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

People will usually sell the car, that is a reasonable assumption, but the application of depreciation is a bit wrong headed here.

Let me explain, say I buy a 1.2 million dollar airplane you intend to us on mail routes as a contractor. That is my initial acquisition cost, then you have mandated maintenance and the fact that after an amount of flying hours the repair costs start to become too costly in lost productivity (I have to wait for parts and mechanics) and in straight up costs. You decide what that is at the outset and then you model it out. That way at year 7 or 7,000 hours I know I am either buying a new plane or I am overhauling the one I have at significant capital expense.

A car is a different idea, you aren’t really using it to make money (mostly) and if you lose access to the car due to repairs you can easily get an uber or use public transit or rent a car or whatever. On that note, though, if you are using your vehicle for making money you better get your depreciation schedule handy. You want to know your F-150 is going to last 5 years (or whatever) before you budget for overhaul or replacement.

Unless you just like this kind of thing, your average consumer could give a rip and repair costs are generally less than a new acquisition for a long time. Years and years. People don’t usually replace cars because they are essentially unfixable, they replace them because their tastes change. A company might be fine replacing a transmission, you won’t be, but a transmission replacement can be a hell of a lot cheaper in a commercial vehicle than buying a new one. Overhauling a diesel in a Peterbilt is a realistic option to a new acquisition. You are probably not going to bother overhauling a Honda V6 in your 2009 Accord Coupe.