16 May 2007

Auto Versus Manual Transmission

At http://www.missico.com/personal/thoughts/make_car_last.htm it says the following: "Manual transmissions cost less and are cheaper to maintain than automatics..."

However at http://groups.google.com.au/group/aus.cars/msg/6228780526a60c29 it says the following: "Transmission: get an auto. Unless you don't mind paying for clutch replacement and you can do this yourself, an auto will be cheaper to maintain in the long run."

So who is correct?

I am a second-hand car buyer. I never buy new cars because of their depreciation. Second-hand cars depreciate too but not by as much. My dad and my brother both tell me that a manual car is cheaper to maintain than an auto in the long run. My brother tells me that with an auto you must constantly change the transmission fluid and each time you do this you must pay a small amount. With a manual, there is no transmission fluid. However, because of this there is gear wear and your transmission needs to be replaced. He says the cost of replacing the manual transmission every, say, 200,000kms, is about $1000 while the cost of replacing the transmission fluid every, say, 20,000kms is about $200, so in the long run you're better off with a manual.

But this assumes that you buy a new car! If you buy a second-hand car just before the manual transmission is fully worn out, then you are in for a large repair bill. You would probably be better off with an auto. As I said, this issue is a grey area for me, and nobody seems to have given me any firm evidence about what is right. I hear one person saying one thing and another person saying the complete opposite.

15 May 2007

Should ESP be Standard on All Cars?

Electronic Stability Program uses computers to help a car maintain control if it happens to loose control. Many cars coming out do not come with ESP and some people think this is abhorrent. They want government to intervene and make ESP mandatory. "Safety should be standard," is what my friend said. "You can't put a price on safety."

The problem with safety is that you can always get more safety for a price. Sure, you can add on ESP, air bags, etc, and have a pretty safe car, but you can always go further. How about bullet-proof shatter-proof glass, re-enforced armor, diamond-plated A-pillars, super-grip performance tires, and electrocuting door handles to prevent carjacking? If all these features are standard, no car on the market will be below $100,000. The cost of commuting to work will be greater than wages from work, so people will quit, and the economy will stuff up.

Golf Versus Corolla: Is Diesel Cheaper than Petrol?

Diesel cars usually get better fuel economy than petrol cars. In Australia, the price of diesel, I have noticed, is about the same as that on petrol, so you get better running costs with a diesel car. However, diesel cars tend to be more expensive. There is a premium you have to pay to get diesel and this may erode any fuel efficiency benefits.

A friend of mine was thinking about whether he should get a petrol Toyota Corolla or a diesel Volkswagon Golf. He told me he was thinking about getting the Golf because apparently his friend told him that diesels have good resale value and are more fuel efficient. But let's do the calculations.

The estimated redbook resale value after three years on the cheapest Golf is 62 per cent and on the cheapest Corolla it is 66 per cent (see the back of Wheels Magazine). Considering that the Corolla is much cheaper, the absolute dollar amount lost through depreciation is much greater from a Golf than it is for a Corolla. In three years, if you buy a Golf, you will lose $10,640 in depreciation costs. If you buy a Corolla, in three years you will lose $6800 in depreciation costs.

Does the fuel efficiency of the diesel Golf compensate for its price premium?

The cheapest diesel Golf is the 1.6L TDI Trendline, which costs about $28,000 to buy. It consumes 5.5L/100km on diesel. The cheapest Corolla is the Corolla sedan, which consumes 7.4L/100km.

Assume diesel and petrol are the same price at $1.20 per litre. By travelling using a Golf you save $2.28 per 100km. The price difference between a Golf and Corolla is about $8000. In order to recoup the cost of driving the higher-priced Golf you will need to drive 350,877 km. The average person drives 20,000km per year, so it will take you 17 years. Will you drive your Golf for 17 years?

13 May 2007

Missing Madeleine McCann

A British couple who are both doctors but not celebrities had a child kidnapped and there seems to be much attention by the media. A group of billionaires have offered huge sums of money for information that may help get the child back. Every day, hundreds of children go missing all over the world, yet this case seems to get more attention. I am guessing it's because the missing child is pretty and also because the parents are probably rich. There is also an element of pedophilia in this case. These three elements, pretty girl, rich parents, and pedophilia, probably help. Another example is the JonBenet Ramsey case, which had all these three elements.

