Monday, November 13, 2017

Same Persons, Different Decisions

We've always driven--and obviously owned--our cars for at least 150,000 miles, but when the 18-year-old Dodge Caravan finally expired in 2015 we decided to lease its replacement. The century-old automobile industry is undergoing such speedy technological change that it would be imprudent to absorb the capital cost of an asset that could well be obsolete in 3-5 years.

Over-capacity, a plethora of producers, and rapid obsolescence should make it a buyer's market for used equipment, such as cars coming off lease, but to almost everyone's surprise prices are holding steady. One of the reasons is hurricane damage.
The number of lease returns is expected to reach 11.3 million in the three years ending in 2019, 49% more than the same three-year period that ended in 2016, according to research firm J.D. Power.

Thus far, the market is absorbing the extra supply thanks to tighter inventory controls by various industry players and the loss of as many as a half-million cars to hurricanes in Texas and Florida.
If both new- and used-car prices go crazily upward in a year, that would be a compelling reason to buy the Lexus when the lease expires in October (at a fixed price of 70% of cost and mileage of 30,000). Otherwise, we're returning the best car we've ever driven.

We're the same persons today as we were decades ago, but our decisions sure are different.

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