Chow

Thaddious Foster

Tod Reese

David Yochum

Price measures of new vehicles: 

a comparison

The Consumer Price Index, the Producer Price Index,

and the International Price Program all analyze price changes 

in new vehicles; however, these indexes’ movements are only weakly 

correlated because of methodological differences in sampling, pricing, 

the analysis of incentives, and other aspects of survey design 

The automobile industry is a vital and 

dynamic component of the U.S. and 

global economies. Faced with competition spurred by technological advances 

and global demand, the industry has attracted significant attention from policymakers, 

the media, unions, and businesses in the 

last several years. In the United States, the 

automobile industry employed more than 1 

million workers in 2006.1 U.S. production 

during this period was 11.4 million units,2

and U.S. consumers purchased 16.5 million 

cars and trucks. At the same time, foreign 

manufacturers with factories in the United 

States have significantly increased their 

presence in this country.3 In recent years, 

U.S. automakers have been facing restructuring, financial stresses, and competitive 

challenges to their traditional market shares. 

Furthermore, U.S. consumers, exposed to 

record high gasoline prices, are being offered a growing choice of hybrid-fueled 

vehicles. As the range of vehicle models, 

features, and options has grown, consumers 

have been gaining access to more and better information about these characteristics 

via the Internet. In this competitive market, 

price incentives offered by both domestic 

and foreign automakers to U.S. consumers 

have become the industry norm.

The automobile industry presents many 

challenges to anyone trying to measure accurately the average price change of new vehicles. Over the years, the Bureau of Labor 

Statistics (BLS) has often been asked why its 

three programs that measure changes in new 

vehicle prices—the Producer Price Index 

(PPI), Consumer Price Index (CPI), and International Price Program (IPP)—have often 

trended differently despite the fact that they 

measure the same industry. 

This article explains the differences among 

the three programs’ methods of index calculation, analyzes these differences, and elucidates the implications of the new passenger 

car price indexes. Through detailed examples, 

the article conveys how sampling, pricing, 

consumer and dealer incentives, exchange 

rates, and model year changeover with quality 

adjustments are handled differently by each 

program. This article shows that the discrepancies among the indexes are largely the result of methodological differences among the 

programs; however, the article also emphasizes that these methodological differences have 

an economic basis and are usually a product 

of differences in the scope and measurement 

objective of each index. 

Overview of recent price trends

Chart 1 offers a graphical overview of the 

Bureau’s new vehicle price index series from 

January 2000 to June 2007. Visual analysis 

of the chart reveals the striking variation in 

the behavior of these indexes. Specifically, the 
Price Measures of New Vehicles

20 Monthly Labor Review • July 2008

 Chart 1. BLS new vehicle indexes, not seasonally adjusted, January 2000–June 2007

 2000 2001 2002 2003 2004 2005 2006 2007

NOTE: PPI data March 2007–June 2007 are preliminary.

[Rebased, Jan 2000 = 100]

Jan Oct Oct Oct Oct Oct Oct Oct Jun

108

106

104

102

100

98

96

94

92

90

chart shows that the two IPP series did not experience the 

same degree of annual price volatility as the PPI and CPI, and 

that the two IPP series increased during this period while 

the PPI and CPI slightly decreased. These variations are attributable to the different measurement objectives among 

the price indexes, to the different program methodologies, 

and to the prevailing economics of the new vehicles market 

during this period. 

The relative stability of the IPP new vehicle export and 

import series can be explained by the absence of rebates and 

incentives offered to consumers of new model vehicles. The 

IPP series strictly measure prices between overseas agents, 

domestic producers, and importers. These prices do not 

reflect the price decreases used for promotions by dealerships and, therefore, they produce relatively steady monthly 

changes. The PPI and CPI include rebates and incentives, 

along with the price increases that accompany the introduction of new model year vehicles towards the latter half 

of the year, and these contribute to more volatility from 

month to month. 

Comparing the PPI and CPI new-vehicle price indexes, 

the PPI series is more volatile than the CPI series because 

its sample transitions completely to the new year’s models in October, typically resulting in a large, spiking price 

increase. The CPI’s transition to the newer models is done 

over a span of months, producing smoother increases in 

the index while the transition is occurring. The impact 

of the transition to the new models is less pronounced 

in the IPP series because it is not affected by changes in 

incentives and, as a result, does not exhibit the associated 

rise and fall of prices. 

The divergence in the long-term trends of the IPP indexes (which have increased) compared with the PPI and 

CPI (which have decreased) is also the result of the inclusion of incentives in the PPI and CPI. Because of the highly 

competitive nature of markets for new vehicles during the 

period of the study, the value of manufacturer-offered incentives hit record levels about a dozen times prior to leveling off in 2005. These attempts to appeal to the marketplace 

through lower prices mean that as the value of the incentives increased, the true prices of new vehicles fell, resulting in end-of-year prices that were lower than the previous year’s prices. Compounded, these decreases produced 

downward trends in the PPI and CPI, while the IPP indexes 

remained insulated from the competitive pricing seen at 

the manufacturer-to-dealer and the consumer levels. The 

Index Index

108

106

104

102

100

98

96

94

92

90

 PPI Passenger cars

 CPI New cars

 IPP Export Series Automobiles and other motor 

 vehicles including minivans, 4-dr speciality vehicles

 IPP Import Series Motor vehicles

 designed to transport people
Monthly Labor Review • July 2008 21

types of vehicles included in the various measures, as well 

as the number of models tracked in the respective market segments, also contribute to the trend differences. The 

IPP Import Index includes a larger proportion of luxury 

vehicles and the IPP Export Index includes a larger proportion of sport utility vehicles (SUVs), both of which are 

relatively more expensive types and models of vehicles 

and contribute to the upward trends of those indexes. The 

balance of this article explains in more detail these differences among the new vehicle indexes. 

