So did our incomes crater or did cars get more expensive or both?
Cars are definitely more expensive because of the things we have mandated that they have. A car from the 60's and before is dead simple to work on. They are inefficient, belch pollution, they don't handle well, they don't crash well, they beat you up if you drive a long way, but they were relatively cheap. We've mandated efficiency, cleanliness, crash-worthiness, etc. The consumers now want handling and ride quality. This all costs money. Have you seen the $7000 car called the Elio? We can make cheap stuff, too, but the question is whether or not we will buy it. So yes, cars are more expensive than they were, but they also are a lot more than they used to be.
Here's another thought. How much did dear old dad pay for:
Internet, computers, cell phone, health insurance, private schools, retirement, etc.?
How much time off did he get(2 weeks/year, maybe)? How much overtime did he work(a lot)? How big was the family house(small)? How many TV's did he have(1)? How many cars did he have (2, and one is a hot-rod he doesn't drive)? What kind of beer did he have to drink(Blatz)?
My take is that real wages have stayed pretty much the same for the last 40 years or so. We have (often unconsciously) chosen to spend our money in different ways.