I estimate that there are 2.5 million households or nearly 2.2% of the total that have annual realized incomes of $250,000 or more. Using Ms. Muller’s estimates that 39% of “the rich” buy luxury brands, one can estimate the number who do so, approximately 975,000. Ah, but this population is much smaller than those households who drive prestige makes but have annual incomes under $100,000. About 30 million households have annual incomes in the $50,000 to under $100,000 bracket alone. Translated: 8% of 30 million = 2.4 million who are buying luxury cars but are not in the so-called “rich” category. This population is nearly 2.5 times the size of the high income/luxury vehicle buyer.

In other words, most of the people buying luxury cars make less than $100,000 a year. That alone is interesting but we can go back into the numbers and learn more.

Dr. Stanley discusses in his post that the average price paid for a car by a millionaire is just over $30 grand. For the decamillionaire: $40 grand. So when someones wealth increases by factors, their spending on vehicles increases by fractions. That means that at some point on the wealth stream we stop spending more on our cars. But with so many people buying luxury brands with lower incomes it’s clear that until we reach that point, we’re overspending on cars. It sounds like that many people are faking being rich, until they actually are. Then they scale back.

This implies two things about rich people:

• After a certain point projecting status becomes less important and money is spent on things with more value (maybe a second home, private school for the grandkids, charity).
• Once we cross a certain point we start saving a greater percentage of our incomes

These two things are not mutually exclusive.

But what does it all mean? These numbers tell me a story about people that live beyond their means, and it’s not just with cars. It’s with purses, vacations, clothes, jewelry, food and even gifts. Most displays of economic status are not likely to be proportionate to the actual status. It is only and indicator of willingness to pay.

Personal Car Advice:

Should you be the type that struggles with figuring out exactly how much money to put towards a car, here’s my little formula. Take your total household income and subtract out any debt payments that aren’t for a mortgage. Take half of that and you’ll have the total maximum value one should ever have for their vehicles. An example is in order.

Say your household makes $90k and after student loan and credit card payments you clear $80k. Half of that is $40k so you should never have cars totaling in value beyond that. For a family with two adults that’s two cars worth $20k each. That is not to be confused always having cars worth that much. Each car should be owned for at least five years and new purchases should have at least 50% down and paid off within 2 years.  Buy a car where you can do that. Get all that?

Now, spending more than $30k on any one car should be considered a luxury purchase and made in all cash. If you can’t swing those things then you can’t afford the car you want. If you can’t follow all that definitely just buy a car that costs 25% of your income, all cash.

Related posts:

1. Consumption Junction
2. A Case For A Consumption Tax
3. A Case Against The Consumption Tax

Related posts brought to you by Yet Another Related Posts Plugin.

This is what happens when a company stops innovating. The Nissan Frontier was once a really cool truck. I remember during the Bush presidency everyone had the 4-door Nissan truck. They were awesome, even I wanted one. Now, Nissan’s smaller truck has no qualities to set it apart from the competition. It doesn’t have good pricing, gas mileage is average, and generally it’s not a great product. Nissan marketers know this and so the best they can do is literally make up stuff that the truck can’t do, and then show the truck doing it with a disclaimer saying it can’t actually do it.

Sadly, it’s selling trucks. This sad excuse for a marketing campaign actually works.

I don’t mean to make fun of Nissan. They generally make fine vehicles. But I do have to show you another commercial:

The narrator asks if it would be cool to take the top down on a crossover. The answer is no. Later in the commercial we see the Nissan Altima, and again we’re asked if it would be cool if the transmission never changed gears. The answer again is no. This vehicle uses a transmission that acts like an automatic, but you never feel the gear-change. For some time Nissan has acted as if this were an innovation when in fact such transmissions have been around as long as cars have. Other automakers don’t make them because there’s yet to be any real benefit over normal automatics. And when was the last time a gear change was an annoyance.

What annoys me is when marketers solve problems no one ever had. But that is kind of the job of a salesman. To create a problem you didn’t have and then solve it for you. “As seen on TV” products are the masters of this and it’s part of the reason why you never buy it. Many times the products can be genuinely decent, but as a Weakonomics reader you still feel skeptical.

