Depreciation

[magnitude]

Rich does not always equal smart.

I've noticed that so much especially in the context of luxury cars. The amount of people that seem to be able to buy such a car, but are lacking even basic financial literacy skills, seems staggering... at least relatively spoken.

Talked to someone the other day who dropped a lot of money for a similarly priced car, and was still entirely thinking in monthly car payments instead of total value.

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[magnitude]

As for me, when I buy I just pretend the money is gone. Spent, poof. I wanted a car and I got it for that money.

That's not true realistically (I received a pleasant, albeit still much below purchase price, amount of money for my Boxster), but it certainly beats the expectation of cars as a stable value store that some folks seem to have.

 

[whitex]

It surprises me that so many people are surprised and annoyed at something as obvious as high depreciation on a high value car full of emerging tech, 2-3 years on from the initial rush on lease orders.

How do people get to a situation where they have the money to drop 100k on a car but can’t read the tea leaves in terms of pricing? Genuine question...not trying to be combative.

This book does a pretty good job at explaining this phenomenon. The cheese in this case is ability to trade-in ar or above MSRP.

 

[whitex]

As for me, when I buy I just pretend the money is gone. Spent, poof. I wanted a car and I got it for that money.

That's not true realistically (I received a pleasant, albeit still much below purchase price, amount of money for my Boxster), but it certainly beats the expectation of cars as a stable value store that some folks seem to have.

I monitor resale values starting a couple of years in, but don't get excited or depressed about it. I do this purely to determine whether there may be a good time to upgrade the car, e.g. decent trade-in value today + incentives on new car. I also consider things like how much the old car likely to devalue in the next year and whether the current incentives are likely to still be there next year.

 

[magnitude]

This book does a pretty good job at explaining this phenomenon. The cheese in this case is ability to trade-in ar or above MSRP.

Even with the recent anomaly in the used car market, unless you're buying a supercar (more like a rare Ferrari, maaaybe something like a GT3RS) and don't put any miles on it, that's a pretty bad plan.

Entirely different markets. Those appreciating cars are in my mind more similar to trading art than regular cars.

 

[whitex]

Even with the recent anomaly in the used car market, unless you're buying a supercar (more like a rare Ferrari, maaaybe something like a GT3RS) and don't put any miles on it, that's a pretty bad plan.

Entirely different markets. Those appreciating cars are in my mind more similar to trading art than regular cars.

Yea, but there was a short time last year where you could trade-in a 2 year old Corolla for what you paid for it new. People quickly got used to it, started feeling entitled to it. I remember looking with my kids, they could trade their old cars for same brand new cars for about no money - the catch was, you have to give up the car on the spot, but new cars were just not available (hence the high value on the old car).

 

[magnitude]

Yea, but there was a short time last year where you could trade-in a 2 year old Corolla for what you paid for it new. People quickly got used to it, started feeling entitled to it.

Yeah, that makes sense. That was also the anomaly I was referring to. Pretty sad that apparently a lot of people are not able to see the obviousness of the market doing something weird during an extraordinary time.

I even got promised a good offer for my Boxster, but my reply would have been "well, but then I would be without a Boxster, and no reasonable means to buy anything, wouldn't I", precisely because of the availability issues you mentioned.

 

[magnitude]

Relatedly, C8 Corvettes were selling well above MSRP, and people tried to get into that. It starts to backfire for a lot of them: "The days of buying a new C8 Corvette, driving it for several thousand miles and selling it for the same price or for more are generally over."

https://www.corvetteblogger.com/202...ket-analysis-shows-prices-continuing-to-drop/

 

[mikezhang31]

I think the last few years spoiled a lot of people, just like with the return to office thing, expecting cars to keep or exceed their values, etc

 

[whitex]

I think the last few years spoiled a lot of people, just like with the return to office thing, expecting cars to keep or exceed their values, etc

There is a subset of population who always get used to high valuations. For example, people buy stocks, then the stock tanks, they hang onto it because they believe it’s worth more, which obviously is not logical as the worth is always what it trades at. Interestingly, if you ask the same people why they don’t buy even more of said stock, since they claim to believe it to be so undervalued, they get upset with the question as it obviously challenges their reasoning. If you believe the stock will go up, buy more, if you don’t believe it will, why are you not selling? ? One of many psychological biases of a human brain.