12 May 2007

LPG Vapour-Injection System Not Worth It

If petrol prices are too high, you can convert your car to run on LPG and save money. The Australian government is giving $2000 to anyone who converts a car to LPG. There are two types of LPG systems available now, the old venturi-mixer system that costs about $2500 and the newer vapor-injection system that costs about $4500. The new system is better because there is no power loss, smooth idling, and good ignition. The new vapor-injection system also uses 10 per cent less LPG. However, a pure monetary analysis of the two systems shows that the old system is better (for me at least).

For of all I will make a case for conversion to LPG. I drive a Toyota Camry V6. Its rated fuel efficiency is about 10L/100km but I find it does about 12L/100km in the real world. LPG uses more fuel per kilometer. Its rated fuel efficiency is 16L/100km. Assume LPG costs $0.45 per liter and assume petrol costs $1.20 per liter, which is how it is now. This means it costs me $7.20/100km on LPG and $12/100km on petrol, which means I save $4.80 per 100km if I drive an LPG car. I drive about 9500km per year, so in one year I save $456. A conversion costs $2500 and I get $2000 back from the government, so effectively I pay $500, which means I recoup the costs in about a year of driving. And after I recoup the costs I go on saving $456 per year into eternity. Suppose that instead of investing in LPG I invested my $500 in shares instead. On average shares return about 10 per cent, but during boom time (like now) it can be higher. Last year if you invested you would get 22 per cent. If I invested in LPG I would recoup costs in one year and in the second year I would make about $500 and in the third year I would make another $500, so after three years I will have about $1000. If I invested in shares, assuming shares gives a rate of return of 10 per cent, then I make $665, so LPG investment is better. Its returns are roughly equal to that of returns from shares in boom time, but LPG investment is certain whereas with shares it may not always be boom time.

Now to get to vapor-injection. The vapor-injection LPG system costs $4500, so it costs $2000 more than an old-style LPG system. However, you use 10 per cent less LPG. Will you ever recoup the costs? Remember my car on LPG will have fuel efficiency of 16L/100km. I do 9500km per year, which means I use 1520 liters per year, and assuming LPG costs $0.45 per liter the car will cost be $684 to run in one year. If I save 10 per cent on fuel costs with this new vapor-injection system then I save $68.40 per year. That's it! Basically, if you put that extra $2000 in shares that return 10% you'd get $200 in one year, which is more than what you'd get in your vapor-injection system. If you want certainty you can invest in a cash savings account and get 6 per cent for sure, which means you make $120. This is still more. The vapor-injection system then makes no economic sense at all. It does make sense if you want performance and comfort, but if you cared about all that, why would you bother converting to LPG and lose space in your boot?

Now of course, my analysis works for me because I drive only 9500km in one year. If you do more kilometers then this new system may be appropriate. So let's start again. LPG costs $0.072 per kilometer, and if this new LPG system saves 10 per cent then you save $0.0072 per kilometer. Now if you invest your $2000 in shares you make $200. To save that much with this new LPG system you'd have to drive 27,777 km in one year. I don't do this much driving, but others may. Of course, this isn't a proper analysis. With shares, you make $200 in one year, but if you reinvest then you get $2420 the next year (you make $220 the following year). With you new LPG system you still get $200 the following year. That is, you make $20 less, and this is because with shares your returns are compounded over time whereas with LPG your gains are just a stream of income into the future, i.e. an annuity. I could do more complex stuff to make these two investments more comparable, but that would take too long. I doubt I will ever drive 27,000 km in a year.

08 May 2007

How Population Control Can Encourage Child Trade

At university today we were talking about the economics of reproduction. The lecturer was talking about how population growth can result in environmental degradation. One student in the lecture suggested that maybe some sort of population control would be good. He was referring to population control similar to that in China where parents can only have one child.

I argued that if government made a rule saying that each family or couple can only have a fixed number of children then this could encourage child trading because of variation in how many children each couple want.

When a couple makes decisions on how many children they want, they look at costs and benefits. The benefits of having children make up the demand curve and the costs make up the supply curve. The supply curve is equal to the marginal cost curve. Costs of having children include the opportunity cost of having children, and this is the fundamental reason why rich people have fewer children than poor people. If a rich person takes care of a child for one hour, he could have gone to work and earned, say, $100. By taking care of a child for an hour the rich person wastes $1000. If a person person takes care of a child for one hour, he could have gone to work and earned, say, $10. The poor person only wastes $10 if he looks after a child for an hour, and so it costs more for a rich person to look after a child.

