Average Joe and Silly Eddie

Average Joe likes to buy average two year old cars and sell them five years later. He realizes that this costs 35% of the new car price in depreciation, but only 7% per year.

Silly Eddie buys only new cars and sells them to people like Average Joe two years later. Silly Eddie loses 50% to depreciation over two years. This is 25% per year.

For a $20,000 car, Average Joe loses $1400 per year and Silly Eddie loses $5000 per year. Silly Eddie's car is always under warranty, but Average Joe is unlikely to have problems costing the $3600 he saves in depreciation. That Silly Eddie!


Copyright 1996 Alacrity Research