4 ms·

> Because of the massive depreciation on a new car the minute you drive it off the lot. Does the car depreciate? Or is it that it can no longer be sold as "new

> Because of the massive depreciation on a new car the minute you drive it off the lot. Does the car depreciate? Or is it that it can no longer be sold as "new", making many of the incentives irrelevant. If the "new" car gets 0% financing, and the "used" car with one mile on it gets market rate, then of course there can be a higher sticker price on the new one.

bduerst 11y ago
You just answered your own question. The car depreciates because it is no longer new, a status which adds value for a segment of the market. Variables like manufacturer incentives may come into play for some makes, but that doesn't change the fact that it depreciates.
- grandalf 11y ago
  Sure but you are ignoring important information. The car itself has not depreciated. We are misattributing the depreciation. It's a different bundle of products. There is nothing intrinsically price-reducing about being driven one mile. The lower price is due to various market failures or trust breakdowns, not b/c the car itself has changed.
  - bduerst 11y ago
    That's a equivocation fallacy on the semantics of the word depreciate. There are many different types of value that are reflected in the market price of a good. Cars that are no longer new lose value, thus by definition they depreciate.
    - grandalf 11y ago
      The thing the customer initially bought new was a basket of several products: a vehicle and also a financing product. If a one-day-old vehicle cannot be bundled with the same financing product and must instead be bundled with a more expensive one, nobody would pay the same price for the vehicle so it must now be sold at a lower price, hence your "depreciation".
      - bduerst 11y ago
        >a vehicle and also a financing product Which is the false equivocation. You're ignoring that a vehicle market price reflects more than just financing value - a car isn't a basket of bricks. At this point I feel like your efforts to tenuously redefine depreciation are indicative of a cognitive dissonance. Why do you really want to change how people define "depreciation" for cars?
        grandalf 11y ago
        I'm not sure I understand your critique of my last point. I understand that many goods depreciate in value over time as a function of use and wear and tear. I'm describing specifically the dynamics that cause a car that has been sold and driven 3 miles to be worth less on the market than if that same care had been test-driven 3 miles but not sold. My argument is that while we tend to view the sale of the car as triggering a drop in value, that is not entirely responsible for the price drop. The price drop is also a function of available financing options, since the vast majority of cars are purchased alongside a financing product... and the specific product used is not typically available to a customer wishing to purchase the vehicle that was sold and driven one mile. Since price is a function of supply and demand, the price lowers (depreciation occurs) because there is less demand for the basket containing the car without OEM financing than there is for the basket containing the car with OEM financing. This is what you'd expect, which is why OEMs offer financing incentives to increase demand. My argument is not that depreciation doesn't occur (because that is the way we typically describe the "sold" one selling for less)... Just that without the financing incentives demand is lower and since price is a function of supply and demand, price is also lower. The causality is important, since the topic being discussed was the mysterious way in which dealerships work. My point in making this distinction is that consumers are buying a physical product and a finance product bundled together, thus there is room for significant innovation in the automotive industry simply by getting more clever/creative with how the car + finance + insurance are packaged...
  - mbreese 11y ago
    > not b/c the car itself has changed It has nothing to do with that particular car, but rather the "unknowns" about that car. It could be a very nice car in about the same condition as when it was brand new. When it is new, the car is a fixed entity. There is nothing unknown about it. Once you drive it off the lot, there is something unknown about the car - Where did you drive it? Was it in an accident? Did you drive it too hard? Did you change the oil when you were supposed to? Too much wear and tear? Did you spill something on the seats? Because of that, once it is no longer new, the car has more risk associated with it, and thus loses value (in addition to value lost due to normal wear and tear). You could have driven only one mile, but that one mile could have been off a cliff for anyone knows.
    - bittercynic 11y ago
