Doesn’t factoring depreciation into the cost of car ownership rely on the assumption that you will eventually sell that car? If so, why is that a reasonable assumption?

Question

Recently watched [this video](https://www.youtube.com/watch?v=ztHZj6QNlkM) which puts a significant chunk of the cost of owning the vehicle into depreciation. Wouldn’t the loss in value of the vehicle only matter to me if I bought this car with the intent to sell it in the future? I *could* drive the car until the engine block falls apart and it becomes basically unsellable.

In: 2782

Answer 1

Look at it the other way. If you DON’T consider the value of the car over the time you own it, you’re not really getting an accurate cost of ownership.

If I buy a brand new car for $40k and drive it for one year, that doesn’t mean that it costs $40k/year to own it. I have to subtract off the value that the car still has. Because I don’t need to spend another $40k next year. But if you drive that car for 40 years (somehow), there’s probably not a lot left that needs subtracting.

So like you said, if you are driving it with the intent to never sell it, that final value might be the $50 it’s worth as scrap metal.

And similarly, when you start with a car that’s worth very little, depreciation isn’t going to have much of an impact.