'The Market for Lemons'

[PAUL200]

I was reading this today:

The Market for Lemons - Wikipedia, the free encyclopedia (http://en.wikipedia.org/wiki/The_Market_for_Lemons)

Its about the 'theory' of the second hand car market! Some of it does make sense...but humans are quite irrational from my experience!

Any opinions on this theory?

:p

[Homestar]

I think they're over thinking it.

[JDNSW]

While the thesis is correct in theory, like most economic theories, if falls down in that most purchasers of cars (and many if not most other items) do not behave in an economically rational manner, even if they have perfect information.

And I think this applies especially in the used car market. For a start, if you behaved in an economically rational manner, which of you would have bought a Landrover? Or, for that matter, any four wheel drive.

Let's face it - most of us buy a particular car because we want it, and can scrape up the necessary money, not because it makes economic sense.

John

[ramblingboy42]

hey Paul, funny you should put this thread up?

have you recently bought a lemon?

what are you driving ATM?

[PAUL200]

hey Paul, funny you should put this thread up?

have you recently bought a lemon?

what are you driving ATM?

Haha no I haven't recently bought a lemon! I have a new Defender 130 (not a lemon imho :D) which I am driving around!

Why did I post this? All this stuff has always interested me I suppose!

A large majority of people laugh at me when I tell them I have bought a new car - they see it as irrational behavior. Normally I'm told that it loses half its value within two years and I lost 20% as soon as it left the showroom etc.... but what they fail to realize is that I don't care about its 'market' value: because I'm not going to sell it!

Why buy a new car then? I believe that with preventive maintenance and proper servicing my vehicle will last 18-20 years - and that in the long run this will be a more sensible economic decision than the string of second hand cars and associated maintenance costs they propose. Essentially: I win in the long run. Does anybody agree with this?

I was told today that a Land Cruiser with 340'000km (market value: approx 10'000 AUS) is 'better' and more reliable (a clearly ridiculous statement) than a brand new 0km Land Rover Defender (market value: approx 65'000 AUS). So I questioned the clear disparity in prices: Why would somebody pay 6.5 times the price for the new Defender if this were true? Am I missing something?

[JDNSW]

.........

A large majority of people laugh at me when I tell them I have bought a new car - they see it as irrational behavior. Normally I'm told that it loses half its value within two years and I lost 20% as soon as it left the showroom etc.... but what they fail to realize is that I don't care about its 'market' value: because I'm not going to sell it!

My point exactly! But that does not mean the theory is wrong - just that it does not apply in the (used) car market.

Why buy a new car then? I believe that with preventive maintenance and proper servicing my vehicle will last 18-20 years - and that in the long run this will be a more sensible economic decision than the string of second hand cars and associated maintenance costs they propose. Essentially: I win in the long run. Does anybody agree with this?

....

Well, I am still driving the 1986 Landrover I bought second hand in 1993 - and I do not think that it has been a maintenance headache, seems to me that it has been a more economically sensible decision than it would have been to buy a new one, seeing it cost around half what a new one would have - if they had been available when I bought it. (this was during the period of no Defenders here) It has now done less than 600,000km, with my doing about 510,000 of these over 22 years. I doubt I will be driving more than another fifteen years, and expect it will see me out.

Even buying a second hand car, if you fix anything that needs fixing, and look after it, you can rely on it indefinitely, as long as parts remain available (and as long as the motoring situation does not change drastically; e.g. punitive restrictions on your class or age of vehicle, like they have, for example, in Singapore or Japan).

John

[PAUL200]

Well, I am still driving the 1986 Landrover I bought second hand in 1993 - and I do not think that it has been a maintenance headache, seems to me that it has been a more economically sensible decision than it would have been to buy a new one, seeing it cost around half what a new one would have - if they had been available when I bought it. (this was during the period of no Defenders here) It has now done less than 600,000km, with my doing about 510,000 of these over 22 years. I doubt I will be driving more than another fifteen years, and expect it will see me out.

Even buying a second hand car, if you fix anything that needs fixing, and look after it, you can rely on it indefinitely, as long as parts remain available (and as long as the motoring situation does not change drastically; e.g. punitive restrictions on your class or age of vehicle, like they have, for example, in Singapore or Japan).

John

WOW! your LR has done nearly 600'000 KM!

Are you on the same engine? How often do you change the oil etc..? Do you have a preventive maintenance plan?

Just theoretically: Do you think if you had bought it new in 1986 it would have worked out as a more economical decision i.e: taking into account your cost of motoring between 86-93?

Yes that is a good point about punitive government regulations I hadn't factored it in at all :)

[JDNSW]

WOW! your LR has done nearly 600'000 KM!

Are you on the same engine?
Yes
How often do you change the oil etc..?
10,000km
Do you have a preventive maintenance plan?
Fix things as they need it. Drive sensibly
Just theoretically: Do you think if you had bought it new in 1986 it would have worked out as a more economical decision i.e: taking into account your cost of motoring between 86-93?
No. At that stage I had a company car.
Yes that is a good point about punitive government regulations I hadn't factored it in at all :)

The car had done around 80,000km when I got it, and had spent its time mostly in Central Australia (it was sold new in the Alice), which probably has helped it to last, as has the fact that I have lived inland for most of the time since getting it.

Only major repairs have been a gearbox overhaul, have fitted two new clutches, and two sets of front pads, three sets of rear shoes, new drums at the back, but front discs are still original. New steering box, obviously things such as seals, tie rod ends, suspension bushes etc. The Boge strut at the back stopped working so I fitted heavier rear springs. Replaced the shock absorbers, but need to replace them again. Had injectors checked at about 150,000km, probably need to do it again.

John

[87County]

I'm only at a little more than half that mileage with mine JD and I'll never catch up now (got too many others that need driving).

It had an earler LT85 gearbox rebuild & clutch and since I bought it in 2003 I installed new hd springs and bushes & brake linings (& took out the load leveller) it hasn't needed anything but oil changes every 10,000 ( or annually) whether it needs it or not :D.

I think it will see me out ok.