Automakers consider a variety of factors when determining the value of a car, besides considering the cost of production. They conduct market analysis, consider similar models, purchasing interests and trends, and other factors.
It’s just basic economics. Car companies set a price such that it is not too high to discourage sales and not be too low to balance profit and operating costs.
Automobile companies manufacture different models every year. They produce new models to compete with their old models as well as with other brands. For example, if Ford reduces the price of one of its models, say a B-Max, there may be a negative shift in the demand curve for other Ford models as some would choose the B-Max over other products.
Larger and luxurious cars command higher prices due to their sizes and special features. As a model gets older, you’ll notice that its price begins to reduce. This reduction in price is a result of a drop in manufacturing costs with a reduction in the tooling and engineering costs. The price is then reduced to make the product more appealing and increase sales volume.
An increase in the production rate per period can also cause a reduction in the cost of production. This can mean purchasing bulk raw materials and components at discounted rates, using automated machinery, and more efficient use of labor. This reduction in production cost per unit can lead to a reduction in car prices per unit.