Small / economy car deathwatch: we've passed "peak econobox" again

[JSH]

Originally Posted by Isaac Zachary

I take it that the econobox has never really existed. The average weekly wage has gone up some 15% since the 1980's until July of 2023. A lot of new cars, such as a new Corolla, are cheaper now than back then, but still not exactly within the price range of a median individual wage of around $40,000 per year.

New cars have never been for the median household. If you look at the average income of a new car buyer they have been much higher than the median household income for decades. The "American Dream" of the middle class worker with a house and 2 shiny new cars in the driveway has always been a lie. For too many people put themselves into massive debt chasing that dream.

As Redpoint said multiple times, cars are depreciating assets that one should spend as little as possible buying and using. Used cars are a far better value than new cars. Unlike Redpoint I actually have bought new vehicles but that was more than 2 decades ago when I was making stupid financial decisions and living beyond my means. (That was also before I read Rich Dad Poor Dad or the Millionaire Next Door) Today I could easily afford to buy new cars but I still have the mentality of looking at a car as seeing XX hours of work. I look at a car and say: Option A is 1,000 hours of work. Option B is 500 hours of work. If I invest the money saved by buying a used car I can retire YY years earlier.

The younger the person the bigger the impact. I've mentored about 2 dozen newly graduated engineers in my 25 year career. Every one of them wants to take that first paycheck and buy an expensive car. I show them the math that the money saved and invested today is worth a bit more than 3 years of their base salary 35 years from now. I ask if driving a nicer car today is worth working 3 more years when they are in their 60's. Of course they say something stupid like "You have to live for today" or "I can't even think of living life at 60". Only 1 new engineer I've mentored fully funded their 401K instead of buying a new car.


When I was 15 - 25 I thought I wanted to drive a Porsche. Now that I could drive one I would much rather spend a couple extra decades retired instead of working so I can drive a Porsche - to work.

Originally Posted by Bicycle Bob

It was GM that really "discovered" the used car. They didn't want to compete with the Model "T" on price, so they started taking trade-ins, and turning another profit by offering those, which were still more desirable in many ways. Thus, we have always had to make do with what someone wanted to make an impression with. The last major attempt I've heard of to offer minimal motoring was the Tata Nano, but that new-car smell just wasn't enough.

That lesson has been carried forward - especially by German luxury brands. BMW and Mercedes do not like to offer large discounts on their cars. Instead they offer slightly discounted leases, get the car back in 2-3 years, and then sell it again as "certified preowned" with a very profitable warranty.

Originally Posted by Isaac Zachary

But if the calculations of Edmunds are anything to go by, a brand new Corolla hybrid might be cheaper in the long run.

A new hybrid is cheaper than a new Versa because fuel costs and maintenance costs are significantly less. However a 3-5 year old hybrid will be significantly cheaper than a new hybrid. Personally I think the sweet spot is to buy a car when it is 3 - 5 years old and sell it at 10 - 12 years old. It is old enough when purchased to have lost 30 - 40% of the original value but new enough at 10 - 12 years old that it should not require any major repairs. Let someone else pay ten thousand or more extra for the new car smell and have the car nickel and dime them with things breaking all the time.

Originally Posted by Isaac Zachary

Another question that runs through my head is, do I sell the Avalon now while it's still worth over $10k, or do I wait 3 years later when it has 200k on it, and pop in a $5k hybrid battery when that dies and keep going in a 14-year-old car with over 200k on it?

Normally I would say sell it and buy something newer but the market today is not a normal market. As Redpoint said, the consequence of lost pandemic auto production is that there are millions fewer cars on the road than there should be. That massively pushed up car prices. People that were working but couldn't spend money on dinners out, drinks with friends, travel, and other services chose to spend money on things like cars and houses. More money chasing limited supply drives up prices. Classic supply and demand economics.

New car prices have basically recovered. Cars are on the lot, people are no longer paying thousands over MSRP, and manufacturer incentives are back. However, used car prices have not returned to normal yet - at least not for cars that are 3 - 5 years old. There is still a shortage of slightly used cars so their prices are still high. A 5 year old car might still be selling for 25 - 30% of new instead of a more normal 45 - 50% of MSRP.

I'd say the best thing to do if you don't need a car today is to continue to wait for the market to stabilize.

[Bicycle Bob]

There was a writer for Car and Driver who would look at the price of a new Porsche, and, after a minute of temptation, translate that into the price of a small aircraft, a dune buggy, an old race car, and a reliable daily driver. I look for unfashionable but economical and reliable bargains, and drive them until they are unreliable. An extra car for spares is a great investment to keep one running.

[Isaac Zachary]

Originally Posted by JSH

I'd say the best thing to do if you don't need a car today is to continue to wait for the market to stabilize.

And meanwhile try to convince everyone I know to buy the kind of car I want in 3 to 5 years.

Originally Posted by redpoint5

I disclose everything when selling a car. Honor is not something to sell for a couple bucks. When I say you'd want to sell just before a major problem, I mean you would retain honor because you didn't know a problem was coming... and that's "the problem". Not knowing when something will malfunction prevents you from knowing precisely when to sell, but then if you were aware of a developing problem, you would be responsible to divulge that knowledge.

So sell before you know there are any car problems, and also buy right before anyone is aware that a pandemic is starting. Got it!

