4 ms·

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

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.

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.