Some cars just don’t age well. Even a great value buy in the new-car market can bomb in the used-car market with low resale values.
Vehicles like the Kia Sedona minivan and Lincoln Town Car look good, perform well and often are purchased new at bargain prices. But take a closer look at them three years later, and their value has decreased at an accelerated rate. By the time a car owner is ready to unload one of these vehicles, the owner is often surprised to learn that the car has lost more than 50% of its value.
The shock doesn’t end there. After the fifth year, when most vehicles have lost 65% of their value, these vehicles have lost 74% or more. The owners of value-losing vehicles learn that the cost of ownership, which includes depreciation, financing, insurance, repair, maintenance, fuel, taxes and fees, far exceed the vehicle’s total monetary value in the fifth year of ownership.
“Resale value matters to everybody unless you are buying to drive it until the wheels fall off and never plan to sell it,” says Jack R. Nerad, executive editorial director and executive market analyst with Kelley Blue Book. “That group represents a small percentage of new-car buyers. Everyone should look at this.”
To identify the top 10 value-losing cars, we enlisted the help of Kelley Blue Book’s Residual Value Guide for resale values. Kelley Blue Book defines resale value as the projected market value of a vehicle at a specific time in its life cycle. It is typically represented as a percentage of a vehicle’s original manufacturer’s suggested retail price (MSRP) and is used for estimating the vehicle’s value when it’s sold or traded in.
Kelley Blue Book updates the data every two months. Our list was based on the November/December 2007 resale value statistics, which are also used by Kelley to compile its 2008 annual analysis.
Depreciation is often the greatest expense incurred by drivers during the first five years of vehicle ownership, but the most overlooked cost among consumers shopping for a new vehicle, says Nerad. With the average new vehicle losing 65% of its value–retaining about 35%–after a five-year ownership period, a $20,000 new car today will be worth somewhere close to $7,000 after five years. The vehicle that best holds resale value is the Mini Cooper, which retains 52% of its value after five years.
Consumer perception plays a big part, says Nerad. If consumers don’t believe that a Kia or Suzuki is as good as a Honda or Toyota–whether that perception is justified or not–there will be a dampening effect on value. Shaking off bad brand perceptions isn’t easy, says Nerad, adding, “Consumer perception doesn’t change rapidly.”
Take Kia Motors’ popular value-priced Sedona minivan, which tops our list of value-losing vehicles. It comes with an industry-leading 10-year/100,000-mile powertrain warranty and has earned the Insurance Highway Institute’s “Top Safety Pick” tag in the minivan category for the past three years.
But after five years of ownership, the Sedona retains an estimated 20% of its value. That works out to about $4,280 when using the base MSRP of $21,420 for a basic, entry-level Sedona. That’s about $3,000 less than Edmunds.com’s projected $7,101 true cost of ownership during year five. (Edmunds.com projects true cost of ownership data for all vehicles.)
Kia Motors says it is working to improve the Sedona’s resale value.
“It is important to note that Kia’s resale values, including the Sedona, are rising,” says Kia spokesman Alex Fedorak. He cited Automotive Lease Guide‘s published residual values for November and December 2007, where Kia received a three- to five-point improvement on its residual values across the board on the basis of current auction values in the standard 36-month period on 2007 and 2008 model-year vehicles.
A consumer also has to decide if saving money on the purchase of a new vehicle is more important than earning more money when selling the vehicle. Buying low is often the wrong strategy, says Nerad. “You end up losing more than you thought you were saving, because in three to five years it is worth so much less than a more tried and true brand,” he says.
Suzuki is also working to boost its brand image. Three Suzuki vehicles made the value-losing list: the Reno, the Forenza and the Aerio, which was discontinued at the end of the 2007 model year. Its replacement is the 2008 SX4. The Reno and Forenza are projected to retain 25% of their original value; the Aerio, 26%.
Suzuki, which is also battling against negative brand perception among consumers, says it is gradually winning points with skeptical U.S. buyers. It is offering new products backed by a seven-year/100,000-mile powertrain limited warranty that is fully transferable and is intended to improve Suzuki’s value position in the used-car market.
“In the last four years, Suzuki is second among major manufacturers in improving its resale performance,” responds Suzuki spokesman David Boldt in an e-mail. “Enhanced brand awareness improves perception, and with it, opinion.”
Boldt adds that newer models are receiving “residual values fully competitive in their respective segments.”
Supply and demand also affect resale value. That’s the case with the Lincoln Town Car and Mercury Grand Marquis, which are plentiful in rental car and corporate fleets. The Town Car has a projected resale value of 21% of its original value; the Grand Marquis, 25% of its original value.
Vehicles that do not meet consumer expectations for reliability, dependability and fuel economy also struggle. The Dodge Durango SUV has a projected resale value of 24% of its original base MSRP of $26,455.
“Resale values are influenced by supply and demand in the new- and used-car market.” says Dan Bodene, a Dodge spokesman. “As gas prices have gone up in the last five years, the entire full-size SUV segment has dropped, depressing prices for most entrenched competitors. Most of the Durango’s direct competitors are in the same range of value retention.”
Mediocre models that went out with a whimper when discontinued don’t resurface in the used-car market with a bang. The Suzuki Aerio was discontinued as a 2007 model; it has a projected 26% resale value after five years of ownership. The Chevrolet Uplander ends its run this year. It has a projected resale value of 25% of its original base MSRP of $21,540.
Customized vehicles, like the Ford Econoline van, tend to have lower resale value. Buyers equip the vehicles to fit their lifestyle, but there may be few others in the used-car market who share the same tastes.
Where else can consumers research this information on the Internet? In addition to the Kelley Blue Book information, Consumer Reports also publishes predicted depreciation vehicle ratings that forecast how well a vehicle is expected to hold its value during the first three years of ownership. The Lincoln Town Car, Dodge Durango, Ford Econoline, Mercury Grand Marquis and Chevrolet Uplander all received the lowest rating of 1 on a scale of 5 (excellent) to 1 (poor). The Suzuki Forenza and the Sedona each earned a rating of 2 (fair).
Data were not available for the Isuzu Ascender and Suzuki Aerio and Reno. Isuzu announced in January that it will discontinue selling Isuzus in the U.S. after January 2009. Suzuki is revamping its U.S. lineup. Forenza and Reno will “play a significantly smaller role in both sales volumes and resale performance,” says Boldt.
Consumers can try to shore up resale value by equipping their vehicles with options others may want to buy later, like anti-lock brakes, alloy wheels, a CD player with CD changer, parking sensors, navigation systems, sensing cruise control and leather-covered seats. Kelley Blue Book also recommends selecting colors like black, white or silver and avoiding too much customization.