Link:
http://www.automotive-fleet.com/Article/Story/2008/01/How-Will-Future-Residual-Values-Impact-Hybrid-Lifecycle-Costs.aspx?interstitial=1
Summary:
The slow rise of fuel prices throughout the past couple of years have got people trying to find ways to reduce how much they spend on their cars. One answer to this problem is buying a hybrid. Although it is argued that hybrids are more complex, and therefore will cost more to maintain and repair if broken, the deprecation rate of these cars are quite low. Since there were only two hybrid models available in 2003, the energy efficient cars were in low supply, but extremely high demand. Due to this low supply, high demand situation, consumers settled with buying used two or three year old hybrids for about 85% of the original price. Nowadays, there are more hybrid models out there, and the demand is dying down for hybrid cars, but it is still fair to say that purchasing a hybrid would be a good idea.
Connections:
The low depreciation rate on hybrid cars relates to Ch 9's section on the Nature of Depreciation. The book describes depreciation as the decrease in value of an asset over time, but I believe that time isn't the only factor in this equation. The reason that hybrid cars retained their value was because back in 2003 to 2004, there were only about two to four models. Since there were so few models back then, there was a limited supply, and when there isn’t enough of something, consumers are willing to pay more. This is a fine example of the law of supply and demand, which I believe in this case, has more effect on the depreciation equation than time.
Reflection:
In my opinion, buying a hybrid would be a smart choice to make. Even though technology is advancing at an amazing rate, and there will probably be better energy efficient cars in the future, the hybrid seems like a good business investment at present. However, some people don’t have that kind of money to spend, and while I am all for someone buying a hybrid, I believe that it isn’t necessary, especially if such a person can just bike or take public transit. The price of gas isn't dropping because there is a limited amount of it, just as there was with hybrids. However, we are able to create more hybrids, but I’ve yet to hear of anyone creating gasoline.
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It was a great work that you have connected nature of depreciation with cars. However, there are two points in your article that I am not agreed with. First of all, you said people are willing pay more for hybrids because supply of fuel efficiency car is low. If that is the case, why don’t people just buy smaller cars instead? Why would that pay for $10,000 more? I don’t think the law of supply and demand has a big impact in the depreciation equation of hybrid. Because of its great performance on road and lower cost in fuel, hybrids are able to be sold at a higher rate than other second-handed car. Secondly, I don’t think cars will be a good business investment because at the time you purchase a car, you already lost your money. There is no chance of getting any profit unless you keep your car for few decades and let it become an antique.
ReplyDeleteJackie Yao
Even though hybrids are a better alternative to cars, I agree that public transit is the better choice at present. Although there is more walking involved using public transit, it is better for the environment and the exercise can do your body good. Vancouver has great air and excellent water quality, but it lacks transportation. Cities like Hong Kong and Tokyo are renowned for their train systems. In this day and age, everyone is demanding for speed and efficiency. However, buses are slower than cars, which make cars seem more appealing in terms of transportation. (Buses aren’t good enough to make cars look bad!) Even though I know that building sky trains and subways cost large amounts of money and time, I don’t think that Translink is working fast enough on improving our cities transportation.
ReplyDeleteI sometimes daydream of a city with every road as a train track. Big trains could run as public transit on large tracks, while little trains could run like cars, privately owned or shared, on little tracks specifically made for these little trains. It would probably not eliminate traffic jams, but it would eliminate pollution. I wonder if this design is possible.
Vivian K. =)