A thought on automobile depreciation

Originally posted on 4chan on 2019-10-17

New cars depreciate by 30% when you drive them off the lot

Reminder: That's impairment of goodwill, not depreciation of fair value.

Whenever you buy something, in addition to its objective fair value (the actual use that you expect to get out of the car), you pay a subjective goodwill amount (the fact that being the first owner of a car just feels better than being its second or third owner). Impairment of goodwill (when the intangible this is my new car! feeling wears off) is not the same as depreciation of fair value (actual wear and tear that reduces performance and requires repair).

Saying that new cars experience depreciation when you drive them off the lot is inaccurate. It's much more useful to think of new cars as commanding a large premium of goodwill over used cars.