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November 15, 2005
The Undercover Economist
This book caught my eye in particular not because it was recommended by the author of "Freakonomics", which I loved, or because it was recommended on "Marginal Revolution", but because of the part of the subtitle which refers to used cars. So eager to read this book was I, I purchased a used "advanced reading copy" prior to publication. Author Tim Harford engages the reader in a fascinating walk through the world of economics in terms even someone with a foggy memory of high-school economics can understand.
However, I disagree with his evaluation of the used car market. My reason for dissent is based on the fact that for the last 14 months I have owned a decent used car, bought at what I feel was a bargain, and I have said on more than one occasion that I would buy my car all over again. This is not the first time I've owned a decent used car, purchased at what I felt was a bargain and that I would have bought all over again. So how did a brilliant economist miss the mark on this one point? In my opinion, he approached the question from a strictly economical standpoint and failed to take into consideration human behavior.
So why CAN you buy a decent used car? I believe there are two conditions which lead to this possibility. The first condition is the number of car "owners" who are not actually owners, but lease their car (or as Dave Ramsey would say "fleece" their car). At the end of the lease their car enters the used car market as a decent used car, and they have soaked up the bulk of the depriciation. The other condition is one in which otherwise intelligent people believe they need to dump a decent car before the end of the warranty period, and purchase a new car (heaven forbid they would inherit someone else's car problems) even though there is nothing serious wrong with the car. To borrow Harfords "peaches" and "lemons" comparison, owners of "peaches" mistakenly believe they are holding a "lemon" to the benefit of smart used car shoppers.
And that is why I was able to buy a 4 year old car with only minor cosmetic defects and under 60,000 miles on it for a bargain basement price.
Posted by Anna at November 15, 2005 1:56 PM