 

[WasserGKuehlt]

There is a subset of population who always get used to high valuations. For example, people buy stocks, then the stock tanks, they hang onto it because they believe it’s worth more, which obviously is not logical as the worth is always what it trades at. Interestingly, if you ask the same people why they don’t buy even more of said stock, since they claim to believe it to be so undervalued, they get upset with the question as it obviously challenges their reasoning. If you believe the stock will go up, buy more, if you don’t believe it will, why are you not selling? ? One of many psychological biases of a human brain.

At the same probability and for the same amount, loss is always perceived to be worse than gaining. It’s a good bias (within reason) as otherwise we’d all spend on lottery tickets what’s left after closing the beer tab.

(So are you saying I should stop hoarding Lucid and Rivian stocks?)

 

[whitex]

At the same probability and for the same amount, loss is always perceived to be worse than gaining. It’s a good bias (within reason) as otherwise we’d all spend on lottery tickets what’s left after closing the beer tab.

Do you know what mathematicians call winning a lottery? "A bad decision with a good outcome". It doesn't take a risk aversion bias to make a decision to not play the lottery - plain, non-biased math calculation will tell you how bad of a decision it is. I would venture to say that people play the lottery because they have an opposite bias, the way overestimate their chances of winning. They do that because they use their neural networks (intuition) trained on seeing mostly winners. To properly train one's intuition about lottery play, one would have to be presented with every person who played, win or lose. Then one would make a correct intuitive decision whether it’s worth playing, though that decision might come on their death bed, as it would take a life span to even read a name of everyone who played and how much they won or lost in one of the large lotteries, even just one drawing. This is where math comes in, such a great shortcut.

Full disclosure, the only gambling I do is play no limit hold'em poker. It is the only game in any casino in which you are not mathematically guaranteed to lose, since you can gain an advantage over other players by using.... wait for it.... math! Of course if all players are using it well, then all players lose (rake to the house), so you have to pick your games - the famous saying - look around the table, see if you can spot "the fish", if you cannot, YOU are "the fish".

(So are you saying I should stop hoarding Lucid and Rivian stocks?)

That depends on whether you think they'll be going up or down. What you paid for them, or their previous values, are completely irrelevant (except for some tax implications you or your accountant should consider).

 

[Mr.Smith]

Looking at the 2021 wholesale data, I'm seeing TTS with under 10k miles are trading at around $110k. That is an incredible amount of depreciation!
2021 RWD models are trading at around $70k, this is good.

As a rule of thumb when you have a car with variants from $85k to $225k, it's best to go with the lowest end models if value preservation is your goal.
Wholesale will always have price discovery around the lowest of of the price spectrum.
This is why RWD are holding up fairly well.

When I was looking at to get a Taycan the TTS lease Porsche Financial Services gave the TTS a residual of 38% on 36/12k lease, the RWD was 58%. Even Porsche knew where these values were headed.
No way to hedge your bet with a lease on a Taycan.

Another sign of depreciation from the beginning was large discounts on Tayans pre pandemic.
I was looking at a new Taycan Turbo. It was 18% off, + $7500 rebate. Still the car was sitting.
You don't see this a 911 GT3

 

[annieland]

When I was looking at to get a Taycan the TTS lease Porsche Financial Services gave the TTS a residual of 38% on 36/12k lease, the RWD was 58%. Even Porsche knew where these values were headed.
No way to hedge your bet with a lease on a Taycan.

Wow! That is an excellent data point to have, thanks for sharing it! This historical info, especially pre-pandemic tells you all you need to know. Knowing there was no way a lease on this car would make sense I never looked up the residuals and just figured a .50-.52 in my mind. But wow, .38. Sorry folks, Moose outside shoulda told you!

 

[Mr.Smith]

Wow! That is an excellent data point to have, thanks for sharing it! This historical info, especially pre-pandemic tells you all you need to know. Knowing there was no way a lease on this car would make sense I never looked up the residuals and just figured a .50-.52 in my mind. But wow, .38. Sorry folks, Moose outside shoulda told you!

I ended up getting an Audi RS E-Tron GT instead of a Taycan Turbo. Taycan is a better car, but budget was a factor for me.

My car was $169k, 63% residual, same spec with Porsche would have been $189k, 44% residual, an MRM, limited allocation and prick Porsche dealers.

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