11/30/2005

New vs Old

I don’t know about you, but I have NEVER owned a NEW car. I think that my parents have purchased only one car new and that car was the family car that we drove for 13 plus years until someone broadsided my Mom when she was making a routine trip to the grocery store. According to this article new cars seem to have problems just like older cars, according at least to a sample of AAA where of 79,000 cars about 5,000 were brand new. I have owned my car now for 4 years, it is 10 years old with average miles and I have yet to make a major repair. Keep on truckin’

2 comments:

Dr. Tufte said...

The depreciation on used cars drives people crazy, but it is often misinterpreted.It comes about from two sources.

1) Once you drive off the lot, you have asymmetric information about how you treated the car. This creates an adverse selection problem, where a potential buyer is probably not going to offer you as much as the car is worth. Used car dealers face the same problem.
2) At least with American auto makers, a problem has been the flood of cars produced and sold at low margin to rental car agencies. When these cars enter the used car market they further depress prices.

Dr. Tufte said...

-1 on Blake's comment for poor grammar.

The point that you made about it costing the same over your lifetime to buy used or new cars is called arbitrage. We should expect it to hold just as well with cars as with other assets.