Why a vehicle's resale value matters
Leasing is returning to Canada in ways we haven’t seen since the financial crisis and that means many new-car consumers are looking with urgency at resale values.
After all, if you lease, you are essentially renting a car. The rental payment is based on how much value that new ride will lose in the future. In other words, your payment is based in large part on what that vehicle will be worth two, three, four years down the road. Resale values matter, obviously.
"When deciding on a new car or truck, consumers often search for a model offering the best loan rate or the richest incentives that lower the sticker price,” says Kathy Ward, CEO of Canadian Black Book. “But not taking vehicle depreciation into consideration – the single greatest cost of vehicle ownership – can lead to a costly surprise at trade-in time.”
Canadian Black Book has just released its annual 2012 Best Retained Value Awards, an annual roster of passenger cars and light trucks that have led the market in holding their value. And like rival ALG, which has also just released its 2012 Canadian Residual Value Awards, the winners in retained value are Japanese cars and trucks.
In the CBB world, Toyota, Lexus, Subaru and Honda combined to place first in 11 of 17 CBB vehicle classes, while European auto makers took home four. Chrysler took home three and there was one tie. Ward says the CBB awards help shoppers scope out vehicle that deliver excellent value for money – because these vehicles retain value the best. For consumers, CBB has an excellent consumer website that allows visitors to research present values for used vehicle as well as obtain the projected future value of a new vehicle today (canadianblackbook.com).
This year’s CBB story is once again largely about Toyota and its Lexus luxury brand. Toyota earned five first-place finishes, four second-place and one third-place. Lexus took two firsts and one second. Meanwhile, the Subaru Outback has either won or tied for first in the mid-size car category for three years running.
Japanese auto makers performed equally well in ALG’s latest awards. Subaru received the Mainstream Brand award for the third consecutive year and Japanese models won 14 of the 19 individual vehicle segments. Subarus as a group are projected to retain 40.8 per cent of their value after four years, far ahead of the mainstream average of 33.7 per cent. On the luxury side, Nissan’s luxury brand, Infiniti, won the ALG brand awards by being projected to retain 45.2 per cent of their value after three years.
CBB and ALG approach the resale story in different ways. The Black Book people based their awards strictly on past performance in the marketplace, relying heavily on auction data and other similar indicates. ALG uses auction data also, but also relies heavily on a number of other factors to predict where values are going in the future.
“Residual value is a complete indicator of value, taking into account quality, durability and brand desirability,” said Geoff Helby, regional director of ALG Canada. A key element that helps ALG make its value predictions revolves around the perceived quality of vehicles and brands, as determined by consumers. ALG also takes into account macroeconomic indicators such as housing prices and employment levels.
Toyota’s performance in the CBB honours might be a surprise to some, given Toyota’s sales were down substantially in 2011 and the company has been busy rebuilding brand strength in the wake of a number of recall issues. But auto analyst Dennis DesRosiers had another take.
“It’s interesting that while new-vehicle sales figures may show Toyota lagging behind North American models, the retained value awards tell another story,” said DesRosiers. “The Toyota Tundra and Tacoma models, for example, have won Best Retained Value in the Full-size Pickup and Small Pickup categories for three consecutive years although we typically think of North America as the top builder of trucks.”
Overall, though, this year’s awards from both ALG and CBB show a remarkable consistency over time. If you plan to lease, it seems, what’s past is prologue.
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