Nissan was in my crosshairs because they’re a company I actually care about. Most of their products are good, and they make a number of them here in the US (including the top-selling Altima and soon the all-electric Leaf). It’s disappointing to see a company with good products not actually sell them on the virtues that make them good. But as a famous ad executive once said:

Nobody counts the number of ads you run; they just remember the impression you make.
-William Bernbach

Related posts:

1. General Motors and the BS Marketing Blitz
2. Marketing that doesn’t make sense
3. Excuse Me, There’s Some Bad Marketing In My Oatmeal

Related posts brought to you by Yet Another Related Posts Plugin.

In reality, I think I’m just too lazy to learn how to do some stuff. But that’s started to change recently. At some point hardware stores started to look like toy stores to me. Now I’m buying tools, drilling holes, and taking more of a Tim Taylor attitude to the things I own.

But I’ve never done anything with my car.  Happy to pay someone so long as it comes with a guarantee.  But after working on other things and not wanting to spend hundreds of dollars this weekend I decided to look into some of the stuff a dealer wants to charge me to do.  My car is telling me one of the things I need to replace is the filter in the cabin.  This filters the air that comes in through the vents.  I passed the last time my car told me to replace the filter because the dealer said they would need to rip out the entire dashboard to replace it.  The cost was north of $150.

Not worth it so I took my chances.  20k miles later my car wants to replace it again.  Not dead yet, but I asked the dealer for a quote on all the service.  Aside from basic services which I expect to be less than $150 even at the dealer, they need to replace this filter.  Total quote, over $300.  This thing must be a pain in the ass to get to.

So I looked it up.  The part (which I’m holding in my hand) is about $30.  Cheaper online or at a auto parts store.  The process to replace it, about as hard as filling up your gas tank.  I had to remove one latch on my glove box and pull the thing down.  The filter was right there.  So I pulled it out, cleaned it with my finger, and put it back in.  Later today I’ll go buy a new one.

I’m not about to start changing my own oil, but I could get used to this DIY stuff.  Whether you can afford to pay a mechanic or dealer to do the work is almost irrelevant.  Some of these things are so simple it’s not worth your time to take it somewhere to get this kind of thing worked on.

Related posts:

1. Update On My Car
2. Weakend: 50k Miles
3. Weakend: Car Maintenance

Related posts brought to you by Yet Another Related Posts Plugin.

Well a new report talks about the differences in labor between the two countries.  Essentially, everyone in Germany building cars belongs to a single union.  That union has a lot of power, but unlike in the US, they rarely have to use it to get what they want.  The relationship between automakers and workers in Germany is a lot more friendly.  There’s also the matter of the legal system in Germany being more friendly to the labor force than in the US.  The results yield high wages, but the German automakers are still enormously profitable.

The wage disparity is one reason for the profitability.  Labor costs are substantially lower in the US than Europe.  And the German automakers choose to put their American facilities in states where unionizing is difficult.  But there’s another reason for the company’s profits.

Look at two cars manufactured by BMW.  One is made in South Carolina, the other in Germany.  The first is the X5, it’s an SUV made here in the states and has a starting price around $47.5k.  The other car is the BMW M3, a personal favorite of your enthusiast author.  It’s made in Germany and costs about $60k here in the US.  What do these cars sell for in Germany?  Before European taxes are added, the cost of the X5 is $60k and the M3 is $75k*.  In both cases the European premium is substantial.

That’s because things cost more in Europe.  Wages are higher, so are goods.

But BMW isn’t necessarily always exploiting the cheapest labor they can find.  They’re also making the cars where the customers are going to buy them.  The BMW X5 is the largest vehicle the company makes.  Who likes the big cars?  Americans of course.  Europeans do not.  The M3 is the sports version of the 3 Series product line and is one of the smallest vehicles in their lineup.  3 Series sales in the US are about 25% of global sales and BMW has clearly stated their home country is the largest market.  It stands to reason that they sell more of those vehicles in Germany than the US.