Methodological differences among the programs

Differences in the types of prices that each program tries 

to measure contribute to a disparity in price index movement among the indexes. Chart 1 displays this disparity, 

showing that it is especially strong in the short run. The 

PPI measures the average change over time in the selling 

price received by domestic producers, the CPI measures 

changes in the estimated transaction price consumers pay 

to auto dealers, and the IPP measures changes in import 

and export prices paid at the U.S. border minus shipping 

and customs fees. Cars manufactured abroad but sold in 

the United States are in scope for the IPP Import Index 

and the CPI, but out of scope for the PPI. Cars manufactured and sold in the United States are in scope for the 

PPI and CPI, but not for the IPP. Cars manufactured in the 

U.S. and sold abroad are in scope for the PPI and the IPP 

Export Index, but not for the CPI. Before examining the 

movements of the new-car indexes, this article describes 

differences among them in sampling, pricing, treatment 

of model year changeover, quality adjustment, and price 

incentives. Such differences help explain the differences 

in the movements of the indexes and are referenced in 

the section that discusses index movements. A complete 

comparison of index methods for the three programs is 

shown in the appendix. 

The indexes chosen for this study were selected because 

the types of vehicles covered by each index are similar, 

although there are some differences. The PPI’s passenger 

cars index and CPI’s new cars index provide a similar 

comparison. The closest match in the IPP’s export series 

is Automobiles and other motor vehicles including minivans, 4-dr specialty vehicles. The IPP import series closest 

match is Motor vehicles designed to transport people.4 

Although the IPP indexes include a wider variety of vehicles, all of these indexes include cars, and the PPI and 

CPI include cars exclusively. Therefore, this article refers to 

them as “car” indexes and not “vehicle” indexes.

Sampling. The scope of the PPI includes automobile manufacturers with factories located in the United States. Every 5 

years, the pool of available manufacturers is resampled, and 

BLS representatives visit the sampled companies to request 

their participation in the survey. All of the manufacturers’ 

domestically produced vehicles are in the sample universe. 

Vehicles with the highest revenue have a higher probability 

of selection using the probability-proportional-to-size sampling technique. Selection of the vehicle options is based on 

the percentage of customers selecting an option installed on 

the model, which is known as the penetration rate. The PPI

sample is generally smaller than the CPI sample.

The CPI new car pricing area universe is the entire urban 

United States. Its area sample consists of 87 geographic 

primary sampling units (PSUs), which are urban areas across 

the Nation. The Telephone Point-of-Purchase Survey asks 

households in each PSU about their new vehicle expenditures to establish which dealerships to visit for pricing. 

Selected dealers are visited by a BLS representative to disaggregate the universe of new cars5

 sold to consumers on 

the basis of dollar volume sales in order to identify and 

choose cars for data collection from the sampled dealerships. Specifically, this is done by selecting a unique car 

make, followed by a model within that make, and lastly a 

unique trim level within the model. Given that car models tend to have various styles with different equipment, 

the trim level is used to distinguish among the available 

performance levels or equipment package options. For 

example the “EX” and “LX” are trim levels for a Honda 

Accord model. Once a trim level is selected, the dealer 

is asked to reference the invoice of the last car sold with 

that trim level in order to complete the vehicle description 

including options. The CPI sampling process usually yields 

three distinct vehicles with equipment options to price in 

each sampled dealership. In total, about 1,500 vehicles are 

priced at 500 dealerships; about half of the vehicles are 

cars. The sample of dealerships is replaced at the rate of 25 

percent each year. 

The sample of exports for the IPP is derived from U.S. 

Census Bureau data from shippers’ export declarations, 

and the sample of imports is derived from consumption 

entry documents.6 The IPP employs the probability-proportional-to-size technique to determine which companies compose the sample. After companies are selected, 

the IPP chooses individual vehicles for pricing by disaggregating according to model, trim level, and options. 

Each vehicle stratum is sampled every 2 years on an ongoing basis. This ensures that the IPP’s sample captures 

current market trends. The IPP’s motor vehicle index is 

different from both the CPI’s and PPI’s motor vehicle in-
Price Measures of New Vehicles

22 Monthly Labor Review • July 2008

dexes because it includes a broader category of vehicles.7

Comparison of the sampling methods reveals three 

distinctions. The first is the types of vehicles included in 

the samples. The CPI and PPI only include cars, whereas 

the IPP includes cars, minivans, sport utility vehicles, and 

trucks. The second involves manufacturing location; the 

CPI includes both U.S.- and foreign-produced cars, the 

PPI sample represents U.S.-produced cars, the IPP Export 

Index represents U.S.-produced cars, and the IPP Import 

Index represents foreign-produced cars. The third factor is 

the smaller sample sizes of the PPI and IPP compared with 

the CPI’s sample size. This is due to the extent of manufacturers’ participation, which determines for how many 

vehicles manufacturers will provide data and how often 

they provide those data.

Pricing. The PPI measures prices received by manufacturers for the new cars they produce and sell. The price 

data are net prices, which are prices paid to the manufacturer inclusive of the manufacturer’s discounts to the 

buyer. The PPI national office collects prices from manufacturers via a monthly survey, and the prices reflect sales 

for the Tuesday of the week containing the 13th of the 

month.

The type of price usually collected for the car index is 

a dealer net price (that is, what the dealer pays for the 

vehicle). The dealer net price reflects sales from the manufacturer to the dealer and deducts rebates and low rate 

financing given by the manufacturer. If these incentives 

are only available in some regions or on some transactions, a national average value for all sales of that model 

is calculated. Price or discount information received after 

an index is first published is incorporated into the final 

index released four months after original publication. If 

discount information is not available before the index is 

calculated, then a first-published index is released based 

on all data available at the time. Table 1 provides an example of the types of prices and price adjustments applicable to each of the price indexes and shows how they 

are used to estimate reported prices.

The CPI measures the price of a new car to the consumer at the retail level. Typically, new car prices are 

negotiated between the buyer and the dealer, so the CPI

reflects the negotiated price by estimating a transaction 

price on the basis of recent sales including markups, 

rebates, and/or concessions. Also included in CPI pricing but not included in IPP and PPI pricing are charges 

for the new vehicle’s transportation to the dealer, dealer 

preparation of the vehicle, and sales taxes as shown in 

table 1.