      I think the idea that a new car is a fixed entity is a common misconception. Unless you built it yourself, do you really know anything more about this than a used car? In either case, it is a good idea to drive it, listen carefully to the car, and look for signs of damage (contaminated fluids, etc.) The new one may have an advantage because of the warranty, but taking advantage of the warranty can be a huge hassle. If you just want no-hassle car ownership, it may make more sense to buy an old beater that's running good, and when it starts to give you trouble, buy another one.
  - mikeash 11y ago
    There's nothing intrinsic about prices, period. It's all about what people are willing to pay. People are willing to pay a substantial premium for a car that is completely brand new, as compared to a car that is very nearly new but has been driven by another person for a short time. That's all it takes to be able to say that a new car depreciates substantially the moment you take it home.
OopsCriticality 11y ago
In the case of electric cars, the state and federal incentives that help to make them attractive are available only when they are "new".
- grandalf 11y ago
  > only when they are "new" Ahh yes, they must benefit the environment only when new :)
  - OopsCriticality 11y ago
    Thinking only of the environmental impact, I'd expect any new car regardless of energy source to be far worse than a used car. Given the increased prices in the used car market (arising in part due to better durability and quality), I think I might be able to make an interesting argument for incentives towards purchasing used cars as being better for the environment than incentives for purchasing brand-new electric cars.
    - maxerickson 11y ago
      Incentives on new vehicle sales can change the fleet mix. I don't see how incentives on used sales can do that (there would be some more focus on resale value, but people already consider that). I think in the US we would get the most mileage out of reforming CAFE to make it less friendly to daily driver trucks.
      - jacobr1 11y ago
        Much of the total environmental impact of a car is in the initial manufacturing. The idea would be to increase the average age the fleet. It is plausible that this might actually have more of an environmental impact than increasing mean fuel efficiency. However, I doubt subsidy would actually defer the age vehicles are scrapped unless it is structured to encourage certain types of repairs. Implicitly this already happens somewhat with registration and property taxes taking into account market price and in some states car age, so perhaps a cross state study could be done to assess impact across states empirically.
rayiner 11y ago
If I buy an Apple laptop, use it for a month, and return it, it'll be sold as a factory refurb, because it would no longer be "new." The discount on that will be 10-20% of the retail price. That's the depreciation just due to being "refurbished" versus "new." People would flip their shit if Apple resold 1-month used laptops as "new" at full retail price. Applying a similar discount to cars, a 1-month "try before you buy" rental would cost the dealer $1,500 to $3,000 on a $15,000 car for each one that was returned. Apple because their products have large markups. A dealer can't, because they probably make less on each car (in absolute dollars) than Apple makes on a laptop or iPhone.
- xixi77 11y ago
  This is all true; I kinda wonder what prevents dealers from doing this with used and "certified pre-owned" vehicles...
  - grandalf 11y ago
    To respond to the grandparent first, suppose the laptop had been used for a day and then returned. We really don't know for certain what criteria Apple uses when it decides whether to have a returned item go on the shelf or into the refurb process. The important thing is that we trust apple that when we buy one labeled "new" we are getting an unfettered piece of hardware with a fresh software load and no measurable wear and tear beyond what is typical for a new device. The certified pre-owned programs are a way that the automotive OEM tries to add respectability to the used car business, which is often a bit shady. When a vehicle has been certified it's been looked over by a mechanic but most importantly it comes with a warranty that rivals a new car warranty. The OEM is taking on financial risk by insuring the vehicle against defect, in order to increase the market price of its used vehicles, which improves leasing residuals and makes it possible for the firm to lease new vehicles less expensively. You've hit upon the key issue, which is that it takes the OEM being willing to (in some way) embrace the used item and take responsibility for it the way it does with a new vehicle. Because of the focus on sales numbers financing that is actually a marketing program, once the vehicle has been sold once the OEM has no incentive to own/sell it again, since it is already "sold" as far as wall street is concerned. So in order for this to change, OEMs would have to make financing and warranty products available that addressed the consumer concerns with a vehicle that someone else drove for a day, week, month, etc.... such as, for example, insurance against the realization a few weeks after purchase that the previous owner had spilled milk on the rear seat and it's now going sour (essentially giving the vehicle a permanent bad smell unless the seat is replaced).. etc.

