Car Depreciation A common complaint is that a new car will depreciate by 25% as soon as the new owner drives it off the lot. This information comes from resale price data from cars sold just months after the initial purchase. How does adverse selection imply that most cars depreciate much less?

Most new cars are not sold within a few months after purchase. And for those that are, this quick of a resale was usually not intended at the time of the purchase. For these cars, the initial buyer learned something about this car that made them reduce their assessment of the car's value. For example, they may have learned when they left the windows down during a rainstorm or backed up into a lake, they were reducing the value the car. Buyers at the time of resale, are suspicious that a car resold so quickly must have been treated poorly. The value of other cars of the same age that are not offered for resale have likely been treated well and have not decreased in value nearly as much.