By Josh RosenbergCars.com has a great free car value tool that fills in another piece of the "which is the right car for me" puzzle. Check out this Residual Value Tool before buying your next car. Wait! Link deactivated because it no longer exists. See Update.
UPDATE: This very useful calculator is no longer available and there doesn't seem to be another anywhere online. I will update if that changes.
UPDATE #2: Okay, some good news here. I found a site that gives the car value after depreciation for specific models (well, apparently for 200 models anyway). You can then use those numbers to your advantage as explained below in the original version.
There are many so-called "car residual value calculators" out there, but they have a major flaw. They don't give actual residual values. Instead, they allow you to input the one of your choice. The value of the information we want here is to learn the "actual" historical residual values, not assign them ourselves.
And I can understand why this information isn't readily available. I believe it gives consumers price information to better judge used car and trade-in prices. Thinking a bit cynically, perhaps not all dealers were thrilled about that.
Anyway, here's what we are looking for: a depreciation tool over at CarEdge. They have kept track of historical depreciation rates for up to 12 years on about 200 models. Hopefully, yours will be one of them.
And if you don't want to go through the process of a one-at-a-time look, this page at CarEdge lists the depreciation rates for many of their covered models. You can also get the numbers out to as much as 7 years.
Okay, back to the original article ...
Here's How Knowing Residual Value Helps
The primary purpose of the tool is to calculate car lease payments. But using the included residual values makes it another excellent tool for selecting the right car to buy, and even to know a pretty fair trade-in value for a vehicle you own now.
These values are provided by J.D. Power's ALG (ALG = Automotive Lease Guide) and calculate the trade-in value of a leased car sometime in the future (2 to 5 years). The lease payment is then based on the difference between the residual value (value after depreciation) and the vehicle's current retail price.
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From looking at a few examples, I believe the results are on the low side. And understandably so since the numbers are from the lessor's perspective. They want to minimize the risk of losing money when the lease expires down the road. But it still presents one more tool to help you select the right car.
Wouldn't you like to know what your car's "conservative" trade-in value will be a few years down the road when you may trade it in or sell it? Wouldn't you like to know what "experts" think will happen to the value of your car over time? Most definitely! Knowledge is power, as they say.
Your vehicle's future value at the time you sell it or trade it will ultimately determine whether you got a good deal on your purchase today. And how does the expected depreciation of the car you're planning to buy compare with other comparable models?
After all, if one vehicle retains 65% of its value over the next three years and another retains 45% of its value, this should impact the price you're willing to pay for either vehicle today ... or help determine whether you want to keep considering a particular vehicle for purchase or not.
So, this car value calculator is meant to be used on new cars, but it clearly contains a "tell" about used car prices as well.
So, by all means, go ahead and use it if you're planning to buy a new car, but because the only way to have gotten these numbers in the first place was to have used historical price data, this information also gives us a "worst case" idea of a used car's trade-in value on a well maintained car.
And also, by adding a reasonable markup, car buyers can estimate a fair retail price for a vehicle they are considering to purchase.
An Example Of Residual Value's Usefulness
For example, lets say you checked the lease residual value of a new Ford Focus S. You see from the residual value that it is expected to retain 53% of it's value after three years. And this number is based on its historical depreciation record, so it is certainly valuable information.
Let's say it's MSRP price was $22,000, then it's projected trade-in value (residual value) for the lease in three years would be $11,660 (22,000 x .53) if driven an average of approximately 12,000 miles annually.
So, the wholesale value of a used 3-year-old model may be right around $11,660. And that's good to know if you own one to trade or want to buy one. And you can take the tool out to five years to get those numbers as well.
For example, if you owned one and the Dealer offered you $9,000 on a trade, you would know it was a poor offer. And if you wanted to buy one but it was priced at $16,000, you would know it was overpriced.
And you can also use this data to compare models before purchasing. For example, last I checked a base new Acura TL was expected to retain 54% of its value over 3 years, a Hyundai Accent GLS sedan should retain 50% of its value, while a Dodge Charger SXT was expected to retain 44%.
And since this is based on historical data, it tells you how these cars have depreciated in the past. Again, valuable information for either car buying or trading.
So in wrapping up, play around with this tool on vehicles you're interested in and see what you learn. Hope it's useful.
Wishing you happier car hunting!
Josh