Which cars hold their value?
Our exclusive charts tell you which vehicles will make you happy come resale timeand which ones won't.
If you count among your possessions a 1938 Bugatti Type 57 SC Atlantic Coupe, you can expect your car to appreciate in value. Otherwise, brace yourself for the inevitable slide, starting from the moment you drive your new car off the dealer's lot.
Of course, some cars hold their value better than otherssomething you need to know when you're in the market for a new, used, or leased car.
We talked to the experts to find out what things affect a car's anticipated future price (or residual value, in car talk). Then we asked them to provide us with lists of cars that do well at resale timeand those that don't.
Quality is always in style
First and foremost is the perception of quality. Brands like BMW, Mercedes-Benz, Lexus, Honda, and Toyota have reputations for producing high-quality, reliable vehiclesand that helps to keep their residual values high. But such reputations aren't conferred by the public overnight, says Jesse Toprak, director of pricing and market analysis at Edmunds.com, the online car buyers guide. They have to be earned over time.
One brand that's taken that message to heart, says Toprak, is Hyundai. "Eight or nine years ago, most banks wouldn't even finance Hyundais because of their low resale values. Today, perception of their quality has improved considerably, and that has helped stabilize their value."
Even hot new cars won't earn the public's respect for long if they don't have something going for them besides marketing hype. "Normally, manufacturers can pump up a car's perceived quality early on," says Art Spinella, an analyst with CNW Marketing Research, which tracks industry trends. "But after a couple of years, word of mouth trumps hype, and reality sets in."
That's what happened to Volkswagens, says Spinella. (The Jetta GL TDI and the GTI, which have relatively high residual values, are two exceptions.) "Until three or four years ago, the perceived quality of Volkswagens was significantly higher than their actual quality," he says. "But then word spread that some of the cars had troubles, and sales and used-car values dropped."
The scenario can also work in reverse. "The quality of General Motors products today is considerably better than what people think," says Spinella. But that gap between perception and reality is gradually narrowing, and, as it does, projections of what new GM cars will be worth three years from now are starting to firm up.
White SUVs are in; green minivans are out
Other thingsbesides brand identity and perception of qualityalso help to determine your car's residual value. One is its "vehicle segment"whether coupe, hatchback, convertible, sedan, wagon, SUV, van, minivan, or truck.
Right now, soccer-mom minivans are doing less well in the market than SUVs, says Charles Vogelheim, executive editor of Kelley Blue Book ( www.kbb.com ), which tracks new and used car prices. And among SUVs, demand for full-size models like the Chevy Tahoe and the Ford Expedition has slowed, while demand for luxury SUVs from Lexus and BMW is growing, with predictable consequences. "If you want the Lexus SUV but can't afford a new one, you'll buy a used one, and that demand keeps residual values for those vehicles fairly high," Vogelheim says.
The right color car also makes a difference. Right now, say experts, white and silver are the most universally acceptable colors. Green's big moment has largely passedand so has red's, except if you happen to be driving a Porsche, Ferrari, or other variety of trooper eye-candy. Black does well on certain cars (a Mercedes SL 55 AMG, for example) and in certain marketsbut not in the Sunbelt, where black's heat-absorbing properties work against it.
As a general rule, say experts, appointments and optional equipment should be vehicle-appropriate. When they're not, residual value suffers, even among cars that typically retain their value over time. "If you have a stripped-down version of a luxury car, that's going to hurt you," says Jesse Toprak of Edmunds.com. "On the other hand, if you opt for expensive leather seats and an upgraded sound system for your economy car, you're probably not going to get your money back."
Nor are you likely to do well if you overpersonalize your caradding, for instance, aero packages, flashy wheels, and exotic interior wood veneers. All these ego-enhancing extras may make your heart race fasterbut they could diminish your car's appeal in the wider marketplace.
Other factors that undermine a particular car's residual value include:
Poor fuel economy at a time of rising gas prices (can you spell Hummer?).
Poor condition, which especially affects newer and more luxurious cars.
End of product cycle, which can make your 2004 Mustang seem ancient compared to the redesigned 2005 model.
Incomplete service records.
Seasonality (if you live in Boston, January is no time to sell your convertible).
Rebates and other purchasing incentives can also hurt your car's residual value, since they sometimes tarnish brand reputation in the marketplace. ("If company X's cars are so good, why must they be discounted to sell?" some people ask.)
"The more dealers rely on incentives to sell their new cars, the worse the residual values on their used ones," says Art Spinella of CNW Marketing Research. For this reason, some incentive-prone companies (Saab, for example) have been trying to narrow the gap between actual sales price and manufacturer's suggested retail price.
Depreciation may be the biggest cost of owning most cars, but it isn't the only one. The cost of repairs, insurance, fuel, and taxes and fees also plays a significant role, says Edmunds' Jesse Toprak. To determine the full cost of owning a particular car, go to Edmunds.com and click on "New Cars," then on "True Cost to Own."
The following chartswhich were developed especially for Medical Economics by Kelley Blue Booktell you which cars hold their values best, in a variety of price ranges and vehicle segments, and which lose value the fastest.
Wayne Guglielmo. Which cars hold their value? Medical Economics Jun. 18, 2004;81:26.