I've got this 4-hour macroeconomics class, with an awesome professor. Now, he and I debated a bit over what a car is classified as... a product or a tool/capital?
You need one to travel in order to sell your time, skills, and labor in exchange for money. But at the same time, its an end-product produced for consumers.
So what the heck is it? Product or capital?
-Jesda
Economically, what is a car?
A morphing of the two dependent on whose perspective the objection in question is considered from. To someone like me, it is a tool that I use to get to work. If by tool/capital you mean, does it generate capital, then yes, for me it does.
It also generates capital for those who build them, as well as for those who sell them, repair them, market them, etc, etc. Cars / vehicles also provide sources of capital for the industries that support them, CalTrans, the oil / gasoline companies, the labor unions who represent both the transportation workers, and those who build the transportation.
Although I'd never considered it until now, a new vehicle most likely siphons about 10-20% of its value back into the economy in some way, each and every year. Unless it's ridiculously expensive like a Lamborghini. I doubt you're going to spend $200,000 on gas and oil changes during the course of ownership.
It also generates capital for those who build them, as well as for those who sell them, repair them, market them, etc, etc. Cars / vehicles also provide sources of capital for the industries that support them, CalTrans, the oil / gasoline companies, the labor unions who represent both the transportation workers, and those who build the transportation.
Although I'd never considered it until now, a new vehicle most likely siphons about 10-20% of its value back into the economy in some way, each and every year. Unless it's ridiculously expensive like a Lamborghini. I doubt you're going to spend $200,000 on gas and oil changes during the course of ownership.
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Q451990
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Depends on it's use I guess... I was actually thinking of this a day or two ago, with the Q on jackstands. As a real estate broker, my car is definately capital. If I got a DUI tomorrow and they took away my license, I would be out of business! Somehow I don't think "Let me show you some houses... oh by the way, pick me up at my house around noon" would work too well! (Actually I rarely work with buyers, but that's not the point).
Could I get by with just the truck? Obviously yes, but I wouldn't be nearly as productive... The fact that I enjoy driving what I drive makes it much more likely that I will go out and preview investment property, check on my listings, etc.
On the other hand, if s car was strictly for pleasure (who's car is these days) then it's a product.
When you think of it, most things work this way (cell phones, computers, etc) One of those real world (no ceteris paribus) meets economics questions.
That's my take on it...
Heath
Could I get by with just the truck? Obviously yes, but I wouldn't be nearly as productive... The fact that I enjoy driving what I drive makes it much more likely that I will go out and preview investment property, check on my listings, etc.
On the other hand, if s car was strictly for pleasure (who's car is these days) then it's a product.
When you think of it, most things work this way (cell phones, computers, etc) One of those real world (no ceteris paribus) meets economics questions.
That's my take on it...
Heath
My professor might disagree with me (and I'm probably wrong). I tend to see the automobile, at least for most of us, as a tool used for production of goods and services. Its capital.
Perhaps it isnt capital in the sense that a carpet store needs vans or a hospital needs ambulances, but its still an object used in order to produce goods and services, whether directly or traveling to a place where you will be producing or acquiring goods for production.
If you're an artist and you drive to the arts and crafts store to purchase paint and brushes, I tend to believe the car is capital just as much as a paintbrush.
Maybe I'm focusing too much on the semantics? Or not enough?
-Jesda
Perhaps it isnt capital in the sense that a carpet store needs vans or a hospital needs ambulances, but its still an object used in order to produce goods and services, whether directly or traveling to a place where you will be producing or acquiring goods for production.
If you're an artist and you drive to the arts and crafts store to purchase paint and brushes, I tend to believe the car is capital just as much as a paintbrush.
Maybe I'm focusing too much on the semantics? Or not enough?
