I’m not sentimental about cars. To me, there is no point in feeling attachment to a depreciating asset. My attitude likely stems from when I was a teenager and my future brother-in-law gave me his 1981 Subaru, which had survived a minor crash with a 1970s-era Buick that left the Buick’s chrome bumper scratch-free but crumpled the front end of the hatchback.
Still, being a suburban kid on Long Island, I was thrilled to get a car that promised the ability to go, well, anywhere. Paying for insurance was an issue–a still-astonishing $1,600 for six months. But I set about cobbling the funds together as the car sat in our driveway. Then, one day as I got home from high school, I found my Dad had sold the car.
I was stunned and asked how much he had sold it for. The answer: $150. Well, at least I got some money out it, I thought. But no. “Sure it’s rent for the four months it’s been sitting in the driveway,” my Dad said in his thick County Kerry accent, implying I was lucky I didn’t owe him more.
Not Dad’s finest hour, in my mind, though a part of me admires that hard-learned practicality that growing up impossibly poor in Ireland’s southwest lent him. Still, for years I thought of that $150 when times were tough. I longed for it on the when I had to stretch out my scholarship money by shorting the 85-cent bus fare in college (I found a dime and nickel combination–adding up to 35 cents–was the minimum I could slip past the driver, who used to have to eyeball the fare as you boarded). I chafed at the thought of it when I had to pass up a summer at Oxford to work at a gas station earning cash for the next year of Boston College, filling up the tanks of old schoolmates from the “better” side of the tracks.
Even as years of hard work and smart investments made pricier cars accessible, I can’t bring myself to pay more for a car than I made my first year out of college (let’s just say it was not a lot). For most people, a pricey car is a badge of success. But for me, it’s good money going bad.
So sitting in our driveway is a perfectly fine seven-year-old Mazda and a 20-year-old all-wheel drive BMW that I got cheap at an estate sale. People admire the BMW for its rarity and its sterling body condition, but it makes me think only of how much money it will cost me as it gets older. Right now, it needs a new starter. I looked online last night and the part will cost me–you guessed it–$150.
That doesn’t mean I don’t like cars–I do. I’ve zipped around the hills of Tuscany in a trucking magnate’s $250,000 Ferrari, tested the acceleration of a friend’s Porsche 911 in the back roads of North Carolina and powered a rented Mitsubishi SUV through the Australian Outback.
But it’s probably not a coincidence that in my years on staff at Forbes magazine, my favorite of the ultra-rich people who I interviewed was Dave Gold, the man who originated the dollar store concept in the 1970s. Despite a fortune upwards of $700 million, Gold bought a new car only after having his former one for almost 20 years, and then only because he felt driving a hybrid would be better for the environment. (By the way, his company, 99 Cents Only, is a stock worth taking a look at. The ticker is NDN.)
Even my BMW is thrilling when it’s working, but Cash for Clunkers is still a possibility for it, since my wife wants a roomier car for our growing family. It’s no surprise the government program is a runaway success–who else is going to overpay people for their depreciating assets?
Regardless of your political stance on the program, Cash for Clunkers offers some very fine insights that will serve an observant investor well. Contrary to fears people would meet the bare minimum of guidelines–trading in an old pickup for a slightly more fuel efficient new one, for instance–the data shows people are going beyond the minimum, swapping out old SUVs for gas-sipping compacts and hybrids of all stripes.
It’s contrary to what some economists expected now that gas is well off its record of $4 from last summer. A good number of economic pundits believe that consumers think only of their situation right now and use only a small sampling of information (the recent price of gas in this instance), not of a future in which gasoline will again be expensive.
Yet even before Cash for Clunkers, hybrid sales were up about 9% in June over 2008. Clearly, consumers as a group are smarter–or at least more forward thinking–than we give them credit for. They can see that the economic recovery will again increase oil demand worldwide, raising prices, and that in the not-so-long run we’ll start running dramatically short of affordable petroleum.
Just last week, Fatih Birol, the sober chief economist of the International Energy Agency, the respected research agency supported by oil-importing nations, said he expects peak oil to be reached within a decade. The move by consumers toward fuel efficient cars is so decisive that Nissan just announced plans to sell an all-electric car in the U.S. next year (it will ultimately build them here too).