As the first electric cars - the Chevy Volt and Nissan Leaf - are now being delivered to customers in the United States, perhaps we ought to think about what these cars will be worth in the future. In other words, will "green" cars depreciate faster or slower than normal cars? Are "green" cars going to be a good buy or a bad buy?
Depreciation is the difference between the purchase price of the car and what you get for it when you sell it some time in the future. As a rule of thumb, you can expect a car to lose 12 to 20 per cent of its value each year. What you have left at the end of the term is its residual value.
Knowing, or at least estimating, a car's residual is necessary when setting a lease rate and simply interesting if you're purchasing for cash. Residual estimating expertise in Canada is found in The Canadian Black Book. The people who put it together try to keep track of every used-car sale in the country to see how various makes and models hold or lose their value.
You can play with the data for free in a user-friendly form at www.canadianblackbook.com.
If you're thinking of buying a new car, you can punch in the details and the Black Book will tell you what it's likely to be worth in four or five years.
So the question I put to Josh Bailey, director of client service, was simply, "What's the depreciation rate going to be on a Volt or a Leaf?" He squirmed slightly and replied, "We're still looking at electric cars. We've gone from as harsh as saying it will have no value after the warranty, which is unlikely, but it is still an unknown entity. Our forecast will be conservative."
That means they expect a high rate of depreciation and a low residual and that means electric cars are likely to be poor buys. The Black Book data on gas/electric hybrid vehicles supports that opinion.
Let's go back to the 2006 model year and compare the gas version and the hybrid version of the Honda Civic. You would have paid more for the Civic hybrid yet the hybrid is worth less today than the gasoline Civic. The gasoline engine Civic has held onto 43 per cent of its purchase price while the hybrid only gets 38 per cent of its original value. Same story for SUVs. The 2006 Lexus RX gasoline engine SUV holds 42 per cent of its value while the more expensive hybrid only hangs onto 38 per cent.
Now let's take a look at clean diesel versus gasoline. The 2006 Jetta with gasoline engine holds onto 38 per cent of its value while the Diesel Jetta holds 48 per cent. Big difference. Now to the SUVs; let's compare the gasoline and clean diesel versions of the 2007 Mercedes-Benz M Class. Again diesel is the winner, holding 55 per cent of its value over four years as opposed to the gasoline version that only hangs on to 49 per cent.
If you want to go "green" yet come out ahead in the Depreciation Derby then diesel is your choice over hybrid.
It doesn't mean that one technology is superior to the other, but it does demonstrate what the market thinks. Diesels are perceived by consumers as economical and reliable so they retain more value. Hybrids, and one would assume battery electric cars, are more problematic.
Says Bailey, "I think people in cold-weather Canada are going to be pretty shy about buying a used electric car. I know battery technology has got better but as batteries age their efficiency is reduced. If you've got a cell phone that is three years old, you know you've got to charge it every two days when maybe you only had to charge it once a week when it was new."
Personally, I still think electric cars are part of the "green" solution and that they will serve a small proportion of the public very well - namely people who do lots of short-distance commuting. Same for hybrids - they're absolutely great in stop-and-go traffic.
But my opinions don't mean a thing against the market's view. Trade-in time is the great differentiator. So go plug your car into the Canadian Black Book to see what the depreciation rate thinks of what you drive.
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