-Jesda
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driverdriver
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Jesda this is a great question! Think of a car as a necessity first. Can you survive without this necessity? Most could, but.. a determining group of factors come in to play here. Call them variables. To solve a math computation the variables are either given or you have to find them. When looking at a car as a necessity each individual person would fill in those "variables" making it impossible for you to determine... unless a specific instance was given ala Q451990. Now, can you change those variables to allow Q451990 to survive without this "product or Capital"? Yes , actually you can. All be it not what the individual would consider his "optimum variables. You could put him in the Big city and give him another job, yes, but this means you are determining what that individual thinks of his car and not letting him do so.
If you can decide these variables for someone then it's not a fair question is it? If you leave that up to the individual you may not get the same answer as yours or the one you may want. A necessity would be considered and tool and therefor capital. Now, if it's not truly a necessity because each individual has a different idea of what that may actually be and you can not determine that for them we must move on.
Let's now think of a car as a convenience. A convenience removes said variables and allows you to figure your math computation by giving you the formula you need to determine a possible answer. As a convenience the car allows Q451990 to work, play, relax and the biggie RELY ON it. None of this you are determining for him. Now since you don't need to fill in any blanks you could possibly say his car is a product or Capital can't you. Why yes I beleive you can.
Since you can now decide for yourself an idividuals need or lack there of for a car you can now answer your question. First, does capital mean the value of said object remains the same, increases or decreases? The set apparent value of capital is just that Value. If I buy a house it generally goes up in what? Value. A fine gemstone or gold increases in value so one would consider this capital. If a car falls in value and does not increase then how can you consider this Capital?
Let's look at this as a product. To see this clearly you need to know what a product is. Anything can be a product right? Not really. Essentialy in our thought pattern anything can be, but for our question, no not everything could be a prodcut. Products are made to be sold to the masses over and over again. Something that people would want, something they rely on and something that they would want to rely on. Something they would need, something you know they would want.
Now, if capital has said set value, a car does not fit that does it? Yet it does fit a product roll doesn't it. Don't take the " well I need my car to make money" thing because then you are getting into the variable thing again that can change, thus argueing necessity or convenience.
Therefor a car is a Product...
red
The short answer is that a car is an asset. In its early life it is owned by the manufacturer or dealer, and is considered inventory, a type of asset.
Once sold to the end user, it becomes an asset of the new owner, aquired by the exchange of another asset(s) (cash and maybe a trade), and perhaps a liability (car loan or lease). For most, it is simply a personal asset, no different than any other personal asset. Like most (but not all) personal assets, it has a finite life and depreciates over time. As we all know, new Infinitis in particular excel at the latter. Although most of us would certainly consider a car a necessity, simply providing transportation to and from your job does not classify it as a business asset, and therefore really doesn't allow it the distinction of capital used in the production of goods and services. Many might disagree, but I'll stand by the criteria used by our friends at IRS. This is why there is no tax deduction available for using your car to commute to and from work.
However, if the car is owned by a business, or is used by an employee or self employed person actively in the conduct of business, then the distinction changes. It then becomes a business asset used in the production of goods and services, which technically allows the term capital to be applied to the car. This also affords certain tax benefits that can be used to offset revenue that the car helped generate.
It is not uncommon for a car to have a split personality. Many people report on their tax returns that a percentage of the car useage and therefore the associated operating expenses are applied to business use, and the complementing percentage applied as personal use. This certainly fits my own situation.
So, the answer to the question is determined by who currently owns the vehicle and what function(s) it currently performs for the owner.
Once sold to the end user, it becomes an asset of the new owner, aquired by the exchange of another asset(s) (cash and maybe a trade), and perhaps a liability (car loan or lease). For most, it is simply a personal asset, no different than any other personal asset. Like most (but not all) personal assets, it has a finite life and depreciates over time. As we all know, new Infinitis in particular excel at the latter. Although most of us would certainly consider a car a necessity, simply providing transportation to and from your job does not classify it as a business asset, and therefore really doesn't allow it the distinction of capital used in the production of goods and services. Many might disagree, but I'll stand by the criteria used by our friends at IRS. This is why there is no tax deduction available for using your car to commute to and from work.
