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https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons There's a legitimate reason why a car immediately loses
by Jiro 4y ago
https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons
There's a legitimate reason why a car immediately loses its value. People are more likely to sell cars that have something wrong with them. The market price for a car that you just drove off the lot is not the market price for an average car of that age, it's the market price for the subset of cars of that age that people want to sell. Because a car in that subset is more likely to have something wrong with it, its value is lower. Even if you personally are not selling the car because there's something wrong with it, it's hard for the buyer to know this.
If people had magic X-ray eyes that could tell that the car you just drove off the lot doesn't have more problems than an average new car, then its sale price would be similar to a new car. But they don't.
- dionidium 4y agoThat sounds reasonable to me, but it didn't stop the cost of used cars from skyrocketing during the pandemic, due to the supply-chain-induced shortage of new cars. When the car market started looking a lot more like the housing market, so did its prices.
- Jiro 4y agoIn that situation, the value of all cars went up, both new and used. The value of a used car was still much less than the value of a new car, you just didn't notice this because new cars didn't have their prices raised to correspond to the increased value.
- notch656a 4y agoThat's not true, I could show you offers of my used truck being worth more than a brand new truck of the exact same generation of model in the exact same configuration. Used vehicle prices went insane during covid as the irrational market and places like Carvana paid more for your used car once it's off the lot. I almost wonder if people overbought into the "new car must be more expensive" paradigm so they forgot new cars were competing against used cars, and the prices of used cars became irrationally high.
- llbeansandrice 4y agoYes they did? There were upwards of $10k dealer mark-ups on new cars.
- SoftTalker 4y agoNew cars did sort of have prices raised, because most of the incentive programs stopped. The 5-year zero interest financing, the thousands of dollars of rebates, the negotiating the dealer was willing to do, all ended. New cars sold at sticker price and there was no shortage of buyers.
- dntrkv 4y agoThat is one reason, but there are many. * You get to option the car with exactly the features/colors you want. * People will pay a premium for something brand new. * Financing for used cars usually carries a slightly higher interest rate. * The actual cost at the dealership can vary significantly depending on the make/model/dealership
- notch656a 4y agoDuring beginning of COVID I drove a Tacoma off the lot for ~29k out the door and at the end of COVID I had several offers to buy it from me used with over 10k miles on it for anywhere from $30-31.5k. At that time you could still buy it new for ~29-30k. In fact the only reason why I bought new in the first place was because even a 10 year old tacoma is worth the better part of a new one. Guess it depends on your market but the premium for new looks pretty tiny or negative to me.
- dizzant 4y agoI don’t understand the downvotes. Your conclusion is wrong but you make a good contribution. Thanks for the anecdata. I too have seen this phenomenon, and I think it’s pretty common recently because the used car market is really out of whack. In my case, last year I bought a lightly used Sonata for about $30k with 12k miles, and today I could still trade it for about the same price with 31k miles on it. Where you’re wrong is that this phenomenon doesn’t apply in general to the used car market but only in the last few years because of the chip shortage shrinking the supply of new cars. Short supply in turn increased demand for used cars, raising the prices.