Car & Driver Mag: Supra vs 86 Center of Gravity

[ermax]

An old ass Japanese car holding that much value is very impressive. Still not an investment though. Are there any cars that are good “investments”?

I personally never had much interest in the Supra. It’s way too big and heavy for my taste. I have an IS300 which has the heavy ass 2JZ, for doors and still comes in lighter (3250lbs) than the Supra. I like that they shrunk the new Supra but it’s still to heavy for my taste. I no manual wipes it off the list without even thinking twice. I really like how it looks though.

[extrashaky]

Originally Posted by ermax

Are there any cars that are good “investments”?

A lot of cars are good investments if you treat them as property/plant/equipment the way a company would. You invest in a piece of equipment so that you can make money. If the return is higher than your cost, it's a good investment.

Most of the time with transportation assets you're talking about trucks, vans and passenger vehicles that are used for their utility in a particular commercial purpose. Guys buy trucks to carry their tools to job sites. Uber drivers buy cars to carry people. These can be profitable investments.

I bought my BRZ specifically to drive for work and used mileage reimbursement to pay for it. My mileage reimbursement rate is higher than the cost to operate the vehicle, meaning I actually make money off the car with every mile I drive on the job, not to mention the extra salary I take home with this job (which requires reliable transportation) over what I would make without it. In that sense, it's a very profitable investment from an accounting standpoint. Plus I get the intangible economic profit of the value of the pleasure I experience while driving it.

The mistake people make is to buy a vehicle as an asset in anticipation of a capital gain on the increase in value. The return gets completely obliterated by inflation and carrying costs. But that doesn't mean that cars are never good investments. It just takes a shift in thinking that most people find unfamiliar.

[ermax]

Originally Posted by extrashaky

A lot of cars are good investments if you treat them as property/plant/equipment the way a company would. You invest in a piece of equipment so that you can make money. If the return is higher than your cost, it's a good investment.



Most of the time with transportation assets you're talking about trucks, vans and passenger vehicles that are used for their utility in a particular commercial purpose. Guys buy trucks to carry their tools to job sites. Uber drivers buy cars to carry people. These can be profitable investments.



I bought my BRZ specifically to drive for work and used mileage reimbursement to pay for it. My mileage reimbursement rate is higher than the cost to operate the vehicle, meaning I actually make money off the car with every mile I drive on the job, not to mention the extra salary I take home with this job (which requires reliable transportation) over what I would make without it. In that sense, it's a very profitable investment from an accounting standpoint. Plus I get the intangible economic profit of the value of the pleasure I experience while driving it.



The mistake people make is to buy a vehicle as an asset in anticipation of a capital gain on the increase in value. The return gets completely obliterated by inflation and carrying costs. But that doesn't mean that cars are never good investments. It just takes a shift in thinking that most people find unfamiliar.

Well hell most people can’t walk to work so in that sense most people could consider their car an investment. But I am talking about the car itself. Very few cars gain enough value to offset maintenance and inflation.

[Dadhawk]

Originally Posted by extrashaky

Most of the time with transportation assets you're talking about trucks, vans and passenger vehicles that are used for their utility in a particular commercial purpose. Guys buy trucks to carry their tools to job sites. Uber drivers buy cars to carry people. These can be profitable investments.

Technically yes its an investment in the sense it is a capital expenditure with an ROI, but the vehicle itself doesn't appreciate in value, which is crux of the discussion here.

The vehicle basically gives its life for your livelihood, but it does not become more valuable, it becomes worthless.

[extrashaky]

Originally Posted by ermax

Well hell most people can’t walk to work so in that sense most people could consider their car an investment.

Exactly. If they did, they would likely make smarter choices about their automobiles.

[Tcoat]

Originally Posted by Dadhawk

Technically yes its an investment in the sense it is a capital expenditure with an ROI, but the vehicle itself doesn't appreciate in value, which is crux of the discussion here.

The vehicle basically gives its life for your livelihood, but it does not become more valuable, it becomes worthless.

Capital expenditure resulting in a depreciating asset is what we would call them in in manufacturing.

[extrashaky]

Originally Posted by Tcoat

Capital expenditure resulting in a depreciating asset is what we would call them in in manufacturing.

The depreciation you're referring to is amortization of cost to recognize the expense of the purchase over the expected life of the equipment. That's not the same as "depreciation" of a vehicle in terms of a drop in market value. I think you understand that, but it's an important distinction to make.

Capex or PPE expenditures should result in a return that exceeds depreciation expense plus all the other expenses involved in owning and maintaining the equipment. You don't buy a piece of equipment for a factory expecting it to lose money for the business. You buy it expecting it to either increase income or reduce cost and thereby contribute to profit. Otherwise there's no point in buying it.

The expectation of a return is what makes it an investment. People are getting hung up on capital gain, which is only one narrow type of return.

My dad bought a piece of land and built a building. He leases it to a business. He gets a pretty good income from the building after expenses are subtracted from rental income, despite the fact that the building is a depreciating asset for accounting and tax purposes.

Nobody would tell my dad, "That's not an investment. You didn't invest in real estate." At least not anybody who knew what they were talking about.

Yet the same people who can easily see the investment in the depreciating building can't get their heads around a depreciating piece of equipment also being an investment because, just like the building, it makes money for the owner.

[Tcoat]

Originally Posted by extrashaky

The depreciation you're referring to is amortization of cost to recognize the expense of the purchase over the expected life of the equipment. That's not the same as "depreciation" of a vehicle in terms of a drop in market value. I think you understand that, but it's an important distinction to make.

Capex or PPE expenditures should result in a return that exceeds depreciation expense plus all the other expenses involved in owning and maintaining the equipment. You don't buy a piece of equipment for a factory expecting it to lose money for the business. You buy it expecting it to either increase income or reduce cost and thereby contribute to profit. Otherwise there's no point in buying it.

The expectation of a return is what makes it an investment. People are getting hung up on capital gain, which is only one narrow type of return.

My dad bought a piece of land and built a building. He leases it to a business. He gets a pretty good income from the building after expenses are subtracted from rental income, despite the fact that the building is a depreciating asset for accounting and tax purposes.

Nobody would tell my dad, "That's not an investment. You didn't invest in real estate." At least not anybody who knew what they were talking about.

Yet the same people who can easily see the investment in the depreciating building can't get their heads around a depreciating piece of equipment also being an investment because, just like the building, it makes money for the owner.

Yep I get it. I was simplifying the scenario to the car as a piece of equipment. The ROI is more related to the work the car performs than the vehicle itself. At the end of it's depreciation cycle you can throw it away and still have received the ROI or keep on using it and have even greater gains. Of course at some point the cost of maintaining it would counter any further gains and "investing" in a new one makes more sense. The material car will never be an investment as people think of the term.

[Dadhawk]

Originally Posted by Tcoat

..The material car will never be an investment as people think of the term.

Yep, basically what I was saying as well.

[Grady]

The car you drive is not an investment. It is a cost. I was at a dealership once and the salesman stated “that car is a good investment right now”.... I laughed in his face!

[extrashaky]

Originally Posted by Grady

The car you drive is not an investment.

Mine is.

[bkharmony]

My 86 is an investment in my sanity.