The less expensive the vehicle, the more important reliability is

The more expensive the car, the more people are willing to forgive poor reliability. That may seem contradictory. We would expect that the more expensive a vehicle, the more reliable the vehicle is right?

As humans, psychologically, we tend to assign quality to a price. Actually, for the most part, that is not correct. Complex vehicles tend to have more parts that can break. They are also often at the forefront of modern electronics and that can impact reliability. Finally, in the case of performance vehicles, they are being pushed to the limits of performance. They were designed for performance, not long term reliability, where there is a trade-off between the two. The end result is that the most luxurious and high performing vehicles often have the highest repair costs. If transport from place A to B were the only concern, a simple vehicle would suffice.

Even with a single manufacturer, often the least complex and more affordable vehicles are the most reliable. An example is BMW. The 3 series, apart from being the cheapest, is also the most reliable to operate. The one advice I give to owners of such vehicles is that skipping maintenance is a terrible idea. It will only end up with a larger repair bill in the future, or the vehicle will be a write-off (ex: it is repairable, but not economical to repair).

What does it mean? Are there luxury cars that can avoid the high maintenance costs over time?

That means that total cost of repairs over the lifespan of the vehicle goes up. It is also why the top end luxury and performance vehicles rapidly depreciate. Often the depreciation curve will be even faster than it will be for regular, less expensive vehicles. In other words, the cost of the vehicle may be cheap to purchase, but costs of repairs and maintenance will be very expensive as the vehicle ages. The buyer of a used luxury vehicle is often paying less upfront in return for higher maintenance costs.

So what are the exceptions?  Lexus is notable for its reliability, according to JD Power and Associates, which measures reliability in the first 3 years of operation. Note that in the same JD Power Survey, Porsche also did very well. Actually, one question I’d love to see examined is after the past 3 years.

The Vehicle Dependability Study (VDS) examines issues reported by original owners of 3-year-old vehicles. This study measures car reliability by analyzing problems experienced over the past 12 months of ownership in such areas as: features and controls; engine and transmission;entertainment and navigation; heating and cooling; the overall driving experience, and more. For ratings and information about the most reliable cars, click on a category below.

According to JD Power, they only test for the first 3 years. I would be unsurprised if both do hold. Keep in mind though that Porsches are often babied and kept in the garage by their wealthy owners, which further strengthens my point that the more expensive a vehicle is, the less important reliability becomes.

TrueDelta may be a good source of that information. Search any vehicle based on real world data. Here for example, is the Lexus LS series on TrueDelta.  Lexus and indeed all of Toyota, has been criticized for being reliable but boring. Perhaps they will turn a corner with more aggressive styling. Certainly, the newer 2018 model Lexus and Toyota vehicles are more aggressively styled. That would be akin to having one’s cake and eating it too, a vehicle that is cheap to operate, but with aggressive styling, along with perhaps the performance that comes with it.

This in turn affects Toyota and Lexus resale values for used vehicles. They tend to depreciate less often because people are aware that the total costs of ownership do not increase over time. Anecdotally, I once had a mechanic who told me that with Toyota vehicles, he never made as much money on average compared to other vehicles. Toyota, to achieve this result, tends to be very conservative in its approach, only taking on widely accepted technologies and focusing on reliability. They know that they are conservative and have never advertised otherwise.

Can luxury vehicles go down market? It will be a very difficult task. Here is why.

Perhaps the biggest and most interesting question is whether or not top end vehicle manufacturers can go down market and reap the rewards of much greater volume. The automotive industry is extremely competitive. Capital costs, R&D costs, and labor costs can be very high. Meanwhile, the customer is at the lower end is often very price sensitive and margins are razor thin.

An example might be Tesla. It currently has the worst reliability according to Consumer Reports and other major media sources. Apparently, repair costs are so high that insurance providers have had to increase premiums significantly.

Although I disagree with Vox Media’s political and editorial stances frequently, but this article claiming that Tesla vehicles are not reliable is interesting. It claims that the vehicle manufacturer Tesla will struggle to move downmarket because although Tesla is competitive with its electric vehicles in the luxury end of the market, going lower end is far more difficult. Another challenge for Silicon Valley is cultural, transitioning from a software focused industry into a hardware focused industry such as automobiles is not easy. Having worked with both, I think that is a fair criticism. Scaling up and the difficulties associated with scaling up too are unique. Perhaps a hardware company would be the best option as to entering into the automotive industry.

Customers are far more price sensitive at the lower end and far more unwilling to forgive poor reliability. Witness the rise of the Japanese automakers with their Kaizen “continuous improvement” strategy, which were able to overtake the American automakers in the 1970s and 1980s.

The reason why customers at the lower end are less willing to forgive reliability is because they have less disposable income. A vehicle for them is often a mandatory transportation tool. In a breakdown, they are without a vehicle, and forced to rent or borrow a vehicle for the time being. By contrast, for the very rich, a vehicle is a status symbol, so they can afford breakdowns.

Certainly, critics have argued that Tesla may have missed the boat on the revolutionary  Toyota Production System (TPS), which Toyota has shared with its suppliers and partners. By doing so, critics contend that Musk has missed opportunities. Having worked in the automotive industry myself, if it is indeed true that Musk has put quarterly profits and stock prices ahead of quality and reliability, this would be a major misstep on Tesla’s part.

Does that mean Tesla is doomed? No, but it would mean that it has to make major changes to gain true mass market appeal. Tesla as it stands, is a status symbol and a luxury car manufacturer. While the low reliability may not be an issue for the less price conscious luxury market, it will be a major challenge in the mainstream car market. Keep in mind that this will affect Tesla vehicle meant for the mass market as well, because it will be competing with vehicles that are cheaper and such customers will be more sensitive to insurance or repairs.

There does seem to be a heavy reliance on taxpayer subsidies at the moment. Sales in Hong Kong for example dropped to zero when the tax subsidies were repealed. Many other regions are proposing to get rid of their respective tax credits, which could affect Tesla as well, being an electric car maker. Combine that with a mainstream public that is not willing to forgive low reliability in vehicles and Tesla has a great deal of challenge ahead.

What does this all mean?

For those looking for the lowest repair build, a cheap vehicle that is based on a car line and manufacturer with a history of reliability is likely to have the fewest problems. Just as well, because the people who purchase such vehicles are often the most price sensitive and as a result, any vehicle failures would have an immediate impact on them.

By contrast, the more luxurious a vehicle or higher performing a vehicle, the more likely it is to break. There may be a few exceptions, such as Lexus, but the trend is true. Owners of such vehicles can accept those loses because they have higher income and because for them, vehicles are more of a status symbol than anything else. It makes it incredibly difficult though for a high end car manufacturer to move down the market to build mass market vehicles. The demand for higher reliability, while at a lower cost is what makes building vehicles so uniquely challenging.

When we  think about vehicles, to us the “sexiest” vehicles are always the fastest or perhaps the most luxurious. Ironically in many ways, it is the vehicles that we use everyday that are more affordable that are often the most reliable.\

As for Tesla, it is impossible to predict the future. Here though is to wishing the best of fortunes to electric automobiles revolutionizing the industry.

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