The Car as a Commodity

girls-1209321_1920

For many people, a car is not a means of transportation; it is a commodity. You may have pondered a vehicle as an investment, in recent years, instead of a loan being financed against your house, many people have used their car as collateral. But in order to think of it as a commodity you’d have to consider three things:

  • Is it an asset or a liability?
  • What’s its current value vs cost
  • What’s the likelihood of future appreciation or depreciation?

Asset or Liability?

We’re car people here at the Kicker, not certified financial advisors. So let’s take a moment to state the obvious—the purpose of this post is to get you thinking about the impact your car has on your finances and some smart moves you might choose to make regarding your car.

That said, every physical asset is also a liability. Vehicles are status symbols, toys, and a source of joy, but they’re primarily a tool you use to transport yourself and your loved one’s places you need to go. Often if you don’t have a car you can’t earn an income. So its an asset. It can also break down or you can get into an accident which could cost you a lot of money and leave you’re physically injured.

Current Value vs Cost?

This consideration includes getting a good deal on a car purchase, but it’s more than that. Fuel economy is a big thing to think about. Do you really need a truck for your daily driver or would it be better to get an old truck to drive mainly on weekends and a smaller daily driver?

Do you need a car at all? Sometimes in a city, with rideshare, bus lines, mass transit and all. You might be better off with a minimal investment for your occasional use. Maybe buy something older that you don’t rely heavily on so you aren’t stuck in a bad way if it breaks down occasionally.

Maybe your needs warrant buying new to get a low maintenance car, that’s safe and reliable.

Retained Value?

But do you need a brand new car or a classic car? What happens to the price of a used car?

Imagine that there is a brand new car, a used car about 5 years old and a classic car from the 1960s. For them to be the same price, the used car might be low mileage and luxury vehicle. A lot of the value of a new car is the warranties offered to the first owner. Sometimes special financing is available on a new vehicle. Maybe the brand new car isn’t popular and is discounted to make room for the next year model. Generally, a slightly used car will have a much better value for the price.

But what about the classic car? Of course, mileage, service history, condition, and popularity really come into play with the classic car. Well, that would also need to be a good make and comparatively well-serviced. For the classic car having not much mileage on the clock may be a disadvantage, it could indicate a history of sitting broken. It can also be bad for cars to sit if not properly stored. A considerable amount of mileage would be expected and wouldn’t do much with the price of the vehicle.

The used car and the classic car may have the problem with obtaining parts in common, with the difficulties tending to stack up with the classic car. Another point in the used car’s favor is that it would probably not break down, but the classic car may break down all the time.

The classic car is the car almost like a commodity in one respect, not bought to be used, but as a status symbol and perhaps the most likely to gain value. Of course, if you actually use the classic car as a family car it won’t retain its value as well as if it’s babied.

How it usually stacks up:

The real problem with the new car is that its value decreases extremely quickly. A car can lose 10% of its value simply through being driven home. That’s a big hurdle to overcome. The sales price is only one factor, however, and very soon the used car and the classic car will be the more expensive to maintain so the carrying costs are higher.

When you factor purchase price and carrying cost (likelihood it’ll break down and cost to fix), plus cost to operate, it’s not looking good for the future of these three vehicles. Which is the best choice?

It always comes down to your needs and intended use. Most of us need a slightly used car, with a fair upfront price and spread the expensive maintenance over the next few years. However, if you buy a lemon you’ll regret it, so have your car inspected.

You might ask when these three cars will be the same price again.

Certainly not when they are sold for scrap. The classic car has a much higher scrap value – the parts are novel, the standard of the interior much more likely to be worth preserving. Certainly, it will be a long time before the new car is scrapped, but when it does there will be nothing remarkable about the parts.

So which car would you have?

 

Leave a Reply