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Recently many news articles mentioned the new luxury car Maybach Exelero. Only 2 cars have been manufactured. Moreover, one of the cars has been sold for 8 million dollars, which makes this car one of the most expensive cars ever sold.

Now, once you buy a car, the market value of the car depreciates once you drove it outside of the factory. For example, price of a new 6000 dollars car, will be 5800 dollars. Although, the market value of the car should be the same, no one will buy the car for the same price you bought it from the dealer.

There are two scenarios that I'm proposing. The first one is: the owner buys the car and never drives it (i.e., keeps it in a garage/show room). The second one is: he drives it every day like any other car.

My question is: what is the value of an object over time? how does it vary? The context of this question has been described above. Which are the properties of the object described above? and how do these compare with other properties of similar objects? (i.e., luxury products).

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  • $\begingroup$ Value is one thing, market value (price) is another thing. $\endgroup$ – snoram May 4 '15 at 23:05
  • $\begingroup$ The part I'm most interested in the market value. What I'm trying to understand is does it make sense to spend 8 million dollars on a car? Assuming that someone that buys such an object is an investor, a certain return is expected after a number of years. Also, please edit the question to improve the quality. $\endgroup$ – Andrei May 5 '15 at 10:34
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The value of a tradeable good is equal to what the marginal buyer will pay for it.

I will explain further, but first let me correct one misconception in your question. You state:

Now, once you buy a car, the value of the car depreciates once you drove it outside of the factory. For example, price of a new 6000 dollars car, will be 5800 dollars. Although, the value of the car should be the same, no one will buy the car for the same price you bought it from the dealer.

The value of the car should not be the same. There's a very well-known reason that cars lose value as soon as they are sold used, rather than new: there might be something wrong with them which the seller might be aware of, but the buyer might not be able to spot. This is discussed at length in a well-known paper titled "The Market for Lemons: Quality Uncertainty and the Market Mechanism" (see link for Wikipedia discussion).

Having said that, we can return to the discussion of the value of a car. Like any other tradeable good (it's easier to determine the value of a good that can be bought and sold than the value of services provided by an ecosystem, for example), a car is worth whatever someone is willing to pay for it.

You ask about two scenarios, one in which the car is kept in a showroom, and another in which it is driven. The difference between these two scenarios is what is known as depreciation— as you drive a car, things wear down, and its future life becomes shorter, while it also becomes less good at being a car. Both because the car isn't as nice (maybe it's scratched up, or it is a bit slower, or it requires more maintenance), and because it won't last as long, all else equal (i.e., so long as nobody wins a famous race while driving that particular car) driving a car decreases its value.

In practice, the value of many cars decreases for a long period, until at some point, the value slowly begins to increase as the number of cars dwindles and the model attracts interest from collectors. The collectors' market is actually in many ways a very different market from the original market for a car— the people buying a collectible car generally aren't interested in its value as an automobile; a classic car will tend to be slower, get worse gas mileage, be dramatically less safe, have higher maintenance costs, and offer fewer amenities than a modern car that costs a similar amount. Because this market is driven by factors other than the value of the services provided by the car (because, ayou are aware, most rare collectible cars are driven rarely, if at all), the value of these cars tends to be determined more by factors like taste or the value of financial assets held by the wealthy than by anything else. Nobody will be driving an Exelero to the grocery store; anyone who has one has another car to use for that task (or, more likely, someone to go to the store for them and cook them dinner).

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  • $\begingroup$ Buying an Exelero is conspicuous consumption. Doesn't this have some effect on the resale market? $\endgroup$ – Giskard May 5 '15 at 19:21
  • $\begingroup$ I'm not sure I understand your question. The value of some items considered "conspicuous consumption" behave like assets (a Picasso, a Stradivarius, an original Porsche 959), and some like durable goods (a Gulfstream IV, a Porsche 996). Ex ante, it's actually difficult to know which will happen for something like an extremely limited-run sports car— all we can know is that if it's driven, it will depreciate. $\endgroup$ – dismalscience May 6 '15 at 0:15

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