bduerst 11y ago

You just answered your own question. The car depreciates because it is no longer new, a status which adds value for a segment of the market. Variables like manufacturer incentives may come into play for some makes, but that doesn't change the fact that it depreciates.

grandalf 11y ago
Sure but you are ignoring important information. The car itself has not depreciated. We are misattributing the depreciation. It's a different bundle of products. There is nothing intrinsically price-reducing about being driven one mile. The lower price is due to various market failures or trust breakdowns, not b/c the car itself has changed.
- bduerst 11y ago
  That's a equivocation fallacy on the semantics of the word depreciate. There are many different types of value that are reflected in the market price of a good. Cars that are no longer new lose value, thus by definition they depreciate.
  - grandalf 11y ago
    The thing the customer initially bought new was a basket of several products: a vehicle and also a financing product. If a one-day-old vehicle cannot be bundled with the same financing product and must instead be bundled with a more expensive one, nobody would pay the same price for the vehicle so it must now be sold at a lower price, hence your "depreciation".
    - bduerst 11y ago
      >a vehicle and also a financing product Which is the false equivocation. You're ignoring that a vehicle market price reflects more than just financing value - a car isn't a basket of bricks. At this point I feel like your efforts to tenuously redefine depreciation are indicative of a cognitive dissonance. Why do you really want to change how people define "depreciation" for cars?
      - grandalf 11y ago
        I'm not sure I understand your critique of my last point. I understand that many goods depreciate in value over time as a function of use and wear and tear. I'm describing specifically the dynamics that cause a car that has been sold and driven 3 miles to be worth less on the market than if that same care had been test-driven 3 miles but not sold. My argument is that while we tend to view the sale of the car as triggering a drop in value, that is not entirely responsible for the price drop. The price drop is also a function of available financing options, since the vast majority of cars are purchased alongside a financing product... and the specific product used is not typically available to a customer wishing to purchase the vehicle that was sold and driven one mile. Since price is a function of supply and demand, the price lowers (depreciation occurs) because there is less demand for the basket containing the car without OEM financing than there is for the basket containing the car with OEM financing. This is what you'd expect, which is why OEMs offer financing incentives to increase demand. My argument is not that depreciation doesn't occur (because that is the way we typically describe the "sold" one selling for less)... Just that without the financing incentives demand is lower and since price is a function of supply and demand, price is also lower. The causality is important, since the topic being discussed was the mysterious way in which dealerships work. My point in making this distinction is that consumers are buying a physical product and a finance product bundled together, thus there is room for significant innovation in the automotive industry simply by getting more clever/creative with how the car + finance + insurance are packaged...
- mbreese 11y ago
  > not b/c the car itself has changed It has nothing to do with that particular car, but rather the "unknowns" about that car. It could be a very nice car in about the same condition as when it was brand new. When it is new, the car is a fixed entity. There is nothing unknown about it. Once you drive it off the lot, there is something unknown about the car - Where did you drive it? Was it in an accident? Did you drive it too hard? Did you change the oil when you were supposed to? Too much wear and tear? Did you spill something on the seats? Because of that, once it is no longer new, the car has more risk associated with it, and thus loses value (in addition to value lost due to normal wear and tear). You could have driven only one mile, but that one mile could have been off a cliff for anyone knows.
  - bittercynic 11y ago
    I think the idea that a new car is a fixed entity is a common misconception. Unless you built it yourself, do you really know anything more about this than a used car? In either case, it is a good idea to drive it, listen carefully to the car, and look for signs of damage (contaminated fluids, etc.) The new one may have an advantage because of the warranty, but taking advantage of the warranty can be a huge hassle. If you just want no-hassle car ownership, it may make more sense to buy an old beater that's running good, and when it starts to give you trouble, buy another one.
- mikeash 11y ago
  There's nothing intrinsic about prices, period. It's all about what people are willing to pay. People are willing to pay a substantial premium for a car that is completely brand new, as compared to a car that is very nearly new but has been driven by another person for a short time. That's all it takes to be able to say that a new car depreciates substantially the moment you take it home.

