[Author Prev][Author Next][Thread Prev][Thread Next][Author Index][Thread Index]

Re: Catering to used-car buyers?

fringe@fringeweb.com was saying:

>>>I thought it WAS the point.  The new-car purchaser (in this case,
>>>doesn't have to worry about long-term residual value.  You keep talking
>>>about used-car prices as if they affect new car development, but I
>>>seen that to be the case.  Sure, if it's high, they'll advertise it, but
>>>that's about it.  As I've mentioned before, I don't even see any
>>>incentive for them to care.

I'm sorry mate.  I think that demand for specific automobiles in a
competitive market is both linear and elastic.  Let's assume that the
residual value is either ($Zero) or (50% of original value) or (100% of
original value).

This will affect the lease cost because lease costs are based on residual
value (a company can only support its own perception of itself for so long
(ie: Q45).

For purchases, the affect of residual value being 100% or 0% is obvious
over time.

Anyone who thinks that consumers aren't swayed by real or perceived value
need only talk to those of us (me for 1) who got super cheap 5000s after
the 60 minutes nightmare.

The beauty of supply and demand is that it's a natural law that operates
wonderfully in a free market.  Now, while the automobile industry is
certainly not absolutely free and as unencumbered as to allow me to call it
a free market, it is subject enough to this natural law to demonstrate its
effect on the market for particular models.  The ugliness of supply and
demand is that the adjustment periods can be slow and painful especially in
the world of durable goods which often do not reflect changes in S/D until
it is too late for a manufacturer to react.

Paul Royal