Friday, 12 May 2017

Wheeler Dealers - a good illustration of price setting mechanisms

We know that these programmes became more and more staged with each successive series, and the numbers don't add up etc, but there is still a lot of truth in them. Let's assume that they are true to life, the three stages are a good illustration of monopoly and competitive price setting.

Stage 1. Mike goes to see some 'classic car'. These aren't being made any more, so supply is fixed (and gradually dwindling) and prices are set purely by demand.

It's a variation of the normal supply/demand thing, the only reason why some of the cars they buy and sell are worth that much is because they are so rare. In one episode they sold a Bond Bug for £8,000, FFS. I assumed they'd jumped the shark, but if you look online, that's what the best ones sell for.

So Mike haggles quite ruthlessly. The seller only has one car to sell and wants/needs cash, Mike has cash but can walk away and buy something else instead.

(When Mike sells the car at the end of the show, it's exactly the same situation, no need to cover that one separately).

Stage 2. Mike gets the wheels refurbished and Mike or Edd get the seats reupholstered and/or the car body sprayed etc. They hardly ever haggle on the price because they know full well that if they fail to offer the market rate for labour, expertise, use of plant machinery and supplier's profit, then the work simply will not get done. Presumably they go to the supplier with the best price/quality mix, and the supplier knows it. When they make a half-hearted attempt at haggling, the supplier tells them to piss off, so they always cave in and pay asking price.

Stage 3. Finally, there are always some bits and pieces like a bumper or some trim which need to be replaced with original parts. The monopoly boot is now on the other foot with a vengeance. The stockist who happens to have an original bumper for exactly that model is in no hurry to sell, it's been on a shelf for years and could stay there indefinitely; but the stockist knows that his bumper is the only one available.

Mike sells cars to purists for top whack, but he can't sell the car to a purist without the pukka original matching bumper. Without a non-original bumper, he can sell for £10,000; with the bumper he can sell for £15,000, so the stockist who happens to have it can take a large chunk of the £5,000 uplift.

If you broke the car down into all its components and apportioned the £15,000, the bumper would be worth nowhere near £5,000 of course, more like £150, although he can easily sell it to Mike for £1,000.

14 comments:

Lola said...

I am pleased someone else watches WD.

The best one was the farmer with the Porsche 914:-

https://en.wikipedia.org/wiki/Porsche_914

Theirs was only the 4 cylinder version.

The farmer sold it to them on the understanding that he had first refusal to buy it back. Which he did without haggling. He knew that he'd get all that skilled labour for free. He could not have got it rebuilt to the WD standard at anything like the price difference between his selling and buying price.

That's farmers for you. Shrewd.

Mark Wadsworth said...

L, that's one of my favourite episodes. Mike claims to have made a profit of £2,500 or something, but that's mainly for several days of Edd and Paul's skilled labour, so a fair price to pay. Plus lovely little car.

Rich Tee said...

Edd China has recently left the series in protest at changes being made by the new American production company:

https://www.youtube.com/watch?v=8IB15T1LYiY

This caused me to research it a bit more. It is interesting where many of the cars end up. Many of them seem to be scrapped within a year or two of the programme. Many of the buyers in the show are actually members of the production crew, apparently because they are unable to find buyers for the vehicles with the production schedule. These people then promptly put them up for sale, often before the episode is even aired for the first time.

Lola said...

RT

I am not at all surprised as to who buys them and what happens to them. Mostly, with a few exceptions - the Elan and the Porsche 914 for example - they are just not worth it.

And, yes, I'd seen that EC was leaving the series. Because they were going to cut the bit I like most - the way EC tackles the work.

Mark Wadsworth said...

RT,I have looked some of them up on cazana, half the ones they sell are no longer on the road.

Dinero said...

It seems to me that mike can't change the market selling price for a restored car, the last step, and so the way to make a profit is to concentrate on buying at a low price .

Steven_L said...

My fav was when he picked up the Porsche Boxster that simply needed a gearbox oil change for £1k. I dunno whether that was staged but I can well believe there people daft/lazy enough for it to be real.

The thing they never account for is Ed's time (and the rent on his garage). He strikes me as the sort of bloke who could easily get a very well paid job. But he spends days on end (with his assistant) working on a car they sell for £1k profit.

Lola said...

StevenL
Yup. I have experience of the historic and classic car world and it is bloody difficult to make decent money when you take the labour into account.

Bayard said...

"The thing they never account for is Ed's time (and the rent on his garage)."

There used to be a Property Porn programme years ago (I forget its name, it may have been "Homes Under the Hammer"), where they followed people buying houses in poor condition at auction and doing them up. They'd bring in an estate agent at the start and the finish to value the house. What was interesting was that, at the end, they would always ask how much the house would be now worth in its original condition, thus highlighting, in many cases, that the enthusiastic DIYers had been labouring away for months or even years for absolute peanuts.

Mike W said...

Even though I have no interest in classic cars, I have to say I enjoyed watching the skilled one go about his business. I love the clean,coordinated, carefully routed wiring on these show cars. Even though it is all dirty in a week! I think it would be a good resource if any of you found youreslf teaching business/economics and discussing return on factors, as already suggested above.
Thinking of Bayard's last point. Does anybody think that Babs Beeny is actually a closet Georgist? In her new propert porn show, on how to avoid a mortgate, every episode accidently brings home that only someone whose parents already own the land, can live cheaply.I think someone needs to thank her for helping the cause.

Mark Wadsworth said...

Din, that's also true. I didn't both with stage 4, selling, that is the mirror of stage 1.

SL, that was a good episode as well, he was lucky and they did make a real profit. But the main point is that most times, what hey call "profit" is what everybody else calls "wages".

B, Sarah Beeny does that as well, she tells people "congrats, you've finished your refurb and your house has gone up by £x, but if you had done nothing it would have gone up in value by nearly as much as £x anyway".

MW, is Beeny a Georgist? I doubt it, but she's not a totally brainwashed home-owner-ist like the others.

Lola said...

In re the last paragraph in MW post, plus the bumper price point in his comment above. The exact same premium applies to chassis plates in the historic racing car world. Most historic races (and we are talking Big Money here - GT40's at couple of million and Chevron B8's at 1/4 million) are chassis plate specials. 'Triggers broom' cars. Such is the way with racers. But if you can prove the provenance AND you have the chassis plate...

Bayard said...

L, are you saying that the only original part of the car is the chassis plate? I recently offended a girl who was describing what her father did by suggesting he built replica WWII aircraft. "They are NOT replicas", she huffed, "they contain at least one original part and so can be sold as "rebuilds".

Contact YPP said...

L and B, there is a lot of Trigger's Broom-ism about all this, but people seem to know original when they see it.

I like cars original and stock, apart from the stereo, every car I've ever owned, the first thing I did was upgrade to whatever was newest and best at the time (the current best being USBs on data sticks).