Saturday, September 23, 2006

3 Cylinder Wonder Car

Want to limit the amount of petroleum you use?

My wife and I recently test-drove a friend's new Toyota Prius. She currently drives a late-model Cheverolet Impala a heavy but very comfortable sedan. I drive an all-wheel-drive Dodge minivan (for Alaska's snow) that actually gets 15-25mpg according to the computer display.

Anyway, back to the Prius. It was just as smooth as the full size GM sedan. It was significantly quieter. The seating arrangement was very roomy and comfortable, even in the back. After driving it, my wife was sold. She wanted one. I like its hacker potential, but would leave the car alone to stay married.

I'm economically literate and can do a lot of math in my head. It could be said that I estimate, calculate and make investment decisions for a living. With all her running around for her volunteer work, commisary runs, etc. I estimate that my wife burns about 800 gallons a year in her Impala. At a generous $3 a gallon, that's still only $2,400 for an entire year. Compare that to the cost of a Prius.

A Prius is around $25,000. New cars are a depreciating asset. As a general rule, putting money into something that's dropping in asset value and produces little income upsets me. I've done it before, but that's because I'm married and wish to stay that way. Come to think of it, that's the reason I do lots of dumb things. Even before I was married, most of the dumb things I did were in relation to a female. Back to the Prius. There's a waiting list. (I'm glad!) It bought me some time to gently point out the economics of buying a Prius, versus driving her Impala a few more years.

While we're talking about economics, asset-value and decision making, I'd like to point out that anyone with $1,000 can still buy a 50 mpg vehicle and suffer little or no asset depreciation. The reality is that cars don't depreciate forever. The value curve of an automobile, over a period of 40 years, looks like a U-shaped curve. If you want to make money on an asset you can actually use every day, buy at the bottom of the U-shaped curve.

That said, let's talk about a 3-cylinder wonder car. My dad recently purchased a 1990 Geo Metro. He beleives it will be a collector car. At my request, he supplied this photo.

What is his track record for picking out used cars that soon turn to collectible classics? In the eighties, he purchased a used VW bug and a Datsun (now Nissan) 240Z, the original "Z-car." There is some level of minor "celebrity status" if you drove either car as a teen. I had that privilege but at the time, probably didn't appreciate it.

Let's consider for a moment economic concepts such as value-curves, optimal purchase timing, asset age and future demand relative to supply. All are key to buying a collectible classic. What makes this little car from GM a consideration?

1990 Geo Metro value factors:
  • Novelty: The 1989-1994 Metro is a 3 cylinder car.
  • Maintanence: Early models were simple. They had few options.
  • Original: Most were not modified. (Who puts money into a Metro?)
  • Restorable: They share parts with several other brands.
  • Practical: Like the 240-Z and the VW Bug, a tall adult fits in a Metro.
  • Future Appeal: Oil will trade between $50-$150 a barrel in the future.
  • Future Appeal: Like the Prius, the Metro uses conventional gasoline.
  • Practical: It gets about 50 mpg.
  • Trends: Sell the SUV, buy a commuter car.
  • Accessable: Current pricing runs about $1,000.
  • Timing: Metros have bottomed-out in value.
Time will tell if these little 3-cylinder cars become collectible. In any case, I asked my dad to be on the lookout for a second one for me. I'm also looking for an early Honda CRX, and early-model Pontiac Fiero. I'll make a vacation of flying down to purchase it, visting family and driving it up to Alaska.


At 9:36 AM, Blogger mike said...

I had four geo sprints and metros back to back. they all got over 50 mpg. We never had any trouble with those little cars with the three cylinder engines.
The last ones were made in 2000.


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