Want to save money, big money, on a new vehicle? Buy the ride that depreciates the least.
Indeed, depreciation is the single biggest factor in determining how much a vehicle will cost the owner. Thus, knowing which cars and light trucks have held their value best over the last few years and which ones are predicted to hold their value the most in the coming years should be of interest to all buyers.
This is where ALG, formerly Automotive Lease Guide, and the Canadian Black Book come into play. Recently, both organizations announced residual value award winners for individual vehicle categories. ALG also released brand winners.
The difference between the two: ALG's 2011 Residual Value Award (RVA) winners represent a prediction of how various vehicles and brands can be expected to perform over the next 36 months for luxury brands and 48 months for mainstream brands. CBB's Best Retained Value Awards "go to 2007 model-year vehicles retaining the highest percentage of their original MSRP over the past four years across 17 categories."
In other words, CBB's awards reflect hard value data going back several years. And, indeed, past performance is usually an excellent indicator of future trends. ALG's RVA winners - the individual models and brands - are what you might call a formal prediction of the future: they are more forward-looking by definition, based not only on used-vehicle auction pricing but also a long list of other factors, says ALG's Eric Lyman.
He says the "magic" or the "alchemy" at play is in ALG's ability to look at trends and momentum in the marketplace on both the model and brand levels, and then make reliable forecasts. That is, ALG takes auction data into consideration, then factors in the impact of new rival vehicles coming into the market, along with current transaction prices, the value of improvements to new models, the significance of a redesign and even currency fluctuations, housing prices, gas prices, wage growth and the used-vehicle supply. On top of that, ALG's forecasting model considers brand momentum, incentive trends and fleet trends.
For ALG, Subaru tops the 2011 prediction of future residual values for the second year in a row. ALG predicts 2011 Subaru cars and trucks will hold an average of 41.8 per cent their sticker price after 48 months, the highest score of any mainstream brand. Honda is second at 41 per cent, followed by Nissan at 38.1 per cent and Toyota and Volkswagen tied at 37 per cent.
On the luxury side, Infiniti is on top of the 2011 ALG awards for the third straight year, with its vehicles predicted to hold on to 45.4 per cent of their value after three years. In second place among the luxury set are Acura (44.8 per cent), BMW (44.6 per cent), Audi (42.5 per cent) and Volvo (40.7 per cent).
CBB does not release brand winners, though its list of category winners suggests Toyota, combined with its Lexus premium brand, is the industry's strongest performer when it comes to retained value over the last four years.
As auto analyst Dennis DesRosiers, of DesRosiers Automotive Consultants, points out in a note to clients, Toyota and Lexus have at least one vehicle among the top three in 13 of the 17 vehicle segments. The CBB results show that "Toyota is the absolute best brand at retaining value for the customer. Indeed, Toyota/Lexus was in first place in six of the 13 categories where they sell vehicles."
In its brand analysis, ALG notes that luxury vehicles on average hold on to 40.6 per cent of their value after three years, while the mainstream average retained value is 34 per cent after four years. The bottom five mainstream brands, however, retain just 27.5 per cent of their value after four years.
Of course, looking at averages only tells part of the story, notes DesRosiers. More telling is the difference between the top- and bottom-performing vehicles. In previous years, the CBB data show quite a dramatic gap in retained value.
"Some brands retain 60-plus per cent of their value after four years of ownership on the high side and some brands retain only about 20 per cent of their value on the low side," he notes.
With the current national average transaction price in Canada at about $35,000, "the consumer with a high retained value vehicle has $20,000-plus of equity in their vehicle four years later and the low retained value consumer has less than $8,000 of equity," adds DesRosiers. "That makes a huge difference when it comes to buying the next vehicle since the consumer with the high retained value vehicle essentially has a huge down payment on their next product."
He also notes that brands with strong resale values have more loyal and happier owners. Vehicles with high retained value in their early years, he says, usually last longer than vehicles which depreciate more quickly. And vehicles with high retained value have "significantly" lower repair costs.
Lyman at ALG points out that his firm's findings predict a shift is occurring among brands in terms of residual values. Hyundai, Ford, GMC, Chevrolet and Kia are all on the upswing among mainstream brands, while Audi, Jaguar and Porsche are on the move in the luxury set. Hyundai, Ford and Kia, in particular, are being noticed for improved quality, as well as for offering vehicles with better designs and performance.
However, he warns, "Consumer perception and how consumers value brands moves at a slow pace," therefore no one should expect big leaps in residual values over the next few years for any of these brands.
DesRosiers says the CBB data tell a similar story. For instance, Hyundai with the Entourage minivan and Kia with the Rondo wagon placed models in the top three of CBB vehicle segments.
"I remember the era when the quality of their product was questionable. Not any more and it is reflected in high retained value," says DesRosiers.
As Lyman puts it, "What we see at ALG is that the quality gap and the perception of quality between the top-tier Toyota and Honda brands and Hyundai and Kia - we're seeing that quality gap shrink and the perception of quality shrink. But it moves at a slow pace."
In short, resale values remain a moving target. The shifts are shaking up the marketplace at a steady rate and will continue to do so. That's why keeping a watch on resale values every year makes the most sense of vehicle buyers interested in saving money.