I consider a car a consumable not an investment. Yet as an investor who strives to have “no style” –like Bruce Lee’s Jeet Kune Do, a style which is no style–today I signed a deal to buy a second RAV4 in two years. This is not a necessity. We do have the flimsy excuse that my assistant’s car has given up the ghost and he can now purchase my 2001 Pontiac Montana which probably has at least three years of life to go. I could have driven it for a lot longer. But here is why I’ve decided to buy the RAV4 now instead of waiting:
The price was identical to last year’s purchase, though the financing was a little different. Toyota was under a lot of pressure last year because of all the negative publicity and Congressional scrutiny. I chalked up this political harassment to Toyota’s main competitor being the US government itself, seeing as Obama had just bought two car companies, GM and Chrysler with taxpayers’ money. So I felt that the bad publicity and the political harassment was unfair, and that Toyota was like a value stock, and besides, C.J. (my wife) needed a car. You buy a value stock when you know the fundamentals are sound, but the market has abandoned it. Toyota, which had become the number one car manufacturer in the world, had never offered 0 % financing until last year, when we bought C.J.’s RAV4 with 48 months 0 %; and this year’s RAV4 I’m getting at for 36 months 0 %.
Once I drive that car off the lot next week, Toyota Credit will have floated us over CDN $70,000 at 0 % (my RAV4 and the remaining debt on C.J.’s). Why is that a jeet kune do move? Because in times of inflation or hyperinflation, debt is the best hedge. I am anticipating that cars are going to go up in price in the next few months because of commodity inflation, and 0 % financing will be an historic anomaly because credit will become increasingly expensive–to be honest I was surprised that anyone would still offer 0% today. I expect the US dollar to experience hyperinflation in the near future. The Canadian loonie will likewise experience high inflation, though not hyperinflation, as the Bank of Canada seeks desperately and unsuccessfully to keep the loonie at par with the greenback. My gut feeling is that inflation will pay for all of the depreciation on both of these vehicles, and three years hence we will have become the clear winners, for we will have paid Toyota back in devalued currency. If not, well, we will have paid no interest on the loans, so no big deal.
Finally, when hyperinflation hits the world and believe me, I think it is already well under way, people will be desperate to get their hands on real goods, for their currency will be increasingly worthless–and the bottom may fall out of the real estate market too. As for cars, they are a real good. Consider this anecdote from the colorful South American hyperinflationista, Gonzalo Lira:
A true story: In ’73, at the height of the Allende-created hyperinflation, an uncle of mine, who was then a college student, was offered an apartment in exchange for his car. That’s right—an apartment. He owned a crappy little Fiat 147—a POS if ever there was such a thing—but cars in Chile in the middle of that hyperinflation were so scarce, and considered so valuable, that he was offered an apartment in exchange. To this day, my uncle still tells the story—with deep regret, because he didn’t follow through on the offer: “That Fiat was in the junkyard by ’78, but that apartment still stands! And today it’s worth nearly a half a million dollars!” Actually, I think it’s worth a bit more than that.
In the style that is no style, the jeet kune do investor must be able to anticipate the future. The best way to do that is to study the past.
A note of caution: this is not a recommendation to the esteemed readers of this blog to go out and buy a car. It relates to our personal circumstances and investment style–or no style (see Jeet kune do investing I).