Interesting way of looking at it.
People “irrationally” value “newness” in cars. That is, above and beyond the quality of the car itself, people will pay for newness, and the price drops substantially when it is no longer new (in a way that seems to go beyond observable capital depreciation). So the time-consistent, quality-optimizing consumer should not fall prey to the lure of the car being new and overpaying for it, but instead would think ahead about the depreciation and the eventual resale value of the car and instead buy a one-year-old car. The time-inconsistent buyer puts too much emphasis on the immediate experience of the new car and not enough on the asset depreciation.
Jeffrey Kling of the Brookings Institution via Economix Blog.
If car buyers were buying transportation, Detroit would have gone out of business with the first vehicle that had side curtains to keep rain off.
New cars are not about cars, but essential newness. And I can only conclude the author has never indulged in that *perfect* car, brand new.
Everyone should, once.
Oh I agree Emmett. I’m a native Detroiter. New car smell is the elixir of gods.
It would be interesting wouldn’t it to know what Kling drives to work at Brookings. He probably takes the Metro to work.
For some bizarre–to hear others talk of it–reason, I have never really cared for the “new car” smell. I finally bought my first new car in 2001 (I still drive it), and I couldn’t wait for that smell to dissipate–I had all the windows down, in fact. (The odor gave me a headache.)
One expert I heard speak about the most efficient ways to spend and save money said the best thing to do is buy a new car and drive it until it dies. That’s pretty much what I’m doing. I love not having a car payment, while still owning a reliable vehicle. I suppose, though, it could work even better to buy a one-year-old car and drive it until it dies.