How Are People Selling Their Cars For More Than They Paid For Them?
Depreciation is not what it once was
With very few exceptions, one can generally assume that your car will decline in value from the time you buy it until the time you sell it. This isn’t always true — rare vehicles and vintage cars come to mind — but it’s normally a safe assumption. At least, it was normally a safe assumption. Now, with supply chain issues affecting the auto market and a growing number of tech companies buying and selling used cars, things have changed.
Earlier this week, The Verge published an article by Sean Hollister in which he described selling the 2014 Honda Fit he’d bought new and held onto for the next seven years. That in and of itself isn’t all that strange; what is strange is that Hollister made a small profit on the transaction. In 2021, Carvana bought the Fit from him for $90.20 more than he’d paid for it all those years ago.
All of this might prompt the question: just what is going on? A new report at The Wall Street Journal sought to get to the bottom of this phenomenon — and cited some other bewildering statistics along the way. “Cars that were $25,000 new three years ago are $25,000 today,” said Adam Lee, head of a group of auto dealers in Maine.
The car shortage has continued, which has increased demand for used cars; that explains part of this. But the Wall Street Journal article also explores some of the weirder effects of this, including the way insurance companies have seen their costs increase.
The effect has been to change a lot of the conventional wisdom when it comes to depreciation. As for how much longer this will last, no one knows; the last few years have upended plenty of expectations when it comes to buying and selling cars, after all.
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