In figure 1 we have a situation where because of the richer person's higher wage then his marginal cost curves are steeper and let us suppose the optimal number of children a rich person wants is one. The optimal number of children a poor person wants is 3 in this diagram.

The replacement rate is 2.1 children. If each woman has 2.1 children then the population will remain constant in the long run. If each woman has less than 2.1 children then the population will decrease in the long run. So let us suppose government makes it mandatory that all couples must have 2 children. What this does, as you can see in figure 2, is force people away from equilibrium. A poor couple wanted 3 children but can only have 2, so among poor people there is under-supply and over-demand of children. A rich couple wanted 1 child but must have 2, so among rich people there is over-supply and under-demand for children. Rich people then will want to sell their children to poor people. Because a price differential has emerged between two markets, what will likely happen is that a broker, a baby broker, will try to arbitrage to exploit this price differential. The baby broker will purchase children from rich families for a cheap price (because rich people are more willing to sell their children) and then sell these cheap children to poor families who value them more. The process of arbitrage would restore the market to equilibrium, and rich and poor people would be happy. However, my point is that if you have something against trade in babies then you really shouldn't be for population control because the latter encourages the former.

07 May 2007

Elle Fanning Wears Glasses

It looks as if Elle Fanning, little sister of Dakota Fanning, is wearing glasses now. I don't know whether she's short-sighted or long-sighted though. Elle's sister Dakota played in War of the Worlds alongside Tom Cruise. Elle herself has been in many movies, such as Because of Winn-Dixie, Deja Vu, and Babel.

06 May 2007

Hummer H3 in Australia

The Hummer is coming to Australia, and for about $50,000 you can be sure it will be snapped up by those who want look tough. There's no other reason why you would want a Hummer. Because of its big wheels (designed to make it look tougher), interior space is compromised. Even though it looks bulky and rugged, the H3 actually has similar dimensions as a Ford Territory. It weighs a measly 2100kg, which is heavy compared to sedans and small cars, but it's not heavy compared to your average Range Rover (2400kg) or Landcruiser Sahara (2700kg). In fact, its weight puts it in the league of the softroader or crossover. The H3 then is the ultimate pretend car. It reminds me of short men who spend so much time at the gym to develop huge muscles. The huge muscles do not look right on a person of low height. It looks like he is trying to compensate for low height by increasing muscle mass. Likewise, those who buy the H3 want the tough image but are unwilling or unable to handle the weight and fuel costs of a truly large vehicle. The H1 and H2 or course are different since they actually are big cars.

Check out what this lady Heidi has to say about the Hummer: "Now, I understand that Hummers -- and off-road vehicles in general -- send a powerful message of masculinity. They say, 'I can go anywhere.' They say, 'I am not constrained by roads, or other rules of society.' Hummers are the strong and silent type. Very strong, and if you can tune out the engine noise and find an off-road road wide enough for your car, very silent. The Hummer is even more than that. It's the strong, silent, and highly regimented type. So I can see that there's a definite element of machismo there. Very Western-Hero rides in and saves the girl and keeps his mouth shut kind of thing."

Yeah, okay. Whatever. It's amazing how two people looking at the same thing can see completely different things.

02 May 2007

Generalist v. Vocational Degrees

Which is better in terms of profitability. Most people tell me that vocational degrees are good if you want a high paying job, but strangely most people who tell me this tend to be lower paid people, so perhaps their word is not credible. The link below from ANU says that generalist degrees are good:


Vocational degrees are more specialized, e.g. but some argue because of this specialization the knowledge can too quickly become irrelevant. This is apparently the case in competitive industries like engineering and marketing, but not so in the government protected ones e.g. medicine.

Another friend of mine is trying to decide whether to do a specialist course like a Masters in Marketing or whether he should do an MBA, which is more generalist as he'll be learning from a variety of disciplines. He told me that he is thinking of doing an MBA because narrow degrees only get you to middle management. It's the generalist degrees that bring you to CEO, etc.

01 May 2007

Scientology just Another Religion

I've heard many people, even Christians and Muslims, criticizing Scientology because some of its beliefs are too hard to believe.

The definition of a religion is a system that seeks supernatural explanations for life's big questions. The explanation for human existence from Scientology is definitely not naturalistic or scientific, and so it is religious and so Scientology is a religion, just like Christianity and Islam.