Posted on 07/27/2007 7:09:40 AM PDT by Daffynition
If you have ever thought of buying a new car, you are undoubtedly familiar with the claim that as soon as you drive the new car off the showroom floor its price falls dramatically. Recent popular books have asserted that simply driving a new car off the lot reduces the price by 25 percent.
Many economists explain this drop as occurring because the people who are trying to resell their cars quickly are typically doing so to get rid of “lemons.” Even if your virtually new car isn’t a lemon, people who want to buy your car can’t be sure, so they aren’t willing to pay as much as your virtually new non-lemon car is really worth. It is the classic story of “market failure.”
Nice story—except it’s wrong. In fact, the widespread perception that a new car loses substantial value as soon as a buyer drives it off the lot is really just a myth, as we shall see.
(Excerpt) Read more at foxnews.com ...
behind a fire wall....I thought what legally makes a car used is having it titled.
... less the price of the car. since it's a 20K kar, you still lose the 500. they must think we're idiots.
People scream at me, but I buy a new car every time. I put on significant mileage, and by the time four years is up, I need a new car...I’d rather buy them new (always finding the 0% interest financing) then something used.
Especially if high performance vehicles are your drive of choice. Do you really know what was done to that Z06 or M3?
The author is assuming that Carmax is going to sell the car for no profit?
The point remains if you buy a car and try to resell it you won’t won’t get what you paid, or even close.
No, "they" don't. The author assumed you were smart enough to figure that out, so he didn't have to say it.
The $500 loss is not the 25% loss you would supposedly have suffered just by driving it off the lot. That was the point.
A claim for which the author offered no source.
The source is tradition and myth. I have heard this myth many times during my life. Haven't you?
The 25% part will vary, of course, but the idea that a car loses significant value as soon as it's purchased is a very common myth. My source is my uncle. Shall I record him for you?
Hmmm, I just bought a 07 Toyota Corolla LE (7k miles) from Carmax for the Blue Book value of 20K. And that included a 72 month/90k warranty add-on. It’s good value in my book and it doesn’t represent a 25% depreciation.
“The source is tradition and myth. I have heard this myth many times during my life. Haven’t you?”
Seems like once you’ve seen something first hand, the “myth” status should fade. I agree that 25% number is not cast in stone but if you try to trade a car with just a few miles on it, you are going to get raped. That is not to say the “value” of the car is any less to the average Joe but it is to a dealer.
I bought the ex a car and she took off after a month and only putting 1K miles on it. I tried everything and could not get out from under that car without owing thousands of dollars, so excuse me if I don’t see this as a “myth”.
I have, but never 25%.
But it is true as a principle, and consistent with every discussion I've had with people about what they would pay for new from dealer vs low mile private seller.
MYTH??? hahahhah
Anyone thinks this is a Myth is a fool.
I know I can walk into the showroom and get the exact same car, BRAND NEW for 15,000, I’m not going to buy yours, even if its only has 1000 miles on it for a price anywhere near 15,000... because you price your used car close to 15k, I’ll just go buy the new car and spend a few more bucks.
Cars don’t drop significantly the minute you drive htem off hte lot because people fear if you are trying to sell them your lemon. They drop because simply put, you cannot price a used item close the the value of a new item, even if it is “slightly used” because buyers will just go buy a new one for a few dollars more.
You must drop the price significantly enough to make it worth the buyer choosing your used item over a brand new one.
Whoever wrote this article is an idiot.
You've answered yourself! The actual value of the car is not significantly less. It just depends on whom you choose to sell it to.
A dealer must buy the car for less than market value, or it would go out of business. The dealer himself can only hope to get full market value, at best, for the vehicle when he goes to sell it. The difference between what he gave you for the car and what he gets when he sells it is what keeps him in business.
A trade-in will always net you less than selling the vehicle yourself, but the dealer rids you of all that uncertainty that you'll be able to sell it and the trouble that it will take you to do it. That's the trade-off.
Well, he does have all the combined data from millions of vehicle transactions represented in Kelly Blue Book on his side. That removes him quite quickly from "idiot" territory, if you ask me.
He has actually researched the prices. Have you?
Funny you mention Carmax. We were in the process of buying a new car a couple of weeks back and we wanted to see if we could get a good deal on our trade in. The trade in was a 1999 Olds with 91k miles on it and lots of problems. While Carmax gave us $1200 for it, the sales guy, who kept reminding us that he wasn't trying to sell us anything, but also kept telling us how much better of a deal we'd get if we bought a car off him, informed me that Carmax would be taking a "loss" on the car.
Whatever :)
I've worked with numbers for years -- if I wanted, I could make them prove any point I wanted. There are countless examples of horrendous statistical analysis from people with 'a little knowledge'. And, frankly, this guy sounds like not the sharpest tool in the shed and I highly doubt his analytical ability.
Garbage article made to solicit ad dollars from car dealers.
See we are friendly to car dealers so buy ads with us.
It does hold true, for whatever reason your new car will lose 20-30% after driving off the lot.
A dealer who takes back such a new car, will sell it for a mere 5%-10% less than new (if not at new once they put on all the sucker charges and bogus warrenties)
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