However, if the car is owned by a business, or is used by an employee or self employed person actively in the conduct of business, then the distinction changes. It then becomes a business asset used in the production of goods and services, which technically allows the term capital to be applied to the car. This also affords certain tax benefits that can be used to offset revenue that the car helped generate.
It is not uncommon for a car to have a split personality. Many people report on their tax returns that a percentage of the car useage and therefore the associated operating expenses are applied to business use, and the complementing percentage applied as personal use. This certainly fits my own situation.
So, the answer to the question is determined by who currently owns the vehicle and what function(s) it currently performs for the owner.
First of all, the first issue to clarify is: What is the definition of an asset? The definition of an asset is relevant usually, if not mostly, if the owning entity is a corporation or not.
The key is who is purchasing it and for what use. If you (or someone else) own a company and the company purchases it for the sole use as an asset to produce goods, then it is an asset which you invested capital in to acquire. Keep in mind that some purchases by corporations are NOT considered assets but expenses, but we don't need to get into that discussion here.
Everyone should be careful not categorize most products and services as assets. If you are purchasing an asset as an individual, it is a product, regardless of your use. You are not a corporation. You cannot do without food either, that doesn't imply that food is an asset or capital. If you don't own a car, you use mass transportation, that doesn't make that an asset or capital to you (buses are assets and capital for their owning entity). You can rent a car, that doesn't make them an asset you(those vehicles are an asset to the owning entity).
Again, the key is who is purchasing it and for what use. If you are not a corporation, it is not an asset. If you are a corporation, it is probably is an asset.
Addition to my own comments: I am obviously ignoring the issue of personal assets. The question of assets and capital used to invest in assets is most relevant to corporations because 1- It is an important part of their ability to borrow capital (similar to individuals) but also because 2- The definition of "asset" they apply is a critical component of their requirement to satisfy SEC (Securities and Exchange Commission) rules as part of their official corporate reporting.
The key is who is purchasing it and for what use. If you (or someone else) own a company and the company purchases it for the sole use as an asset to produce goods, then it is an asset which you invested capital in to acquire. Keep in mind that some purchases by corporations are NOT considered assets but expenses, but we don't need to get into that discussion here.
Everyone should be careful not categorize most products and services as assets. If you are purchasing an asset as an individual, it is a product, regardless of your use. You are not a corporation. You cannot do without food either, that doesn't imply that food is an asset or capital. If you don't own a car, you use mass transportation, that doesn't make that an asset or capital to you (buses are assets and capital for their owning entity). You can rent a car, that doesn't make them an asset you(those vehicles are an asset to the owning entity).
Again, the key is who is purchasing it and for what use. If you are not a corporation, it is not an asset. If you are a corporation, it is probably is an asset.
Addition to my own comments: I am obviously ignoring the issue of personal assets. The question of assets and capital used to invest in assets is most relevant to corporations because 1- It is an important part of their ability to borrow capital (similar to individuals) but also because 2- The definition of "asset" they apply is a critical component of their requirement to satisfy SEC (Securities and Exchange Commission) rules as part of their official corporate reporting.
youngturk wrote:
Again, the key is who is purchasing it and for what use. If you are not a corporation, it is not an asset. If you are a corporation, it is probably is an asset.
Ever put together a personal financial statement? If so, just curious what you listed under the asset category. It would be my recommendation that you list your 240 SX as a personal asset on any such statement in the future, along with any other substantial durable good whose value can be approximated. To the extent you have equity in such things, it accounts for your net worth, and there are a number of institutions that you will enounter in life that have a keen interest in that particular number.
russg:
Point well taken and true. As you can see from an addition to my earlier comments, I accept that a car is a personal asset. It has a certain worth. The primary value of categorizing it as a personal asser, in my opinion, is for borrowing purposes or converting to cash to - here it comes again - purchase other products. From the perspective of an asset vs. product discussion, I think the key criteria is: What is it used for? If you (entity) are a corporation, it is an asset to produce goods. If you are not an entity, it is a product you purchased just like your furniture, hair dryer and cereal, all with their own relative value to you and third party entities who value that stuff.
