Drive Smart: Evaluating Resale Value

The most significant cost of car ownership is depreciation.
By Peter Bohr

When you hear the words “car expenses,” what comes to mind? Monthly auto loan payments? Gas card bills? Car insurance premiums? If you own a heap that needs frequent attention, maybe you think about the many bills from the auto repair shop.

Financing, gasoline, insurance and repair charges are all costs of owning and driving a car, but they’re rarely the most significant ones—at least not during the first five years of a car’s life. Depreciation, or the loss of a car’s value, is by far the greatest expense for most motorists. The typical vehicle retains only about 35 percent of its original value after five years, according to Kelley Blue Book data. For a $30,000 car, that’s a loss of nearly $20,000. Not even a gas-guzzler or a lemon is likely to come close to needing 20 grand worth of fuel or repairs over a five-year period.

Unlike the other expenses, you won’t regularly write out checks to pay for your car’s loss of value. And unfortunately, resale value is a mere afterthought for most new-car shoppers, who tend to select the vehicle of their dreams or what fits their budgets, not the car that makes for the smartest investment.

But if you consider the resale value before you buy a car, you might keep money in your pocket down the road when you sell it or trade it in on a new model, says Jack Nerad, executive editorial director of Kelley Blue Book’s Web site, kbb.com. For example, if you buy a $30,000 car that retains 45 percent of its value instead of 35 percent, you could save about $3,000.

This means that if you are about to buy a new car, you should be concerned about its resale value. But how can you find out what the car is expected to be worth several years from now?

Amid all the economic turmoil of late, predicting automotive resale values has become trickier. The financial distress of automakers and abrupt changes in gasoline prices have made car resale values more volatile. In the summer of 2008, when gas prices jumped above $4 a gallon, the value of thirsty SUVs and pickups plunged. This year, as gas prices took a dive, SUVs and pickups regained much of their value, according to Nerad.

Still, the majority of models from certain automotive brands consistently have high resale values. Why is that? A solid reliability/dependability record helps, Nerad says. But even more important, he says, is a certain stylishness, uniqueness or perceived desirability that makes used-car buyers willing to pay a little extra.

That could explain why 2009 Mini and Volkswagen models—brands with spotty reliability records—hold their values so well, according to Kelley Blue Book reports. Vehicles from both automakers are perceived as stylish and fun to drive; they should retain about half their original sticker price after five years. Other brands with better-than-average resale values include Acura, Audi, BMW, Honda, Infiniti, Lexus, Scion, Subaru and Toyota.

Nevertheless, if you’re one of those uncommon individuals who is content to drive a car until its wheels fall off, you can forget about resale value and depreciation. No matter the brand, a 10-year-old jalopy with 300,000 miles on it won’t be worth more than the value of its scrap.


For More Information
Projected ownership cost information of specific makes and models can be found on edmunds.com (see True Cost To Own). Kelley Blue Book’s resale value information is available at kbb.com.

The information in this story was accurate when it was published in the November/December 2009 issue of AAA World.