YOUTUBE VIDEO:

I found this interesting. Basically cars tend to lose value, but the pandemic has changed how much they normally do. According to this video the return to normal used car prices may be a lot longer away than many people think due to manufacturers seeing benefits in selling fewer cars than previously (kind of like the title of this thread points out).

At the end of the video a guy makes a comment that there is an emerging need in the market for cheap new card to be produced, and he felt that whichever manufacturer that decides to step up to that plate would probably do very well.

https://www.youtube.com/watch?v=Ao7fbajRSKI

[redpoint5]

Originally Posted by JSH

Unlike Redpoint I actually have bought new vehicles but that was more than 2 decades ago when I was making stupid financial decisions and living beyond my means. (That was also before I read Rich Dad Poor Dad or the Millionaire Next Door)

I don't recall if it was in high school, or just after prison that I read Rich Dad Poor Dad, or even how I came to own the book. Early on I was interested in "self-help" titles like How to Win Friends and Influence People, The Five Love Languages, and Men are from Mars and Women are from Venus...

For some reason I've always had a mind for economics; it just comes more intuitively to me than others.

I'm re-reading Rich Dad, Poor Dad, as that was the requirement a friend of mine made when I solicited him to mentor me. He owns a print shop and rental properties, and will probably retire soon. What amazes me is he and his wife still live in the same humble home they bought 20 years ago in Aloha. They just recently began construction of their new home in Lebanon (Oregon).

I've mentored about 2 dozen newly graduated engineers in my 25 year career. Every one of them wants to take that first paycheck and buy an expensive car.

It amazed me that every student in my wife's PA program and incurring a $10k debt every 3 months, would be traveling to Belize, or the Bahamas during Christmas break. Every break, everyone was going to some far off place. Meanwhile I'm putting the $10k bill on a credit card and paying it off before interest charges kick in.

[Isaac Zachary]

I'm going to have to read the Rich Dad Poor Dad book now.

[freebeard]

FYI:
Whistleblower Says "They Want To Stop You Driving Older Cars"

Number 27 -- 129K subscribers
197K views 2 days ago
"Digital Revolution Means The End Of Older Cars" A whistleblower from one of the largest insurance companies in the world has leaked information that shows that classic and older cars are under threat. The networked/digital car is being pushed as the way forward but will make existing cars impossible to insure and therefore keep on the road.
…

[Isaac Zachary]

Originally Posted by freebeard

FYI:
Whistleblower Says "They Want To Stop You Driving Older Cars"

New cars are impossible to insure too. I got quotes for an old $15K Model S and for a brand new Model Y. The Model S would be over $400 per month and the Model Y about $200 for me. Now compare that to the $130 I currently pay for two cars.

Insurance should follow the price to fix what damage is done to these vehicles. A vehicle that tends to crash and is expensive to repair will have higher insurance than one that is less likely to crash or less costly to repair.

If they figure out how to make cars drive themselves and never cause accidents then the price of insurance may go down to nearly zero, or may no longer become a requirement.

[cRiPpLe_rOoStEr]

Originally Posted by Bicycle Bob

The last major attempt I've heard of to offer minimal motoring was the Tata Nano, but that new-car smell just wasn't enough.

All that low-price appeal was not enough, because it was perceived as a sign of povertry. Meanwhile, even a motorcycle or those tricycles which are still all around India (and exported in large quantities to other 3rd-world countries) are seen as more "neutral" somehow, even though most people tend to consider a motorcycle or something similar as inherently "inferior" to a car, even if it's a Hayabusa vs. a random econobox with some bells and whistles.

[Bicycle Bob]

The Mini was very highly praised in the press at its introduction, but sales didn't really start to take off until some Londoners who just had places to be found that it worked a lot better than their Bentleys for that. It also worked well for all the fashion industry folks. Ringo had a custom hatchback to haul his drum kit. Then they went to Monte Carlo, rapidly. All the "poor" stigma was quickly stripped away.

[JSH]

Originally Posted by Isaac Zachary

I'm going to have to read the Rich Dad Poor Dad book now.

There isn't really anything revolutionary in it. Kiyosaki's "poor dad" is his real father who is a teacher who values job security and avoids risk. He also buys toys that show his status but although he makes good money never accumulates wealth. Kiyosaki's "Rich Dad" is a friend's father who invests in real estate and takes big financial risks with borrowed money.

The basics are to know the difference between assets and liabilities and to spend money on assets. Don't buy expensive toys (like a Porsche) but instead invest in an asset - like real estate - that with time will pay for the toys.

That is the good side of the book. Then there is the "get rich quick side" of the book by investing in real estate on margin.

Kiyosaki is REALLY into real estate purchases with other people's money. Basically you should take as many and as large of loans as you can get. He preaches that you should continue to remortgage and take out any equity you build to invest in new properties.

If everything works as planned the tenants pay on time, you use that money to pay the mortgages, and have money left over to live the good life. In theory it works - in reality things don't always go as planned. Plenty of people have gone broke building a pyramid of properties on borrowed money. It only takes a few renters not playing or an unexpected expense to bring down the house of cards*.

Kiyasaki is basically to yin to Dave Ramsey's yang who says to never borrow money because the debtor is slave to the lender. The reality (at least for me) is somewhere in the middle.