BMW prices these vehicles in each country to sell.  It’s based on competition, and the appetite of the customer.  They way the company calculates margins can be complicated, so it would be really difficult to determine what their most profitable vehicles are and in what country from a blogger’s perspective.

What is clear is that BMW is doing what people don’t expect manufacturers to do.  They’re building cars where their customers will own them.  And they aren’t the only ones.  Samsung just opened a brand new facility in Texas to make the chips that Apple puts in their iPhones and iPads. Companies are slowly bring manufacturing back to the United States.  No longer are wages the only determining factor of production.  Shipping costs have increased substantially.  The US has also continued to be a place where skilled labor is valued.  It takes more training to make a chip or a car than it does a plastic toy in a Happy Meal.  And there’s the advantage of the people making the product also being the ones that understand how it will be used.  While the $15/hour laborer in South Carolina may not own a BMW X5, they’ll certainly understand the market better than someone making twice as much in Europe, with no room or use for such a vehicle.

Labor costs just aren’t everything anymore.  This is likely the new reality of the 21st century.  It’s becoming more and more clear that most the media do not understand this yet.

*There may be some differences in the base price due to regulations and features, however I doubt so much as to cover the premiums. In many cases these vehicles are offered with less options in Europe. For example: you can get BMWs in Europe with cloth seats. Much to my sadness, you cannot get that in the US.

Related posts:

1. China The Importer
2. Why Everyone Hates Labor Day
3. Weakonomics Labor Day Off

Related posts brought to you by Yet Another Related Posts Plugin.

Picture it. You’re sitting at a traffic light, 15 cars are in front of you, work is 20 minutes away and you’ve got a meeting in 10. The light turns green but it seems like no one is moving. Have you ever wondered why everyone doesn’t just go at the same time?

We often think that so many issues boil down to stupidity. I’m certainly guilty of this. The idiots of the world make things worse for everyone. Whether it’s making insurance more expensive, taking up precious and expensive customer service time, or just getting in the way, idiots cost us money and waste our time. This is why we blame things on this collective and unnamed population. Even if sometimes we ourselves might be members.

Back at the light, you’re finally starting to move. But the light turns yellow and then red before you get through. Had everyone gone at the same time when the light turned, you all would have made it. Was someone texting, messing with the radio, or just in la-la land?

Is the answer some kind of ignorance? If we took a random sample of populations we consider to be stupid, would their IQs be lower than average? I doubt it. Chocking things you can’t explain to stupidity is sometimes the most ignorant response we can give.

So why didn’t you get through the light? Look at the car in front of you. Is it exactly one car length in front of you or are you all up on her bumper? We’re stuck waiting in traffic because we have to wait for each car in front of us to pull out at least one car length ahead again. We don’t drive bumper to bumper at 45 mph. In practice we could sit at lights with a car length between each car, but we pack it in at lights to not take up precious road space elsewhere.

Assume for a second that you’re complaining about people moving slowly at lights. Everyone in front of you is stupid. And of course you’re not. But the guy behind you probably thinks you’re an idiot too.

Sure there are stupid people on the road and elsewhere, and they might get in your way from time to time. But there’s a common practice of simply saying something is stupid if we don’t understand it and it frustrates us. That might be the dumbest thing we can do. It takes a wise man to say they really don’t know why something is the way it is, but there’s probably a good explanation for it.

Photo: rob.wiss

Related posts:

1. Fat And Stupid
2. Weakend: Appreciation For Traffic
3. Weakend: Stupid Men

Related posts brought to you by Yet Another Related Posts Plugin.

It’s clear where we’re going to see growth over the next few decades.  Welcome Africa to the world stage.

Meanwhile the US will make huge strides in reducing energy consumption per person.  But it’s also obvious why global green policies are kind of meaningless without the US being involved.

Not surprisingly then the US will lag the world in the fuel economy of vehicles.  We like our big cars and despite a more than two-fold increase in fuel efficiency we’ll still lag the world.