Prices in the CPI are collected bimonthly in most metropolitan areas. However, prices in New York, Los Angeles, 

Reported price..................................................... $18,750 $21,550 $20,600 $20,075

Prices 

 Border price................................................... (

1

) (

1

) 20,000 20,000

 Dealer net price............................................ 20,000 (

1

) (

1

) (

1

)

 Retail base price........................................... (

1

) 22,000 (

1

) (

1

)

 Transportation charge............................... (

1

) 800 (

1

) (

1

)

 Dealer preparation...................................... (

1

) 100 (

1

) (

1

)

 Optional equipment .................................. 1,000 1,100 1,000 1,000

 Subtotal............................................... 21,000 24,000 21,000 21,000

 Price adjustments

 Consumer rebate......................................... 2(1,000) 2(1,000) (

1

) (

1

)

 Low rate financing ...................................... 2(500) (

1

) (

1

) (

1

)

 Dealer rebate 2(750) (

3

) (

1

) (

1

)

 Concession..................................................... (

1

) 2(2,000) (

1

) (

1

)

 Duty .............................................................. (

1

) (

1

) (

1

) 2(525)

 Taxes .............................................................. (

1

) 550 (

1

) (

1

)

 Freight............................................................. (

1

) (

1

) 2(400) 2(400)

 Table 1. New vehicle pricing comparison

Prices and price adjustments

IPP Export IPP Import

Domestically

produced cars

PPI CPI

Domestically and 

foreign-produced cars

Cars, golf carts, 

SUVs, mobile homes, 

minivans

Cars, golf carts, 

SUVs, mobile homes, 

minivans

1 Not applicable.

2 This figure is subtracted from the subtotal.

3 Included in concession. 
Monthly Labor Review • July 2008 23

and Chicago are obtained monthly. Price data collection 

occurs throughout the entire month and is done by BLS 

representatives assigned to various dealerships. Typically, 

three distinct cars are priced in a sampled dealership. If a 

particular model and trim level was not sold in the past 30 

days, it is deemed temporarily unavailable for pricing. If at 

least one car of a particular model and trim level was sold, 

the estimated transaction price is based on sales of that car 

over the past 30 days; average markup, rebate, and/or concession are estimated. The CPI’s use of the 30-day pricing 

reference period and pricing throughout the month are 

techniques that may contribute to a lag in the reflection 

of price change that does not apply to the PPI and IPP, for 

which prices collected reflect one specific reference day. 

The concession is the negotiated segment of the consumer transaction price with the dealer; concessions are 

common, which means that consumers typically do not 

pay list price for a new car. Typically, list prices do not 

change from month to month. An example of the impact 

a concession has on a new car price in the CPI versus the 

impact it has on a new car price in the other car indexes 

is illustrated in table 1. Pricing starts with the retail base 

price and then adds transportation charges, options, and 

dealer preparation charges. Then the price is adjusted for 

additional markup and discounting due to concession 

and/or rebate. These markups, concessions, and rebates are 

all estimated on the basis of sales over the past 30 days for 

the model and trim level in question. 

Rebates and concessions are major contributors to the 

monthly CPI car price index movements. These two price 

discounts work hand-in-hand; if the rebate spikes up the 

concession may fall, and if the rebate is reduced, the concession may rise. This tends to offset the impact of new 

rebate offers. 

The International Price Program produces measures 

of price change for goods and services imported into the 

United States and exported from the United States. By 

conceptual definition, the IPP seeks to capture import 

prices at the port of entry and export prices at the port 

of exit. A variety of types of prices are eligible for inclusion, including intrafirm prices as well as trade between 

unrelated parties.

These import and export price indexes are utilized to 

deflate various foreign statistics produced by the Census 

Bureau and the Bureau of Economic Analysis. In order 

to be compatible with these measures, IPP price data are 

adjusted for duty and freight costs. As illustrated in table 

1, these adjustments are unique to these measures and are 

not used for the CPI or PPI price data. Another factor that 

applies to the IPP and not to the PPI or CPI is the use of 

exchange rates. Although the majority of manufacturers 

who trade overseas price their products in U.S. dollars, 

some traders price vehicles in local currencies. To convert 

foreign currencies to U.S. dollars, the IPP receives exchange rate conversion factors for the major foreign currencies from the University of British Columbia Pacific 

Exchange Rate Service each month. Although exchange 

rates fluctuate over the course of the month, the IPP uses 

the average monthly exchange rates from this source.

The IPP national office collects prices monthly directly 

from U.S. international traders and manufacturers. Data 

used in these indexes are collected via mailed forms or 

via the Internet. The reference date for data used in IPP

indexes is the first day of each month. The IPP revises its 

data 4 months after the initial release in order to account 

for data that were not collected in time for index calculation but have since been collected. Although the IPP collects prices on the first day of each month, late data that 

arrive within the 4 month time frame are used in calculating revised measures. Table 1 shows that the CPI and PPI

prices are subject to more adjustments than are the IPP

indexes, which helps to explain the differences in volatility 

and long-term trends among the indexes described in the 

earlier discussion of chart 1.

Model year changeover and adjusting for quality change. The 

CPI and PPI programs both began making price adjustments to account for quality changes in new vehicles with 

the introduction of the new vehicle models in 1966 (1967 

models). Every year, typically in late summer and early 

fall, automobile and truck manufacturers introduce updated models to the market. In most cases, the new cars 

are similar enough to the previous models that the prices 

of both models can be compared with each other without 

the application of an adjustment. However, if a manufacturer significantly changes the quality or functionality of a 

new car, BLS applies an adjustment to factor out the price 

change associated with the change in quality.8

The three BLS price programs use information gathered 

directly from car manufacturers and secondary sources to 

estimate the values for quality change adjustments. Each 

program follows the same basic guidelines for new model 

introduction; however, there are a few differences in how 

certain quality changes are handled. BLS places new car 

quality characteristics into five categories. All three programs make adjustments for the changes in each of the 

categories, with one exception noted in the second category. The first category includes changes in the safety of 

a car that are either federally mandated or proven to be 

effective. These include airbags, seatbelts, brake systems, 
Price Measures of New Vehicles

24 Monthly Labor Review • July 2008

seat designs, back-up alerts, and crumple/crash zones. 

