As soon as you drive your brand new car out of showroom, its value starts decreasing. What’s the reason for such fast depreciation?
In: Economics
This is not as true as it once was, but a big driver of this is a risk discount. The buyer knows there is a risk something is wrong with the car, and as compensation for that risk, they expect to pay less. At a price close to the original price, the buyer would rather remove the risk and buy new.
Think about an iPad on Craigslist that was $500 at retail that somebody has had for a month and they are selling for $450. Is saving $50 worth the risk of there being something wrong with it and having no way to return it? Many would say no.
Now consider the fact that people can do tons of things, visible and invisible, to mess up their cars. The risk, and thus the risk discount, go up considerably.
Interestingly, [some economists are amazed that the used car market functions at all](https://timharford.com/2006/04/any-colour-you-like-as-long-as-its-lemon/). Sellers who know their cars are in good shape shouldn’t be willing to sell at a discount, and in turn the only cars that sellers should be interested in selling are ones that are in worse shape than the going price.
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