Depreciation is typically one of a motorist’s largest ownership expenses and it pays off down the road to choose a model that’s predicted to have the highest resale value in its class.
With used-car values beginning to drop for the first time in years – on average they fell by 3.5 percent in October, the largest such dip in two years according to the National Automobile Dealers Association in McLean, Va., picking a new vehicle that holds onto its value steadfastly is particularly crucial.
Fortunately the valuation experts at ALG in Santa Barbara, Calif., make this a bit easier with their annual Residual Values Awards in each of 24 separate new-vehicle categories for the 2014 model year, which we’re featuring in the accompanying box. These models are expected to retain the highest percentage of their Manufacturer’s Suggested Retail Price (MSRP) after a three-year period, based on criteria including segment competition, historical vehicle performance and industry trends.
“Residual value is critical to automakers and consumers alike because it’s a complete indicator of the vehicle’s value, taking into account quality, durability, brand desirability and other factors,” says ALG president Larry Dominique. “For vehicle owners, residual value forecasts what their return on investment will be, and the Residual Value Awards clearly show which products will best retain their value over the next 36 months.”
Generally, the more costly the vehicle, the more important differences in projected resale values become, simply because there’s more money at stake. Last year the average new car was predicted to retain about 38.2 percent of its original value after five years, meaning that a $50,000 model will only be worth nearly $19,100 at trade-in time. Pick a comparable model that’s estimated to hold five percent more of its value than average and it will return an extra $2,650.
Comparing residual values among competing makes and models is especially critical for those leasing a vehicle. That’s because lease payments are based on a vehicle’s initial transaction price minus what its residual value is estimated to be at the end of the contract’s term, financed at a set interest rate. (Though manufacturers often artificially boost the residual value of certain low-resale-value vehicles to obtain the low lease payments you see quoted in ads.)
ALG named Honda as being the top brand for top resale values among mainstream automakers, followed by Toyota, Subaru, Hyundai and Mazda. Meanwhile, Mercedes-Benz took top honors overall among luxury makes, with Acura, Audi. Infiniti and Lexus rounding out the top five upscale brand rankings.
“Toyota, Audi and Honda captured the most segment honors due to the consistent high value of all their products,” Dominique says. “Honda was named top Mainstream Brand due to their prudent use of incentives – $1,000 lower than the mainstream average – and low rental fleet penetration. These factors help maintain vehicle value, which tremendously benefits consumers.”
ALG has been predicting automotive residual values for nearly 50 years and their data is used extensively by lenders and leasing companies in both the U.S. and Canadian markets.