The second category covers mandated changes that 

affect the healthfulness of the outside environment, 

such as emissions improvements as legislated by State 

governments or the Federal government. In this category, there is one notable difference among the programs—the treatment of mandated pollution control 

measures by the CPI. Whereas the PPI and IPP make 

quality adjustments for changes arising from air-pollution mandates, beginning in 1999 the CPI stopped 

making such adjustments. The basis for the decision 

was that price changes that derive from mandated 

product changes and that affect only public goods, like 

air quality, are essentially taxes levied on the purchasers of new cars and should be reflected as price increases in the index. This is consistent with the CPI’s 

practice of including changes in taxes when they affect 

the prices paid by consumers for market goods.9

The third category pertains to changes made to mechanical or electrical features. This category includes 

changes in steering, braking, engine efficiency, and transmission systems, among others. The fourth category includes changes in design or materials that affect the durability or strength of an item. Examples include the switch 

to halogen headlamps, to platinum tipped spark plugs, 

and to flexible body panels. 

The final category encompasses changes that affect 

comfort or convenience. These upgrades include redesigned seat belts, remote door locks, navigation systems, 

and flexible body panels, as well as changes in storage 

capacity. BLS does not make quality adjustments for style 

changes, such as pin striping or leather-wrapped steering 

wheels. Adjustments also are not made for manufacturer 

quality claims that are improvements of failed or defective components.

The quality adjustment values provided by the 

manufacturers are based on resource costs. BLS defines 

resource costs as all direct and indirect costs, including research and development, incurred in the manufacture or purchase of components and the assembly 

and installation associated with an equipment change, 

including the manufacturer’s mark-up. Resource cost 

factors into both the PPI and IPP. For the CPI, this value is marked up to the retail price level. In general, a 

quality change tends to be a small portion of the entire 

new vehicle price. Based on the model year changeovers from 2000 to 2007, the yearly average per-car 

retail quality adjustment ranged from $25 to $310, 

with an average of $125. 

Chart 1 illustrates that October is typically the 

month when the PPI and the IPP export samples switch 

completely to the new model year and in which the 

quality adjustments are applied.10 Note that the IPP

introduces the majority of the new model year export 

vehicles into the Export Index in October. In some 

cases, however, new model introduction occurs when 

more than half of the cars sold are the new model. 

Import vehicles are introduced when more than half 

of the cars imported are the new model. The introduction period for IPP import vehicles is typically August through November. The similar average October 

increase between the Import and Export indexes is 

purely coincidental given the typical 2-month interval 

between the times when new vehicles are introduced 

in each respective index. The CPI always introduces 

new models into the index when more than half of the 

cars sold are the new model. The introduction period 

for the CPI is typically from September in the current 

year to February the following year.

Although the three price programs employ different 

methodologies for introducing new vehicle models into 

the index, new model introduction generally results in 

price increases for each program. The following table 

illustrates 1-month percent changes from September 

to October for the PPI, CPI, and IPP indexes. The PPI

shows much larger percentage increases each October 

than do the CPI and the IPP indexes. The PPI showed 

an average October increase of 5.6 percent from 2000 

to 2006. 

		 	 	 IPP IPP 

 Year PPI CPI Export Import

Average.............. 5.6 0.5 0.4 0.4

 2000 ................ 6.1 -.3 .2 .4

 2001 .............. 1.4 .6 .3 .4

 2002 .............. 9.0 .9 1.0 .7

 2003 .............. 8.4 .4 .4 .9

 2004 .............. 6.6 1.1 .2 .1

 2005 .............. 3.0 1.5 .3 .2

 2006 .............. 3.5 .6 .3 .4

During the years listed in the table, the increases in 

the PPI ranged from 1.4 percent in 2001 to 9.0 percent 

in 2002. The CPI increased an average of 0.5 percent. 

During the study period, both IPP export and import 

motor vehicles increased 0.4 percent on average. The 

larger magnitude of the PPI October increases is due 

to the complete model year changeover to new models 

with few or no incentives. For the CPI, the sample of 

cars priced in October is a mix of current and newer 

model years. For example, in 2006, the CPI car sample 
Monthly Labor Review • July 2008 25

mix was 42 percent 2007 models and 58 percent 2006 

models. The newer model year cars reflect price increases, whereas the older models reflect price decreases caused by discounting to clear out the older models. 

The only exception to the October increases from 

2000 through 2006 was the slight 0.3-percent decline 

in the CPI in October 2000, which reflected how the 

CPI prices a larger portion of the older models during 

October, a month known for heavy discounts. The 1-

month percent changes for a program may be larger 

in one year than the next year because of an array of 

issues. However, the differences among the programs 

in a given year are primarily due to each program applying quality adjustments at its own time. 

Incentives. Understanding the use of incentives in the 

passenger cars indexes is important because incentives are 

responsible for most of the monthly changes in price other than model year change. Incentives are tracked by the 

CPI and PPI but not by the IPP, thus contributing to the 

differences in the long-term trends seen in chart 1. In the 

context of this article, incentives are programs offered by 

the car manufacturers to stimulate sales. The three most 

common programs are consumer rebates, dealer rebates, 

and low interest rate financing. Some manufacturers also 

provide additional rebates for specific customer segments 

such as first-time buyers, students, and the military.

Consumer rebates are provided by manufacturers as an 

incentive directly to the customer at the point of sale to 

reduce the net price of the car. Consumers normally elect 

to credit this consumer cash rebate as a down payment 

against the new car’s purchase price. Manufacturers may 

also provide cash incentives directly to dealers, known as 

dealer rebates. The dealers may or may not choose to pass 

some part of this rebate on to their customers. 

