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

Depreciation is just a fancy way of describing the purchase price of the car.

If you buy a $20k car and drive it until it falls apart, you *will* eventually have to buy a new car to replace it. That $20k is gone forever, and has to be accounted for in the cost of ownership.

Depreciation is an accounting method that says that $20k is lost gradually over the life of the vehicle, since you *could* sell it early and recover some of that $20k if you wanted to.

Some people buy new cars every couple of years and sell the old one, some people buy used ones and drive them until they die, some people lease them, but every car owner spends some money on the physical car itself, and amortization is a good way to average that out for everyone.