[carefree-bob]

It's not the size of the car per se, but the vast amount of technology and features crammed into the car that drives up the cost. An old VW bus could fit a lot of people, but was still produced cheaply compared to production costs today. That old bus had no self-driving, no power windows, no lane assist, no anti-lock brakes, no automatic transmission, no infotainement center, no air suspension, no automatic seat adjustments or backup camera, no soundproofing, no heads up display, no A/C, it didn't beep when something was in your blind spots, it had no crumple zones or other safety features. I'm not even sure if it had a catalytic converter. Just think of the huge number of electrical computer modules and the hundreds of miles of wiring, the millions of lines of software code. And those computers need to work in the Arizona heat when you park your car in the sun, even though you might fry a consumer grade laptop if you left it in the same car.

That's why smaller cars aren't that much cheaper. They are still crammed with all these features.

The BLS measures inflation which requires making the much maligned hedonic adjustments, which is basically saying things like "the new widget holds twice as much memory" or "this car also has an airbag". For automobiles, they look at production costs, and when you take production costs into account, cars aren't that much more expensive in real terms today. We just cram so many features into them now.