Interesting Finding Regarding Auto Pricing

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D.D. Palmer - 02 Aug 2005 12:41 GMT

I did a little research, and found that the market sets car prices, not the
manufacturers.
That being said, both the new and the used car market prices HON/TOY
products to last about 150,000
miles. Sure, many go much longer and still have some residual worth at
150,000 miles. At 150,000 miles, they become "might last longer"
vehicles...but not a great bet. But for GM/FORD the market prices them to go
only to 100,000 miles before it's worth merely a residual "might last
longer" value. That's why a loaded CR-V can command $23,000 while you can
find a similar Ford Escape that they can only get $18,000 for (after all the
rebate shenanigans). The market is recognizing that the Escape approaches
crap at 100,000 miles while the CR-V probably won't approach crap until
150,000 miles. The HON/TOY is actually cheaper to own. Here the 'Scape costs
18 cents/mile while the CR-V costs 15 cents/mile. And while most people
don't own a car from showroom to junkyard, this same pricing pattern will
show up at resale time so, again, even for the 2-3 year owner, the HON/TOY
is cheaper than the GM/FORD to own. (I will say that with the depth of the
GM/FORD rebates today, their cost per mile is approaching that of HON/TOY.
But, of course, cutting prices enough to compensate people for this 50,000
durability gap is killing both GM and FORD in the process).

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Big Shoe - 02 Aug 2005 14:08 GMT

Way to beat this is to keep the vehicle as long as possible. My '92
EB Explorer had 185,000 miles on it when we sold it for $2,500. My
'99 EB has about 120,000 and running fine. My '05 Limited has about
16,000 miles but has depreciated $14,000, or about 1/3 of its sticker
price according to Edmunds. Part of the problem here is that the deep
discounting makes the sticker price meaningless when you calculate
depreciation. If you can get $8,000 off sticker for a new Explorer,
then it has already depreciated by that amount from the sticker price
and has caused used models to depreciate as well (if you can buy a new
one for $8,000 under sticker then a one year old one has to be worth
less, therefore the $14,000 depreciation).

>I did a little research, and found that the market sets car prices, not the
>manufacturers.
[quoted text clipped - 16 lines]
>But, of course, cutting prices enough to compensate people for this 50,000
>durability gap is killing both GM and FORD in the process).

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D.D. Palmer - 02 Aug 2005 16:54 GMT

Yes and no. Yes in theory...but the market is saying that the odds of an
American vehicle going much beyond 100,000 miles without expensive repairs
is slim. Yeah, I am sure that there are MANY MANY MANY on here with examples
like yours, but the odds are against it. In other words, a TOY/HON has a
much better chance of reaching 150,000K without expensive repairs. But if
you can do it in an Explorer (or Town Car, for instance, which has
horrendous depreciation yet seem last as long and as carefree as
HON/TOYs...but then again, you'll have to buy plaid pants and eat dinner at
3:30 in the afternoon).

> Way to beat this is to keep the vehicle as long as possible. My '92
> EB Explorer had 185,000 miles on it when we sold it for $2,500. My
[quoted text clipped - 32 lines]
>>But, of course, cutting prices enough to compensate people for this 50,000
>>durability gap is killing both GM and FORD in the process).

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C. E. White - 02 Aug 2005 17:06 GMT

> Yes and no. Yes in theory...but the market is saying that the odds of an
> American vehicle going much beyond 100,000 miles without expensive repairs
[quoted text clipped - 5 lines]
> HON/TOYs...but then again, you'll have to buy plaid pants and eat dinner at
> 3:30 in the afternoon).

The market is based on perception, not reality. This creates opportunities
for savvy buyers.

Ed

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D.D. Palmer - 02 Aug 2005 19:14 GMT

Now THAT is VERY true!

>> Yes and no. Yes in theory...but the market is saying that the odds of an
>> American vehicle going much beyond 100,000 miles without expensive
[quoted text clipped - 13 lines]
>
> Ed

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