But there is an observable gain in the use of electricity for transportation.  That’s saying plug-in hybrids and electric cars may make a meaningful dent over the next generation.  Usage of coal for electricity will level off  and while renewable energy will have made progress, it will still be a small fraction of electricity production.

Electricity doesn’t represent all energy demand.  On the whole, oil usage will rise.  Naural gas is getting very popular and is cleaner than oil and coal.  This is expected to help bridge the gap to renewable.  Nuclear will not increase enough to make a big dent.  People are still a little afraid of that source.

And of course the reason for the popularity of fossil fuels is and will remain, cost.  This last chart does a good job of showing the cost of various sources of energy, and includes what that cost would look like with a carbon tax.

Exxon’s report makes for interesting reading.  If you like charts and pretty colors you can get a good idea of everything in 10 minutes of skimming.  Exxon isn’t the only organization to do these kinds of projections but it’s good to see the world how corporations see it.  I think many would expect and hope for more accelerated use of reneweables and cars that draw power from the grid.  Exxon doesn’t benefit by under-reporting those numbers because it will just inspire people to get more active.  Check out the entire report here.

Related posts:

1. Weakend: Energy Bands
2. Peak Oil: Are We Running Out Of Black Gold?
3. General Motors and the BS Marketing Blitz

Related posts brought to you by Yet Another Related Posts Plugin.

There is no shortage of examples out there of government waste.  Fiscal conservatives believe that government, especially the federal government, just gets in the way.  In some cases, this is very true.

When governments fund programs or initiatives, they often come with a number of strings attached.  This is likely a result of paranoia over wasting taxpayer moneys.  And short of breaking any laws, one of the worst things that can happen to an incumbent at any level of government is to be in charge of something that ends up being a huge waste of money.

Sometimes though government does a lot of good.  Again, there are no shortage of examples for the good things that come out of government and government funded projects.  If you’re having trouble thinking of stuff, go check out NASA, the National Science Foundation, the Smithsonian, any public university (or private one using govt grants), etc…  For every example of bad and wasteful government programs, there’s an example of a good one.

Below is an example of the former.

A study of Indiana road building had interesting, though not surprising results.  It’s the closest example yet of being able to compare road construction holding all factors constant, except for the funding.  So the roads were in the same area, built by the same contractor, had the same standards, etc.  But one used federal funds while the other used local ones.  The local project cost about $1mm per mile.  The federal one – almost 3 times as much.  Part of this is due to all the strings that come attached to federal money.  Legitimate strings or not, the road cost a lot more and the locally funded road is still projected to last longer and be of better quality than the federal one.

This kind of study will give any small government supporter all the fodder they need to make their case for small government through the next election cycle.  But should it?

Does this example look bad?  Of course.  It seems very wasteful and the local money road looks to be the clear winner.  But that doesn’t mean there is a direct translation of all big government funding acting this way.  In many circumstances the strings attached come down to fair wages, environmental protection, and other likely liberal benefits.  While the road may cost more, the impact on the surrounding area may be greater.  That was not a part of the study.

And even if this is truly a perfect example of big government getting in the way, it shouldn’t translate back to all big government money being wasteful.  It’s like saying a hospital sucks for having to charge higher prices for being extra clean and overly safe.  It may be worth the cost.

Examples of wasteful spending should be treated on a case by case basis.  The goal should be to make government more efficient.  Both sides of the political spectrum benefit from efficiency.  Sadly though, we all know what is more likely to happen.  The right will accuse the left of supporting big government and wasting taxpayer dollars, the left will accuse the right of being in the pocket of corporations and not supporting fair wages and environment protection.

As wasteful as this road program may seem, the most wasteful thing coming out of it will be the political conversations that come from it.

Read: Limited mileage when feds spend

Image: Nicholas T

Related posts:

1. The Government Sucks At Spending And Collecting Money
2. Deficit Fail: Government Spending Isn’t The Problem, It’s Oversight!
3. Weakon 117: Intro to Government Spending

Related posts brought to you by Yet Another Related Posts Plugin.

