Instant Depreciation

[BLUEH20]

Ever sit around and contemplate why you new vehicle depreciated so much as so as the tail lights crossed the curb?

I have two items that theoritically may be large contributers to that amaxing event.

A. Warranty - this is not free. Some one pays, but only pays once as it is buried into the cost of new vehicles. At one time the number I heard bantered around on the Dodge 2500 Cummins Diesel was approx $7,000. Naturally the bean counters has run the failure rate and mode of every item that comprises the vehilce. It cut to a fine pencil line. Lets say that 95% of these vehilces will have only minor failures and fall well under the $7,000 number. 2.5% will fail at a greater number-hence the ocassional buy back as that is the cheaper fix for the company and makes the customer feel that they have won a major victory. The remainin 2.5% never fail during the warranty period--hence $7,000 to cover the afore mentioned 2.5%.

Add to this that the manufacture provides parts to for warranty to the dealership at a fraction of normal retail. Let's say a brake rotor retial is %65.00. The manufaturer pay a warranty price of $35.00. The labor rate paid to the dealer is generally lower that the door rate. The labor operation rate is also shaved. If you have the opprotunity to look at a Motors or simiular labor rate manual--you will see that the warranty labor time is much less than retail. The dealer and his service organization is not getting wealty on warranty.

B. Holdback - this a percentage or flat amount rebated by the manufacturer to the dealership to cover the cost of sales operation. How else can a new vehilce be sold at or just below the cost of the vehicle to the dealership. Generally the hold back is very close to the markup between the dealership cost and MSRP. The side sticker is just a ploy to be able to finance "blue sky" and possibly give the customer more for trade in that it is worth and have the finance organization cover the difference. Any vehilce sold at MSRP or with additional side sticker monies is a real live home run for the sales department.

Add the built in warranty cost and the holdback then subtract the "instant depreciation" and you have a number very closely approximating zero.

Long post-but just one old guy's museing on the state of things.

Please if some has better info, post it for all to have--informed consumers are good consumers.

[KingKole02]

That is paying a brand new Ferrari, then speeding down a highway and loosing it in a turn, total loss. That is instant depreciation.

Or buying your new MGB convertible, and a drunk driver slams into the back of you as you drive off the lot to the stop light. (happen to my uncle, car was a total loss, drunk drivers insurance bought him a new one.)