Nonetheless, your point is totally correct.
Point well taken and true. As you can see from an addition to my earlier comments, I accept that a car is a personal asset. It has a certain worth. The primary value of categorizing it as a personal asser, in my opinion, is for borrowing purposes or converting to cash to - here it comes again - purchase other products. From the perspective of an asset vs. product discussion, I think the key criteria is: What is it used for? If you (entity) are a corporation, it is an asset to produce goods. If you are not an entity, it is a product you purchased just like your furniture, hair dryer and cereal, all with their own relative value to you and third party entities who value that stuff.
Nonetheless, your point is totally correct.
russg:
I wasn't completely at peace with my own answers, so I went back and re-read your original comments. Now I believe your answer is the best. Depends on who purchases it: If a car is purchased by an individual, it is a personal asset; if purchased by a corporation, it is a business asset.
I should not have discounted/ignored the importance of personal assets to the extent that I did.
I wasn't completely at peace with my own answers, so I went back and re-read your original comments. Now I believe your answer is the best. Depends on who purchases it: If a car is purchased by an individual, it is a personal asset; if purchased by a corporation, it is a business asset.
I should not have discounted/ignored the importance of personal assets to the extent that I did.
Now I am no economics major but...
A car should not be considered an asset simply because an asset usually is something that can be sold for some sort of financial gain. When you sell a car that you have, you are probably not going to recoup all the money you put into the vehicle. A dealer considers a car an asset simply because they make a profit on their original purchase.
A car should be considered a product because it is made to appeal to the consumer. The Japanese did research for years before bringing the Infiniti line into the US. They saw a market, did their research and then infiltrated the market place. Whether or not they actually made a large profit worth talking about is irrelevant. They made the car because they wanted to make a profit.
As far as a car being considerd a tool/capital, I believe that in order to have that classification the item should be purchased and then from that point on, it should turn a profit to the owner. A car requires constant monies to continue to function whether it is gas, maintenance or even as simple as windshield fluid. The automobile being invented simply spawned more business such as parts and accessories.
In the end, a car is simply a product. If you use the car for your own personal monetary gain that is simply a benefit. For someone to say that without the car you would not make money is simply not logical. If transportation is your sole way to make money you would find a way. A bike (whether or not you have to drive 60 miles each way), a ride from a friend, taxi or any other means of transportation. We simply say that the car is the necessity for us to make money to rationalize our wants.
Hope this makes sense.
:ylsuper
A car should not be considered an asset simply because an asset usually is something that can be sold for some sort of financial gain. When you sell a car that you have, you are probably not going to recoup all the money you put into the vehicle. A dealer considers a car an asset simply because they make a profit on their original purchase.
A car should be considered a product because it is made to appeal to the consumer. The Japanese did research for years before bringing the Infiniti line into the US. They saw a market, did their research and then infiltrated the market place. Whether or not they actually made a large profit worth talking about is irrelevant. They made the car because they wanted to make a profit.
As far as a car being considerd a tool/capital, I believe that in order to have that classification the item should be purchased and then from that point on, it should turn a profit to the owner. A car requires constant monies to continue to function whether it is gas, maintenance or even as simple as windshield fluid. The automobile being invented simply spawned more business such as parts and accessories.
In the end, a car is simply a product. If you use the car for your own personal monetary gain that is simply a benefit. For someone to say that without the car you would not make money is simply not logical. If transportation is your sole way to make money you would find a way. A bike (whether or not you have to drive 60 miles each way), a ride from a friend, taxi or any other means of transportation. We simply say that the car is the necessity for us to make money to rationalize our wants.
Hope this makes sense.
:ylsuper
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squeefoo
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All good thoughts but: Guys keep in mind this question is macro: from the greek makros; long or large. when used as a prefix as in Macroeconomics, the intended use is for economics as whole (an overview) or nationally -even internationally. Depends on whether the fundamental good is as an asset or as a product but can also be both. How is this thing viewed by either a producer? a user? both? The utility is fungible: its good is dichotomous.