There are many instances in which customers are allowed to choose either a cash rebate or a low interest financing offer. In still other cases, customers may benefit 

from both the cash rebate and the low interest financing offer in combination. It is important to note that the 

low interest rate financing quoted in the offer is normally 

based on the top customer credit tier, and as a result not 

all consumers are eligible for this best rate.

The PPI includes consumer rebates and dealer cash rebates as well as low interest financing offered by manufacturers. Ideally, the PPI would include only the incentives 

in effect on the pricing date. However, some data may 

only be available as monthly averages for each vehicle line. 

Manufacturers provide the PPI program with information 

on their cost of providing low interest financing loans, 

the value of cash rebates, and the acceptance rate for the 

incentives. In cases when incentives are offered on only 

some vehicles for sale, such as when regional incentives 

or programs allowing the customer to choose either low 

interest rate financing or a cash rebate are offered, the PPI

program calculates a national average value for the incentives on the vehicle in question.

The CPI includes an estimated average of the consumer 

rebates available over the past 30 days for each model in 

the sample. An estimated average is used because rebate 

amounts may vary over the collection period and different 

types of rebates may be offered, such as those for the military or recent graduates. Beginning in January 1999, the 

CPI stopped measuring finance charges on vehicle loans. 

This change was made on conceptual grounds.11

The CPI is the ratio of the cost of a set of items in one 

period to its cost in another period. Financing the consumption of an item indicates the purchaser has decided 

to consume that good today by forgoing the consumption 

of other goods in the future. This “price” the consumer pays 

in order to choose current consumption over future consumption is the interest rate on the loan. Forgoing future 

consumption in exchange for consumption today causes 

the financed good to become, in a sense, a financial debt or 

liability. However, the CPI is principally focused on estimating actual consumption at retail prices in the most current 

period only; this gives a clearer picture of the cash-value 

prices consumers would pay at the retail outlet.12

Financing motor vehicles is arguably different from other forms of retail financing because vehicle financing terms 

can influence negotiations over the final purchase price. On 

rare occasions a dealer will offer “special financing” terms 

without explicitly offering a reduced price alternative. In 

these cases dealers would presumably be willing to negotiate an equivalent price concession to purchasers who either 

do not select or do not qualify for the financing deal. The 

CPI respondents are asked to provide an estimate of this 

concession.

The IPP does not include incentives in its index calculation. The primary reason is that companies providing 

vehicle price data to the IPP are principally multinational 

companies that trade from one subsidiary to another. For 

example, a sedan may be produced in Japan by a Japanese manufacturer and then traded to a subsidiary in the 

United States. In this case, it is more cost effective for one 

subsidiary simply to adjust prices rather than offer incentives, which are much more costly to implement.

Whether incentives are included in the prices used by 

the price indexes is ultimately a question of scope. The 

PPI reflects consumer rebates, dealer rebates, and low in-
Price Measures of New Vehicles

26 Monthly Labor Review • July 2008

terest rate financing because these incentives affect the 

prices producers receive for their vehicles. The CPI does 

not directly reflect low interest rate financing, but it does 

include an average of consumer rebates and dealer rebates 

in the negotiated price because these incentives directly 

affect the prices consumers pay for an automobile. The 

IPP does not include any incentives because they are not 

a factor in the derivation of prices paid at the border for 

imports and exports. 

Index comparisons 

This section examines historical index data from 2000 

to 2007 to reveal trends and statistical relationships in 

the BLS new passenger car indexes. To measure how the 

programs’ indexes diverge from or track each other, the 

indexes are analyzed using three approaches. The first approach is a graphical treatment describing the movements 

and trends across each program. The second approach uses 

qualitative explanations highlighting key methodological 

issues, industry events, and shifts in consumer demand, 

rebates, or dealer incentives. The third approach is a comparison of correlations between the data series.

Index trend analysis. As seen in chart 1, the PPI trended 

downward from 2000 to 2007, while the CPI trended 

downward from 2000 through mid-2003 and then began 

an upward trend. The PPI is characterized by relatively 

sharp monthly movements. There are visible short-term 

co-movements in both series; in fact, the evidence indicates that the two series also trend together in the long 

run but are weakly correlated. 

Chart 2, which presents the 1-month percent changes 

in the new cars indexes from February 2000 to June 2007, 

more clearly shows the sharper PPI movements compared with the movements of the other data series. The 

PPI spikes coincide with model changeover each October. 

This is followed by sharp drops each November representing the resumption of incentives offered from manufacturers to dealers. Unlike the PPI, the CPI monthly percentage movements generally stay within the 1-percent 

range. Furthermore, the CPI October percentage increases 

tend to lag behind the PPI increases in time because of the 

CPI’s gradual phase-in of new model introductions with 

less generous incentives and rebates.

As shown in chart 1, the long-term trends of the IPP 

export and import vehicle series diverge from the PPI 

and CPI series during the sample period. The CPI and PPI 

trend downward, whereas the IPP indexes exhibit upward 

trends. These divergences can be partially attributed to differences in the product compositions among the indexes. 

The IPP Import Index is composed of a higher proportion 

of luxury vehicles in comparison with the CPI and PPI 

new vehicle indexes. Recent trends indicate that import 

nameplate manufacturers (foreign firms producing in the 

United States) prefer to build lower cost vehicles in the 

United States and import luxury vehicles from overseas. 

The sales of higher priced vehicles in this market segment 

have grown each year since 2000. This demand level appears to be less elastic and has allowed import manufacturers to regularly raise prices on most import models in 

this class of vehicle. 

In an analogous trend, a noteworthy factor affecting 

export price movement during this period has been strong 

demand in foreign markets for domestically produced 

sport utility vehicles. Domestic SUV production and sales 

to both domestic and international customers have risen 

steadily from 2000 to 2007 and contributed to the longterm rise in the export price index. 

Also contributing to the differences in long-term 

trends between the IPP indexes and the PPI and CPI is inclusion of incentives in the PPI and CPI but not in the IPP.

