Car Life

My first car was a 1984 RX7 sports car. I was young and dumb and I bought it used in 1991 from a shady used car dealer in Kitchener Ontario. I ended up junking it about 3 years later because there were so many components on the underside of the car that were rusted to failure and the cost to replace them all was more than the value of the car. Like a lot of places in the northeast Ontario salts the roads every winter and that salt eats cars.
I bought another car in 1997, a 1993 Porsche 911 RS America ( only about 1500 made ) with very low miles. This car never saw salt and was tenderly cared for. I drove it only about 3000 miles per year and sold it in 2007 for about what I paid for it 10 years earlier because it was so rare and in such good shape. However I spent a lot of money on maintenance. Air cooled 911s of that vintage used 15 quarts of engine oil and I replaced it with expensive synthetic every year, I changed plugs and brake fluid and had it tuned up and timing belts adjusted and all kinds of stuff.

There are 250 million cars in America. Apparently we scrap 5.6% of them per year. We buy 7-10 million new cars a year. The average age of cars on the road right now is ~9 years.

It makes sense to discard a car when the cost to repair it exceeds its value. At that point you can discard it and purchase a similar used car for less than what it would cost to repair the one you have, or you can just buy a new car. I am sure that someone who carefully maintains their car in a salt free area can make it last a very long time, a lot longer than the average, because I think the average person does not carefully maintain their car.
Pete commented on my EEcon 101 post that we as a society view cars as disposable, this probably makes us discard them when they still have useful life left. When I say “exceeds its value” that means exceeds its replacement cost. Its replacement cost is governed by the fact that people like new car smell and thus will pay more per unit of life for a “new” car than for a used car.
There are certainly a lot of people that turn over their cars and constantly replace them with new cars, then someone else buys the used car.
I’ve purchased 8 cars now over 20 years, 5 new and 3 used. I’ve junked 1, resold 4 and still have 3. Our older Prius will be sold soon. I hope to have another electric car soon and then our household will only have electric cars. My choices haven’t always been rational with regard to the utility of the car and replacing them, somebody else is driving those cars now. My electric car isn’t making much of a dent in the problems I hope its kind will eventually solve, but I wanted to be driving one and somebody has to be first.

If we as a country churn 10 million cars a year, and all new cars were electric, it would take 10 years to get 100 million electric cars on the road. At that point we would have 100 million electric cars and 150 million gas cars – assuming no total growth. Of course thats just not possible, if we are lucky there will be 1 million electric cars available per year by 2014. It may take 10 years after that for the technology to produce an electric car that can do everything that everyone wants so that it makes no sense to anybody to buy a gas car. Although if gas prices skyrocket like I believe they will, the utopian electric car imagined now that can do everything better than a gas car will not be necessary to convince the vast majority of people to go electric. If gas is $20 a gallon – then a 100 mile range electric vehicle that costs you $3 to drive those 100 miles looks a lot better than a 500 mile range gas car that costs you $40 to go 100 miles – even in a 50mpg hybrid.

The average household has ~2 cars or so, room for 1 electric car and 1 gas car.
Hopefully we would use the 100 million electric cars for the majority of the under 100 mile daily commuting and that would be the bulk of the miles driven. The 150 million gas cars can do more of the longer trips.
If gas gets expensive enough it will make economic sense to retire functioning gas cars ahead of schedule and replace them with electric cars.


One response to “Car Life

  1. “It makes sense to discard a car when the cost to repair it exceeds its value. At that point you can discard it and purchase a similar used car for less than what it would cost to repair the one you have, or you can just buy a new car.”

    Exactly right. But to be clear, “it makes sense” is subjective and strongly influenced by cultural and codified norms. You cannot buy a used car with any assurance at all that you’re getting anything approximating the value of the car being considered for repair.

    My 18-year-old car has a blue book value of $1K under the _best_ circumstances. But there’s no practical way for me to go out and spend only $1K and know that I’m getting a car in the same condition.

    Another factor to this equation is the way car insurance works. One of the biggest reasons to _not_ sink money into car repairs is that none of that money is recoverable if someone crashes into you and severely damages the car. When we spent the $8K or so to rebuild the transmission and bring some other needed repairs up-to-date (some neglected since the birth of our first child), we exposed ourselves to a huge financial risk. From a economic, risk-management point of view, it made no sense whatsoever to spend that much money on maintenance. And yet, for us, that was still very much the decision that “made sense”, even compared to the option of simply replacing our then-15-year-old car with another 15-year-old car.

    I honestly can’t think off the top of my head of a more equitable way to run the insurance rules, but as they stand now, they strongly discourage any sort of on-going maintenance for a car, especially to deal with acute problems on an aged car.

    Contrast all this with the aviation industry, even light planes (which are not regulated nearly as heavily as commercial transport aviation). All aircraft are required to undergo at a minimum an annual inspection, and depending on how the aircraft is used, an inspection every 100 hours of use. Among other things, the inspection requires the aircraft to meet specific standards set out by the manufacturer as part of the “airworthiness certificate”. Some of the standards allow for wear and tear while others are binary, but in all cases there is a strong assurance that after an annual inspection, there’s a reasonable upper bound on maintenance costs.

    As a result, aircraft don’t depreciate nearly as much as automobiles, and it’s WAY harder to spend so much money at one time on maintenance that it wouldn’t be recovered through insurance in the event of a total loss. (Of course, as with any mechanical thing, over time the maintenance costs add up…but IMHO that can be ignored, as simply being part of the operational expenses, not a capital investment in the machine itself).

    Frankly, a lot of the wastefulness in the US transportation industry, especially in terms of personal transportation, could be addressed through economic side-effects of more effective and strict regulation, both on vehicle maintenance and driver qualification (imagine how much more popular and important public transportation would be in this country if a person actually was required to meet a non-trivial standard of competence in order to receive a driver license).

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