High-end sports cars and SUVs like the Audi A5 or BMW X5 are fun to drive, but they don't make a lot of sense to buy from a value standpoint, right? Wrong. Actually, they are both segment leaders when it comes to resale value, each retaining roughly 40 per cent of their original purchase price after five years of ownership.
The cars that do lose their value quickly are more humdrum (the Kia Sedona and Lincoln Town Car), or are made by a manufacturer in dire financial straits (the Chrysler Sebring and Dodge Grand Caravan). While the general wisdom is that new cars lose up to 20 per cent of their value the moment they're driven off the lot, and about 65 per cent after five years, the Sedona, Town Car, Sebring and Caravan each lost more than 67 per cent of their value after just two years--and a whopping 82 per cent after five years.
In Depth: Cars That Lose Value Fastest
At a time like this, when total auto sales were down 23 per cent last month vs. September 2008, experts say that consumers are looking to make a purchase that will last, if they buy anything at all. And in many cases, the cars with the worst resale value are the least expensive up front.
Behind the Numbers
To determine which cars lose their value the fastest, we used residual-value data from Kelley Blue Book. The Irvine, Calif.-based valuation company defines resale value as the projected market value of a vehicle at a specific time. It's often denoted as the percentage of a car's original value it will retain after five years, with an annual mileage of 15,000. For our purposes, we evaluated vehicles over a span of time, from 24 to 60 months, to get a more complete picture of how--and when--cars lose their value. (Residual value is virtually the same as resale value, although it's a term more often used in leasing agreements than new-car sales).
The largest cost of owning a car is that of depreciation, says Mike Quincy, an automotive specialist for Consumer Reports. Depreciation is affected by a number of factors, but the largest one is brand perception, he says. Therefore, it's no surprise that Kia had three vehicles on our list, while Chrysler had four. The former is still a "relatively recent" inductee to the U.S. market, Quincy says, which means consumers have yet to decide whether they can trust the brand. And the latter, Chrysler, has suffered from years of reliability and management problems, which inevitably affect the reputation of the company's products.
"The Sebring, the Durango--these are pretty lousy cars," Quincy says. "They've done pretty poorly in Consumer Reports tests. Plus, the Durango is a huge, three-row SUV, and the market for these trucks has just dropped through the floor. If you own a Durango right now, it's not worth squat."
A model like the $28,980 Durango or $21,245 Kia Sedona finding a spot on our list isn't just a onetime anomaly. Along with the $46,525 Lincoln Town Car, these three vehicles were on our worst-resale-value list last year, as well.
This year, the expected residual value for a Durango after five years is just 18 per cent of its original price; for the Sedona, owners can expect to get back 15 per cent of the initial MSRP. The Town Car's not much better. It retains 32 per cent of its value after two years, 26 per cent after three years, 22 per cent after four years and 18 per cent after five.
Part of the reason these vehicles, especially the trucks (Dodge Ram, Mitsubishi Raider) and SUVs (Saab 9-7X, Dodge Durango), make the list is simply because of their segment. Gas prices and the economy affect what people drive, and when gas prices rise, the value of a gas-guzzler goes down.
"If we're painting it with broad strokes, I'd say SUVs are going to depreciate at a little higher clip than probably sub-compacts or hybrids or standard sedans, especially as we're going into Obama's 35-mile-per-gallon standard in 2016," says James Bell, an automotive market analyst for Kelley Blue Book. "I think the American public better start to get ready to look at small cars not as a curiosity, but as a reality."
An Educated Choice
Bell knows firsthand how consumer perception and, ultimately, gas prices, affect the resale value of gas-sippers. In 2003, he bought a brand-new, $26,000 Toyota Prius, drove it for 42,000 miles, and sold it two years later at a loss of just $2,000. (That kind return on investment isn't normal, at least these days--Kelley Blue Book lists the 4-year resale value of the 2010 Toyota Prius at 55 per cent of the original MSRP.)
Bell says the foresight to make a similarly wise purchase and subsequent trade can come largely from reading analysis by the likes of JD Power & Associates and Intellichoice.com. Most importantly, he says, make an unemotional decision before entering the showroom about what car you want and how long you expect to own it.
"It's well worthwhile to do that after you identify what kind of vehicle you like because of its looks or its fuel economy or its dealer network," Bell says. "Stop and look at it very rationally and economically, because that's where the real winners can be found."
In some cases, he adds, buying the car that costs a little bit more than its competitor may pay off--if the first car has a higher resale value. "Just saving that extra $20 a month over the course of three years, you may not recoup that when you go to resell [the car]"
In Depth: Cars That Lose Value Fastest
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