Why does driving a new car off the lot cause such drastic deprecation?

[robert_columbia]

@kenobi_65

Well, no kidding. The core of the question is: why does the value of the car decrease so greatly in that magic moment between becoming “new” and “used”?

This is the crux of my question. It seems that it may be due to some combination of these:

1. Psychological effects, including magical thinking such as believing that the act of titling a car and driving it 50 feet causes much more wear and tear than weeks of test drives and sitting on the lot in rain, storm, and snow.
2. Warranties that lose value upon transfer.
3. A fear (justified or not) that a person selling a car that they own is likely to know something negative about the car that you don’t.

[robert_columbia]

@lazybratsche

They do, but often the transferred warranty isn’t quite as good. For a few examples I came across in my recent shopping:

The original warranty might cover X years from purchase, whereas the transferred warranty covers X years from the date of manufacture. An average car probably sat around for several months in transit and on the dealer lot, which is now “lost” from the transferred warranty. The original warranty might be “bumper-to-bumper”, but the transferred warranty only covers powertrain. Or in might cover x-y years.

In the cases I was looking at, a three or four year old car might have several years of coverage remaining for the original owner, but for me the warranty would only last a few months if at all.

Why do warranties do this? Other than “It’s always been done that way and everyone else is doing it”, does it provide substantial value to the carmakers?

[Andy_L]

@robert_columbia

This is the crux of my question. It seems that it may be due to some combination of these:

1. Psychological effects, including magical thinking such as believing that the act of titling a car and driving it 50 feet causes much more wear and tear than weeks of test drives and sitting on the lot in rain, storm, and snow.
2. Warranties that lose value upon transfer.
3. A fear (justified or not) that a person selling a car that they own is likely to know something negative about the car that you don’t.

Here’s an article covering possibility #3 in some detail The Market for Lemons - Wikipedia

[lazybratsche]

@robert_columbia

Why do warranties do this? Other than “It’s always been done that way and everyone else is doing it”, does it provide substantial value to the carmakers?

I suppose? There’s no direct gain for the carmaker if they provide warranties on used cars. In the long run, that might drive sales (if they make the second owner happy). It’ll also boost resale value, which will eventually help increase the new car sale price. Plus better resale price makes leasing more profitable. In the mean time, warranty repairs on used cars will cost a lot of money – and that last year of warranty is probably the most expensive. Some bean counters must have crunched the numbers and determined that the benefits just weren’t worth the costs.

[Throatwarbler_Mangrove]

@robert_columbia

Why do warranties do this? Other than “It’s always been done that way and everyone else is doing it”, does it provide substantial value to the carmakers?

They don’t. The majority of new car warranties are fully transferable and are largely the same length for the same class - Dodge and Toyota get 3 year/36k bumper to bumper and 5 year/60k powertrain, luxury nameplates like Cadillac, BMW, Audi, Mercedes etc get 4 year/60k BtB. There are some minor differences - Chevy offers 5 years/100k powertrain, Lexus 6 years/70k.

The exceptions are Hyundai/Kia and Mitsubishi. Both offer standard warranties that are quite a bit longer than the industry standard - 5 years/60k BtB and 10 years/100k powertrain, but are limited in transferability- i.e. if you are the second owner the powertrain warranty goes back to the industry standard 5 years instead of 10 years for the first owner. For a while in 2008-9 Chrysler also offered a lifetime powertrain warranty which was similarly not transferable.

Maybe lazybratche was only looking at Hyundais and Mitsubishis, for it is hard to see how he reached his conclusion otherwise.

[lazybratsche]

@Throatwarbler_Mangrove

Maybe lazybratche was only looking at Hyundais and Mitsubishis, for it is hard to see how he reached his conclusion otherwise.

Yeah, my mistake – kids, this is why you shouldn’t rely on small N! Hyundai was the most dramatic example I was thinking of. I do seem to remember from my recent shopping that another company’s warranty (Ford? Mazda?) would start from the manufacture date (rather than the purchase date) for the second owner. But I’m not finding anything to readily back me up…