“Call it a consumption tax, a luxury tax, or whatever. The name doesn’t matter. It’s a tax on buying more than you actually need. Taxing for the sake of taxing is bad, but taxing items with externalities on the surrounding world may not be a bad idea. The best example of this, especially in the US, are cars.”

That’s what I said yesterday when I made the case for a consumption-like tax. Basically, when someone buys a big, gas hogging vehicle, everyone suffers as a result. Gas is more expensive due to inflated demand, everyone has to buy more expensive cars with required safety features to handle a hit from the big cars, and they take up more space in parking lots and freeways. Should this be taxed? Yesterday I explained why it should, today I’ll take a different approach. Primarily…

There already are taxes on all these things. A new consumption tax would be redundant. Let’s start with gas. At the federal and state level gas is already taxed. More fuel efficient cars pay less of this tax, subsidized by the gas hogs. A car that gets 30mpg compared to one that gets 15mpg pays half the taxes for each mile driven. And the ultimate gas hogs are charged a Gas Guzzler Tax*.

Other taxes impact larger and more expensive vehicles too.  Though regulations are set by local governments, I would posit that most everyone pays a yearly tax based on some kind of value for the vehicle; it’s a property tax.  If you have a car worth $50k you’re going to pay a lot more in taxes than a car worth $15k.  This revenue could (directly or indirectly) offset the damage done to streets and subsidize parking lots for cars that pay lesser taxes.  In generic economic theory, it wouldn’t have to directly go to road funding.

But what about those bigger cars making roads more dangerous for everyone?  Once again you have to look at the flow of funds.  Bigger and more expensive cars have more profit built into them.  Most manufacturers make small cars too, with slimmer margins.  The more expensive cars subsidize the R&D needed to make a safer small car.  And the increase in safety needed to deal with the impact of a larger vehicle may not be all that significant.  Other factors, such as speed and shape of the vehicle may be more important in an impact.

Besides, by people buying more than they need they subsidize the price for those that need it.  Trucks would be so much more expensive if only businesses that needed them bought them.  The people that buy trucks for commuting subsidize the price for others.

____

So that’s the case against the tax.  Which side am I on?  Since I’m not an elected official I can safely say I’m somewhere in the middle.  It doesn’t really matter what side I’m on.  But there is one clarifying point about consumption taxes I’d like to make.

Most people that support such taxes wouldn’t disagree with anything I said above.  And most people against it would make the argument above I just did.  Where’s the argument?

Aside from the Gas Guzzler Tax (which SUVs and trucks are exempt from), all the taxes are essentially linear.  Everyone pays the same rate.  So a richer person can easily afford the tax they are paying.  A real consumption tax would be progressive.  A good example of such a tax would be a property tax based on EPA fuel economy estimates.  If your cars gets 30MPG the rate might be 1%, one that gets 15mpg might pay 2%, which is twice as much regardless of the value of the vehicle.

Only taxes like that really drive behavior that is better for everyone.  That would push people into smaller and more fuel efficient cars.  It’s something about making taxes exponentially more expensive that actually drives behavior.

Whether such taxes are good policy or effective in reality are unknowns to this author.  We’d have to see real numbers on whether the existing taxes really offset the increased damage caused, and if a consumption tax would change the behavior.  Also keep in mind that I used cars as an example, and every idea may not translate to other goods.  I imagine a consumption tax would have different levels of effectiveness on other products.

*It’s a bit crazy, but the MPG ratings used to charge the gas guzzler tax haven’t changed since 1991. Probably time to update those and make them a bit more strict.

Image: KayOne73 (this is a BMW M5 from 2000, aside from being my dream car it is a guzzler.  Gas guzzler taxes are only paid once, at initial purchase.  Buying used gets you around it)

Related posts:

1. A Case For A Consumption Tax
2. Yet Another Blogger Talking About Gas Prices, Me!
3. What Grinds My Gears: Tax Deductions Edition

Related posts brought to you by Yet Another Related Posts Plugin.