As mentioned in the “Overview of recent price trends” 

section, the highly competitive nature of markets for new 

vehicles during the period of the study has resulted in 

substantial incentives being offered at the manufacturerto-dealer and the consumer levels, and these incentives 

are reflected in the PPI and CPI indexes. The IPP index, 

in contrast, does not include incentives, because companies providing vehicle price data to the IPP are principally 

multinational companies that trade from one subsidiary 

to another. 

Chart 2 illustrates that in the short term the IPP 

import and export indexes often exhibit differing index 

movements. These short-term differences can be partially 

attributed to differences in how new models are introduced into the import and export indexes. For the Import Index, few new vehicles are introduced over a longer 

period of time, resulting in modest index changes during new model introduction. In contrast, for the Export 

Index, 100 percent of new model introduction occurs in 

October. This produces generally smaller increases in the 

Import Index and less frequent but larger increases in the 

Export Index. 

Qualitative analysis. In 2001, the September 11 terrorist attacks on the United States and start of the war in 

Afghanistan affected the PPI. The typical October spike 

for the PPI was nearly absent due to extensive special low 

finance deals intended to offset slumping sales over this 
Monthly Labor Review • July 2008 27

period. The CPI, by contrast, which does not reflect low 

finance incentives, registered a relatively normal increase 

for the new 2002 models. The IPP also increased slightly 

because of the introduction of new models.

The PPI’s large October 2002 spike occurred as automakers 

sought to return to aggressive model year switchovers, after a 

relatively weak previous year, by raising 2003 model prices and 

offering fewer incentives compared with the summer months. 

This was followed in November by a sharp price decline of 

2.6 percent in the PPI, whereas the CPI moved up to its November peak. Both the IPP Import Index and the IPP Export 

Index rose nearly 1 percent in October 2002, reflecting the 

new model switchovers, but the imports series moved slightly 

higher at this time. This reflected an increase of approximately 

0.5 percent by the Euro versus the dollar.

The March 2003 spikes in the PPI and CPI were attributed to the start of the Iraq war, and they reflected 

economic uncertainty among manufacturers, dealers, and 

consumers. In April of that year, the PPI fell as incentives 

were reinstated. Car importers and exporters kept prices 

stable because their shipments were not affected.

In April 2004, the IPP Export Index exhibited its largest 

upward movement of the year, reflecting vehicle exporters’ 

general ability to raise prices during the year for current models. Record incentives were introduced in July 2004, causing 

both the PPI and CPI to decline substantially. This record incentives level was exceeded in September. Automakers, however, were able to quickly cut incentives and raise prices on 

new models between September and October 2004, resulting 

in the PPI’s highest level since January 2000. (See chart 1.) In 

January 2005, the PPI rose to an even higher level as manufacturers again raised prices and cut incentives.

In 2005, employee discounts were offered to all consumers. These discounts were later replaced with “value pricing”13 as another means to attract consumers. As a result 

automakers were able to clear out the 2005 model year cars, 

and this in turn contributed to the drop in the CPI prior to 

the model year changeover. Later in 2005, automakers chose 

to move up some model year introductions from October 

to September. These early model year introductions caused 

both the CPI and PPI to increase in September. The following October, however, the normally large PPI spike was 

diminished because of the shift in introduction month.

During 2006 and 2007, the new car market continued 

to be very price competitive. Demand for fuel-efficient cars 

was strong because gasoline prices remained high. The gener-

 Chart 2. Events occuring among 1-month percent changes for new vehicles indexes, February 2000–June 2007

 2000 2001 2002 2003 2004 2005 2006 2007

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

–1.0

–2.0

–3.0

–4.0

[Rebased, January 2000 = 0]

Feb Oct Feb Oct Feb Oct Feb Oct Feb Oct Feb Oct Feb Oct Feb Jun

Iraq war

begins

March

2003

Impact of

9/11,

Afghanistan

war begins

Employee

discounts

June 2005

Value

pricing

August

2005

 PPI CPI IPP Exports IPP Imports

Index Index

Record 

incentives 

July 2004

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

–1.0

–2.0

–3.0

–4.0
Price Measures of New Vehicles

28 Monthly Labor Review • July 2008

ally unchanging trend of the CPI appeared to hold. The July 

2006 PPI decline was due to summer low interest financing 

promotions, which the CPI does not reflect. In September 

2006, the PPI posted an upward movement attributed to a 

drop in incentives unusual for that time of the year. The following October, the PPI experienced greater-than-normal 

incentives offered by manufacturers to dealers on new 2007 

models, moderating the expected October spike.

Correlation analysis. Previous discussions and graphical 

analyses indicate that there are substantial differences among 

the methodologies and also among the movements of the 

new vehicle price indexes. These differences are primarily the 

result of each program’s unique measurement objective. In 

spite of these methodological differences, graphical analysis 

indicates that the new vehicle indexes often exhibit similar 

movements. Correlation analysis can be used to determine 

the degrees of similarity or difference between the new car 

indexes. If strong positive correlations exist, then the indexes 

reflect common industry dynamics despite their unique 

methodologies. Weak or non-existent correlations would be 

evidence that the differing index methods result in largely 

dissimilar data movements. It is possible for correlations to 

be spurious or coincidental, however. Strong correlations that 

persist for long periods are more strongly indicative of a true 

relationship than are weaker correlations.

The table below presents correlations between the 1-

month percent changes of the PPI, CPI, and IPP indexes 

calculated using data from January 2000 to June 2007, not 

seasonally adjusted. Statistically, the relationships between 

the PPI, CPI, and IPP indexes do not appear to be strong. 

The correlation coefficient for the PPI and CPI is about 0.38, 

which is less than the correlation between the PPI and the 

IPP Export Index (0.44) and also less than the correlation 

between the PPI and the IPP Import Index (0.49). The correlation coefficients between the CPI and IPP are the weakest. This indicates that the CPI and IPP series diverge more 

in their monthly movements than do the PPI and IPP series, 

which often use similar data.

 IPP IPP 

 Index PPI CPI Export Import

 PPI................ 1 ... ... ...

