quote:
Originally posted by Gary Allan:
I don't quite buy the depreciation component of your model. Cars are losers in that respect. You don't know the true depreciation of a vehicle. The market determines that ..it's not like a house at tax time. Cars cost money ..period. Their price new is determined by the manufacturer ...used by the market's perception of them. Other than something like a 500SL, where it was worth $20k more delivered than what it was ordered at ...they're all losers.
The $10,000 example was straight-line depreciation, and the $1600 calculation was a levelized payment series for the 'cost' of the $10,000 vehicle given an interest rate of 10%.
The underlying assumption is that if you didn't spend the $$$$ on an extra vehicle, you would have that money available to invest in a portfolio of investments yielding 10%.
It is a pretty simple calculation actually, if you own a license of Microsoft Excel, merely type this formula in:
=PMT(10%,number_of_years,purchase_price)
Obviously if you buy a new car for $20,000 and it has a service life of 20 years, then the calculation would be:
=PMT(10%,20,20000)
Which should return a value of: $2349/year
As for your comments on market-based depreciation, the underlying assumption above is that you will keep the vehicle for its entire life. Market based depreciation is a market-signalled approach to the determination of remaining utility in an asset, often discounted for uncertainties such as questions concerning maintenance, abuse, odometer rollback/tampering, and other risks not explicitly govered by a warranty or guarantee, etc. Also other factors cause an increase in the discount rate, for example, relative fuel efficiency -- a reason why diesels hold their value so well.
If you keep a vehicle for its entire service life, you really do not need to worry about depreciation.
quote:
That being said, there's little common economic sense to a "spare" vehicle. It's merely a component of time/hassle/convenience ..which you pay for up front instead of dealing with the consequences of not having one (rental, carpooling, etc.).
Exactly. Well, there are some circumstances where one would exceed that theoretical 'hurdle rate' as calculated above. For example, if fuel was $4/gallon, it would make a lot more sense to have that second efficient vehicle than to drive the primary vehicle more often.
quote:
utility. Same with turbos ...whatever. If it was as simple as economics ...everyone ..well maybe 99% of the public would be driving new or used Honda's.
Well, I threw the math out to the forum just to illustrate an approach one could use to evaluate the true economic benefit or cost of having an extra vehicle.
quote:
It then comes down to "choice". The user who is going to own a 4wd full size pickup may be well served economically by owning a 25 mpg beater as a daily driver. The two car daily driver (newer) houshold may be well served to drive economical new vehicles for their long commute and still keep the paid off minivan for its expanded utility on the weekend where their econoboxes can not fit the family (Christmas trees, groceries, etc.).
I won't deny anything you say, but every "choice" has a set of costs associated with it.
quote:
Bottom line economic models totally ignore the religous component of transportation and the price people are willing to pay for "having".
But they still exist nevertheless, and if one has a finite supply of money and wants to have more money available for other priorities or for the creation of personal wealth, I would suggest that heeding bottom line economic models is a prudent course of action that will pay great dividends over the longer term.
[ February 09, 2005, 08:32 PM: Message edited by: pitzel ]
