Cars! Why is the average European car more expensive than an American one?

Abstract

The purpose of this paper is to investigate the myriad causal effects that leave the end price quotes of european manufactured automobiles at a higher amount than that of american automobiles. Throughout this investigation, two underlying constituents that contribute to these price discrepancies come from the differences in fuel usage between european and american automobiles and the fluctuations in exchange rate currency values between the U.S and the E.U. While in Europe diesel is the primary source of fuel for cars, gasoline is what powers the majority of automobiles within the United States. Economist Frank Verleger Jr. in his article states that the “dieselization” of the European automotive industry has developed the most elementary aspects of car engine efficiency in regards to fuel usage. A statement that is further expounded upon in Financial Advisor Joseph E. Gagnon and Economist Michael M. Knetter's article comparing the smaller engines of E.U. auto brands with the larger engines found in American ones. The differences in these few key aspects with which auto manufacturers in the U.S. and E.U. predicate their car designs on provide for stark contrasts in overall quality, performance, and durability between American and European autos. These contrasts are then highlighted with the superior currency value in the euro further counterbalancing the end price quotes between american and european automobiles. Price quotes that are affected by “PTM” (Price To Market) tactics as economists Frank Verboven and Pinelopi Goldberg authored an article explaining domestic strength in European consumer markets allows Euro auto producers to price their items even higher in addition to exchange rate shifts. It is with these principle aspects and other stereotypical notions that this paper seeks to argue why European auto brands are priced much higher than American ones.