 CPI................ .379 1 ... ...

 IPP Export.... .439 .221 1 ...

 IPP Import.... .487 .053 .442 1

To further detect whether strong relationships exist 

among the series, the indexes were seasonally adjusted 

to remove regularly occurring cycles throughout the 

year that might obscure the relationships between the 

indexes.14 When correlations of the 1-month percent 

changes from the resulting seasonally adjusted indexes 

are compared—as illustrated in the following table—the 

correlations among the series are weak. For example, 

the PPI–CPI correlation falls from 0.38 to 0.08, and the 

relatively weak 0.49 correlation between the PPI and IPP

Import Index drops by more than half to 0.22 after seasonal adjustment. Evidenced by the larger values in the 

previous table, it is clear that cyclical movements, such as 

the regular October model year changeovers, account for 

much of the correlations in the not seasonally adjusted 

data. In summary, the correlations provide statistical 

evidence that significant data divergences exist among 

the car indexes but that the indexes share some common 

features. 

 IPP IPP

 Index PPI CPI Export Import

 PPI................ 1 ... ... ...

 CPI................ .083 1 ... ...

 IPP Export.... .165 .082 1 ...

 IPP Import.... .22 –.136 .25 1

THE THREE BLS PRICE PROGRAMS—the PPI, CPI, and 

IPP—all publish price indexes for new cars. It is often 

assumed that these indexes trend similarly, but this article has shown that this assumption is not accurate. A 

graphical comparison of the indexes shows differences 

in both month-to-month volatility and in long-term 

trends for the 2000 to 2007 period. The article explains 

these graphical differences by outlining the differences 

in scope and measurement objectives among the indexes. 

Where these differences in scope translate into methodological differences, the article discusses how the differing methods in areas such as sampling, data collection, 

the treatment of rebates and incentives, and adjusting for 

quality change may produce indexes that differ greatly in 

both the short and the long term. Major economic and 

political events are cited and their impact on the indexes 

is discussed. Finally, correlation analysis is employed in 

order to show that the correlations between all pairs of 

indexes are weak. 
Monthly Labor Review • July 2008 29

Notes

1

 This study uses the automobile manufacturing industry classifications 3361, 2, and 3 from the North American Industrial Classification 

System. For employment data in this industry, see Current Employment Statistics, U.S., all employees, on the Internet at http://data.bls.

gov/cgi-bin/srgate (visited July 22, 2008). To retrieve the data, type the 

code CEU3133600101 into the series id(s) box.

2 See www.census.gov/mtis/www/mtis.html (visited June 10, 

2008).

3

 For the purpose of this article, import vehicles are those that are 

built outside U.S. borders.

4

 Codes for the four indexes are: PPI Passenger cars (Commodity 

code 1411031), CPI New cars (SS45011, CPI-U, U.S. city average), IPP

Export Series, Automobiles and other motor vehicles including minivans, 4-dr specialty vehicles (HICP code 8703), and IPP Import Series 

Motor vehicles designed to transport people (HICP code 8703). 

5

 The CPI includes new motorcycles, though they represent a minor 

weight. 

6

 The IPP employs the Harmonized Classification System (by industry); BEA Classification (by end use); and the NAICS System (by industry). For more information, see the BLS Handbook of Methods, chapter 15, on the Internet at www.bls.gov/opub/hom/homch15_a.htm

(visited July 15, 2008).

7

 The IPP universe of vehicles includes automobiles, SUVs, golf carts, 

all terrain vehicles (ATVs), and motor homes. The IPP vehicle sample, 

like the PPI sample, utilizes the probability-proportional-to-size sampling technique.

8

 The three price programs follow the BLS procedures called “Guidelines for Quality Adjustment of New Vehicle Prices,” on the Internet at 

www.bls.gov/cpi/cpiautoqaguide.pdf (visited July 15, 2008). 

9 See Dennis Fixler, “Treatment of Mandated Pollution Control 

Measures in the CPI,” CPI Detailed Report (Bureau of Labor Statistics, 

Sept. 1998).

10 In instances when new model introduction does not occur in October, each price index will include the new model vehicle when data 

is received from the manufacturer. This is commonly referred to as a 

mid-model year launch.

11 “Changing the Item Structure of the Consumer Price Index,” 

Oct. 16, 2001, on the Internet at www.bls.gov/cpi/cpiwl001.htm (visited June 10, 2008).

12 Examples for which the CPI normally does not seek to measure 

interest payments include houses, items whose prices are based on layaway plans, or any other financial transaction or instrument.

13 A pricing discount is provided by the manufacturer and lowers 

the listed sticker prices; these are often offset by a reduction in dealerto-consumer incentives.

14 BLS publishes seasonally adjusted indexes for the PPI and CPI 

vehicles series cited here but does not produce seasonally adjusted estimates for the corresponding IPP indexes. Published seasonally adjusted 

data from the PPI and CPI are estimated using the Census Bureau’s 

X-12-ARIMA method. The seasonal data are subject to strict production requirements and are revised over several years. Thus, a simplified 

seasonal adjustment analysis was applied in this study to compare all 

four series. For more information on seasonal adjustment in BLS, see 

http://stats.bls.gov/cpi/cpisameth.htm (visited June 10, 2008).
Price Measures of New Vehicles

30 Monthly Labor Review • July 2008

Harmonized 8703–automobiles, SUVs, golf carts, and 

ATVs, both diesel and gasoline.

Category Producer Price Index

(PPI)

Consumer Price Index

(CPI)

InternationalPriceProgram

(IPP)

Appendix: Detailed comparison of the PPI, CPI, and IPP

Product objective Measure changes in import 

and export prices.

Measure changes in producer 

selling prices.

Measure changes in consumer 

prices.

Classification

system(s)

Calculation

Industry-based indexes are classified 

according to the North American 

Industry Classification System (NAICS). Commodity-based indexes are 

classified according to an internal 

BLS system.

