Less is more. It’s a fact. The numbers argue that the best cars and light trucks are the ones that depreciate the least.
At the heart of this story is the marketplace. Resale or residual values are based entirely on how much consumers are willing to pay for used cars. In Canada, we are guided by data from two sources, Canadian Black Book and ALG, the former Automotive Lease Guide.
The former, the CBB, tells us what consumers have been willing to pay for three- and four-year-old vehicles. The latter, ALG, takes a different tack, using resale data and a basket of other factors – including macroeconomic trends – to predict what consumers will be willing to pay three or four years down the road.
Both approaches speak to the desirability of cars and light trucks. This boils down to brand values and the appeal of a particular make and model in the marketplace. Vehicles that lose the least value are worth the most over time. Thus, they are the least expensive to own – they have the lowest ownership cost – at least in the short and medium term.
If you keep your vehicle for the long term, for eight, 10 years or more, then three- and four-year-old depreciation numbers are irrelevant. If you aren’t going to sell that older car, what it’s worth doesn’t matter.
However, residuals matter if you lease a vehicle; your lease payment is largely determined by what the vehicle is expected to be worth when the lease ends. If your vehicle is expected to be worth 60 per cent down the road, your lease payment largely reflects the 40 per cent depreciation during the term of the lease. In short, the higher the residual, the lower the lease payment.
Resale values also speak volumes about quality and durability. Vehicles with a generally trouble-free history and reputation usually hold their values very well. Also, vehicles that do a lot of things well, ones that are considered stylish, high-performance machines from excellent auto makers, also boast high re-sale numbers.
So take Toyota. In CBB’s 2013 Best Retained Value Awards, Toyota and its Lexus premium brand took home eight wins among the 19 vehicle categories. The average four-year-old Toyota holds 52 per cent of its value, second-best only to Porsche at 53 per cent among all brands. Astonishing, when you consider a 2009 Lexus held 50 per cent of its value.
Toyota has built its business on creating vehicles that don’t break. If you buy a Toyota, it’s generally considered a safe choice, though not always the most imaginative. The heart of the Toyota brand is reliability, and that’s both powerful and valuable. The recent Millward Brown 2013 BrandZ Top 100 Most Valuable Global Brands determined that Toyota is the most valuable automotive brand in the world at $24.5-billion (U.S.).
CBB says the industry average retained value after four years is 44 per cent. Plenty of brands do better, including Acura and Audi (46 per cent), BMW (49 per cent), Infiniti (48 per cent), Jeep (49 per cent) and Mazda (45 per cent). Many do worse, too, and worst of all is the Smart brand at 29 per cent. Mercedes-Benz, too, comes in at below average at 43 per cent, along with Chrysler (33 per cent), Buick and Chevrolet (39 per cent), Kia and Volvo (41 per cent) and Hyundai (40 per cent).
At ALG, luxury brands are calculated at 36 months, while mainstream brands are based on predicted value after 48 months. The top luxury brands are Acura (46.1 per cent), Infiniti (44.6 per cent), Lexus (44.2 per cent), Audi (43.4 per cent), and BMW (43.2 per cent). The best of the mainstream brands are Honda (42.8 per cent), Subaru (42.5 per cent), Mazda (39.0 per cent), Volkswagen (38.7 per cent), Toyota (37.6 per cent), Hyundai (37.5 per cent), and Scion (37.4 per cent).
And yes, the resale value leaders are often valuable brands. BMW is the No. 2 in the BrandZ study, worth an estimated $24-billion (all figures U.S. dollars). Honda is No. 4 at $12.4-billion, Audi is No. 8 at $5.5-billion, Hyundai is at No. 9 at $4.0-billion and Lexus No. 10 at $3.5-billion. Honda’s brand, like Toyota and Lexus, is rooted in quality and to a lesser extent performance.
On the other hand, BMW and Audi are all about stylish, sophisticated and technologically advanced vehicles. These are qualities worth something to used car buyers as well as the brands themselves.
Most of this isn’t shocking. Anyone vaguely familiar with the automotive market knows that Toyota has earned a reputation for reliability and BMW trades on selling the “ultimate performance machine.” To find a surprise in the used car value story of 2013, however, consider the Hyundai Genesis and the Toyota Prius, winners of CBB’s Full-size Car and Compact Car categories, respectively.
Hyundai may still need to work at lifting its residuals, at least according to CBB, but the success of the Genesis indicates that the marketplace is rewarding this emerging South Korean auto company for being capable of building a premium car that holds its value. And the Prius win suggests that the marketplace is putting greater emphasis on “green” technologies and rewarding them, too.
“This is the first hybrid ever to win a Canadian Black Book Best Retained Value Award,” says Josh Bailey, vice-president, research and editorial, Canadian Black Book.
Surely not the last.
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