Most everyone buys more car than they need.  Insecure boys buy big trucks and image conscious women still go for the big SUV.  The libertarian side of me says it’s fine that people want to buy these things.  Let them waste their money on buying more vehicle than they need.  How am I actually hurt?

Well, a big car can really hurt you in a number of ways.  Let’s start with physically.  If you were to get in a car wreck, would you rather be hit by someone in a Lotus Elise which weighs less than 2000 lbs or someone in a Range Rover tipping the scales at over 6000 lbs, a weight so huge it qualifies for a business tax deduction?  If every car weighed just 2000 lbs we wouldn’t need half of the saftey equipment we do have, which makes cars more expensive and heavier.  But since cars all have to be able to survive crashes of a typical vehicle, overweight cars and too big trucks make ever car more expensive just by existing.

Don’t forget about the general size of many vehicles.  Traffic congestion is a big problem in many cities, imagine how much better traffic might be if all those big cars were a foot or two shorter.  You’re talking about hundreds of cars in increased capacity on a typical freeway in the morning commute.  And of course half of these people can’t park to save their lives either.  So they take of precious space by crossing over lines or make everyone in a parking deck take longer to get parked while they back up and adjust 4 or 5 times.

And it’s not just limited to big cars.  Both big cars and performance cars are gas hogs.  By using more fuel than is necessary to sit at a light or go 65mph down the highway you cause more problems for the rest of us.  You have to go to the gas pump more.  Increased demand increases price pressure on oil and gas.  It wouldn’t be hard to imagine gas being at least a little bit cheaper if the gas hogs out there weren’t sucking down extra dinosaur juice.

That’s where the consumption tax comes in.  It taxes people on anything they consumer over and above what is necessary.  But of course how does one define necessary?  For my transportation needs a motorcycle would probably work, but I prefer a sedan.  Maybe the middle ground would be a subcompact car that got 40mpg while still seating 5 people (theoretically).  Should the government really be regulating something like that though?  Who is the government to set such rules?

Are we doomed then to live in a world of externalities?  Well, yes.  But does that mean we should have to deal with the 110lb soccer mom with the 8 passenger SUV about to run into us on the highway without her paying some kind of penalty for all the hell she puts us through? Perhaps the answer is out there.

Image: The Car Spy

Related posts:

1. General Motors and the BS Marketing Blitz
2. What Grinds My Gears: Tax Deductions Edition
3. Why GM, Ford, And Chrysler Deserve NOTHING!

Related posts brought to you by Yet Another Related Posts Plugin.

We’ve driven a lot over the past few years.  We picked up and moved from the southeast to the DC area, and trips back and forth put on quite a few miles since.  The car has also been with me to Manhattan twice.  We’ve been in all kinds of weather, sat in all kinds of traffic, and my butt has been in the driver’s seat for all but maybe 500 miles.

This car isn’t perfect, but it is great.  So far it has been very reliable, the only unscheduled expense was an airbag sensor that cost a few hundred.  There’s been one flat tire, but other than that it’s still on its original set.  Fuel mileage is great too.

There are a few complaints.  The remote on the key doesn’t work consistently but it costs a few hundred bucks to replace and Honda refuses to admit it’s their fault.  It can be loud on the freeway but most Accord owners are used to that and more sound deadening adds weight.  There are a couple of rattles on big bumps, but that is partly what you expect when you buy the first year model of a new generation car.

Kelley Blue Book says my car is worth between $15-$16k  and that sounds about right to me.  Is it worth that much to me still?  Yes.  I can depend on this car to take me wherever I want to go in comfort as well as a dash of sportiness and style.  There are better cars out there now that I would buy if in the market for a new car, but I expect to have this car for some time going forward.

So, my dear car, thank you for keeping me and my family safe and comfortable for these last 50,000 miles.  Here’s to another 50k.

Related posts:

1. The Weakonomist Buys a Car
2. Weakonomics Weekend Edition: Tesla Model S Edition
3. Weakonomics Weekend Edition: More Car Stuff

Related posts brought to you by Yet Another Related Posts Plugin.