Internal BLS system Samples are based on the Harmonized System (HS). Indexes are 

published on the basis of HS, Bureau of Economic Analysis (BEA) 

End Use, and North American 

Industry Classification System 

(NAICS).

Modified Laspeyres formula Hybrid Index—Laspeyres and Geometric Means 

Modified Laspeyres formula

Sampling frequency

Sample universe

Includes vehicles

manufactured

outside the U.

Every 5 years Outlet sample is updated every 

year by 20–25%

Every 2 years

All motor vehicle producers with 

manufacturing plants in the 

United States

All new vehicles sold in the U.S. for 

personal use. The geographic areas 

for sampling are 87 primary sample 

units (PSUs).

Vehicle importers and exporters 

(primarily marketing units and 

manufacturers)

No Yes, if sold in the United States Import index: yes. Export 

index: yes given item clears 

U.S. customs first.

Weighting Index divided into cells using 

census value of shipment data 

for each cell. 

Within cells, vehicles are weighted 

by manufacturer.

Reflects expenditures reported by 

households for the Consumer Expenditure Survey for the years 1993–1995. 

A 2-year rotation beginning in 2002. 

New vehicle weight in CPI is 4.983%.

Based on trade dollar values 

provided by U.S. Customs (imports) and U.S. Census Bureau 

(exports)

Vehicle discontinued Vehicles are not substituted mid- Vehicles are not substituted unless 

they are no longer available for sale.

Vehicles are not substituted midsample unless they are discontinued or phased out. 

OVERVIEW SAMPLE

Product coverage Passenger cars and light trucks 

(14,000 lbs. or less) produced in 

the United States

New passenger cars and light 

trucks purchased by consumers 

for personal use. Included are 

both domestic and import manufacturers. The number of vehicles 

in the sample fluctuates. In 

December 2006 the sample included 539 dealerships pricing 

762 cars and 729 trucks.

Transitioning to a

new model year

Transition to the new model year 

starts when the new vehicles are 

first shipped to dealers. This usually occurs in October. 

The transition occurs when the new 

model year vehicle’s dollar volume 

sales exceed those of the old model 

year for the tracked vehicle. This is 

determined separately for each vehicle at each dealer. This roll-over 

usually starts in September and can 

last 4 to 6 months. 

For exports, the transition occurs in October in some cases or 

when new models exceed 50 percent of models exported in the 

remainder of cases. For imports, 

transition occurs when over 50% 

of the vehicles are new. 

sample unless they are discontinued.
Monthly Labor Review • July 2008 31

Category Producer Price Index

(PPI)

Consumer Price Index

(CPI)

InternationalPriceProgram

(IPP)

No

Type of price collected For imports and exports: net 

prices paid at the border 

Net price that dealers pay to motor 

vehicle manufacturers. Net price reported does not include discounts or 

holdback (manufacturer’s payment 

to assist with dealer financing). Discounts are reported separately.

Price consumers pay to dealers. The 

reported price is estimated based 

on sales over the past 30 days. The 

reported price includes: base price, 

transportation charge, dealer preparation charges, options, markup, 

concession (haggling), rebate, nonsales taxes (e.g. luxury taxes) and 

sales tax.

Discounts applied

in index

Taxes

Yes. Dealer and customer incentives, including cash rebates and 

financing incentives that are paid 

by the manufacturer

Yes. Includes estimated averages for 

concessions and consumer and dealer 

rebates based on sales for the model 

in question over the past 30 days. CPI

has not included special financing 

rates since 1998.

No Yes No

Pricing frequency

Quality adjustment

data used

Quality adjustment

formula

Price used in index is the price on 

one specific day in the middle of 

the month (the Tuesday of the week 

containing the 13th).

Prices are collected throughout the 

entire month. Prices are collected bimonthly in the majority of PSUs and 

monthly in New York, Los Angeles 

and Chicago. 

First day of each month.

Change in production cost (direct 

and indirect costs plus manufacturer’s 

mark-up) due to change in quality. 

Same as PPI, plus markup to 

retail.

Same as PPI

New base price = (new price × old 

base price) ÷ (new price – value of 

quality adjustment)

Quality adjusted price = old price 

× quality adjustment factor ÷ (1 

– quality adjustment factor)

Same as PPI

Procedure used when

a tracked vehicle is

discontinued, and no

comparable vehicle is

available

Link using net prices so the index 

shows no change.

If it is an uncomparable model year 

changeover, the quote weight is imputed by the price change of other 

model year changeover quotes in the 

geographic area in question. 

Same as PPI

Obtaining quality

adjustment data

PPI detailed QA information used 

as proxies are applied. Research and 

secondary sources are also used to 

estimate other QA changes not captured in the PPI data. 

Same as PPI

PRICES

Quality adjustfor

emissions

Detailed QA data is obtained directly from the manufacturers for every 

vehicle in the sample and applied 

directly to each vehicle.

No, since January 1999. Yes

QUALITY ADJUSTMENT PROCESS

Yes
Price Measures of New Vehicles

32 Monthly Labor Review • July 2008

Category Producer Price Index

(PPI)

Consumer Price Index

(CPI)

InternationalPriceProgram

(IPP)

Same as PPI

Types ofindexes

published

BEA auto includes: autos, SUVs, 

golfcarts. 

BEA trucks include: light and 

heavy duty.

Indexes by industry and by commodity. The motor vehicle index 

includes indexes for passenger cars, 

light trucks (14,000 lbs. or less), 

motorcycles, and heavy trucks.

New Vehicle Index

 New Cars and Trucks Index

 New Cars Index

 New Trucks Index

Prices notreported

by deadline

Revision period

Prices not reported are estimated 

by cell relatives; that is, their movement is estimated to be the same as 

that of the weighted average of all 

valid prices in the cell.

The quote weight is imputed by the 

price change of the other new vehicle quotes in the same geographic 

area.

Final index is published 4 months 

after first published index

None. Indexes are final when published.

Final index is published 3 months 

after the first published index.

Regional data

published

Seasonally adjusted

data published

No Yes, by region and city No

Yes Yes No

INDEX