OopsCriticality 11y ago

In the case of electric cars, the state and federal incentives that help to make them attractive are available only when they are "new".

grandalf 11y ago
> only when they are "new" Ahh yes, they must benefit the environment only when new :)
- OopsCriticality 11y ago
  Thinking only of the environmental impact, I'd expect any new car regardless of energy source to be far worse than a used car. Given the increased prices in the used car market (arising in part due to better durability and quality), I think I might be able to make an interesting argument for incentives towards purchasing used cars as being better for the environment than incentives for purchasing brand-new electric cars.
  - maxerickson 11y ago
    Incentives on new vehicle sales can change the fleet mix. I don't see how incentives on used sales can do that (there would be some more focus on resale value, but people already consider that). I think in the US we would get the most mileage out of reforming CAFE to make it less friendly to daily driver trucks.
    - jacobr1 11y ago
      Much of the total environmental impact of a car is in the initial manufacturing. The idea would be to increase the average age the fleet. It is plausible that this might actually have more of an environmental impact than increasing mean fuel efficiency. However, I doubt subsidy would actually defer the age vehicles are scrapped unless it is structured to encourage certain types of repairs. Implicitly this already happens somewhat with registration and property taxes taking into account market price and in some states car age, so perhaps a cross state study could be done to assess impact across states empirically.

rayiner 11y ago

If I buy an Apple laptop, use it for a month, and return it, it'll be sold as a factory refurb, because it would no longer be "new." The discount on that will be 10-20% of the retail price. That's the depreciation just due to being "refurbished" versus "new." People would flip their shit if Apple resold 1-month used laptops as "new" at full retail price. Applying a similar discount to cars, a 1-month "try before you buy" rental would cost the dealer $1,500 to $3,000 on a $15,000 car for each one that was returned. Apple because their products have large markups. A dealer can't, because they probably make less on each car (in absolute dollars) than Apple makes on a laptop or iPhone.

xixi77 11y ago
This is all true; I kinda wonder what prevents dealers from doing this with used and "certified pre-owned" vehicles...
- grandalf 11y ago
  To respond to the grandparent first, suppose the laptop had been used for a day and then returned. We really don't know for certain what criteria Apple uses when it decides whether to have a returned item go on the shelf or into the refurb process. The important thing is that we trust apple that when we buy one labeled "new" we are getting an unfettered piece of hardware with a fresh software load and no measurable wear and tear beyond what is typical for a new device. The certified pre-owned programs are a way that the automotive OEM tries to add respectability to the used car business, which is often a bit shady. When a vehicle has been certified it's been looked over by a mechanic but most importantly it comes with a warranty that rivals a new car warranty. The OEM is taking on financial risk by insuring the vehicle against defect, in order to increase the market price of its used vehicles, which improves leasing residuals and makes it possible for the firm to lease new vehicles less expensively. You've hit upon the key issue, which is that it takes the OEM being willing to (in some way) embrace the used item and take responsibility for it the way it does with a new vehicle. Because of the focus on sales numbers financing that is actually a marketing program, once the vehicle has been sold once the OEM has no incentive to own/sell it again, since it is already "sold" as far as wall street is concerned. So in order for this to change, OEMs would have to make financing and warranty products available that addressed the consumer concerns with a vehicle that someone else drove for a day, week, month, etc.... such as, for example, insurance against the realization a few weeks after purchase that the previous owner had spilled milk on the rear seat and it's now going sour (essentially giving the vehicle a permanent bad smell unless the seat is replaced).. etc.