How much cars crash in value

Don't buy another car without first checking on how much it's likely to be worth when you sell it. A true understanding of depreciation

By Lucas Rosa

Cars, as your father told you, depreciate 50% as soon as you drive them off the dealer's lot. He wasn't completely wrong, there are a few models that drop in value that quickly (see below), it would be closer to the truth, though, to say that some cars depreciate far faster than others. As a car buyer you have to know which is which.

Until recently it was difficult to know exactly how much a given automobile might depreciate over, say, five years. Yet, that's a figure you really have to know if you want to get the best possible deal. Suppose you're considering two vehicles, one that sells for $45,000 and another with a sticker price of $30,000. Five years from now it's entirely possible that the $45,000 vehicle will be worth around $23,000 while the value of the lower priced auto may have plunged to $7,000 or less. Now which is the best deal?

Knowing what a car may be worth down the line is even more essential for those who lease. Indeed, those who write leases begin with the residual value -- the amount the car will be worth at the end of the lease. The amount you pay in monthly payments is calculated by subtracting the residual value (the amount you must guarantee the car will be worth at the end of the lease) from the price you pay for the car, divided by the number of months of the lease. There are a few extra charges thrown in, of course; interest charges and some money for the dealer, but that's essentially it. As a rule, lower priced cars depreciate much more quickly than higher priced models (especially foreign makes) which accounts for why car lease ads often feature what seem to be lower monthly payments, relatively speaking, for pricier models.

Until the last couple of years it was difficult to know just how quickly a car might depreciate. Now there are three, albeit US, websites which provide a way to calculate depreciation rates for virtually all makes and models. The data that backs up the numbers comes from tracking sales, resales, trade-ins, and leases and so reflects the real world.

FINDING THE DOGS
Edmunds.com bases its prices on a number arrived at by a proprietary calculation. They call it the True Market Value (TMV). The site provides current prices for nearly any car and model you can think of going back 15 years and more. By comparing prices of the same model over a number of years you can easily calculate the percentage depreciation.

Here are Edmunds top 10. The percentage figure is the value of the original sales price retained after five years. BMW Z8: 54%; Mercedes C class: 54%; Mini Cooper: 53%; Porsche 911: 53%; Porsche Boxster; Lexus SC430, Acura TL, Honda s2000, Dodge Viper, Lexus GS3000: 52%,

Here are the bottom ten: Hyundai Accent: 20%; Kia Spectra: 22%; Chev Cavalier, Dodge Neon, GMC Sonoma: 23%; Dodge Intrepid, Pontiac Sunfire, Pontiac Grand Am, Chev S-10, dodge Stratus: 24%.

Imports do better than domestics at holding their value with some exceptions. As the above list suggests, Hyundai and Kia low-end models don't do well. Cadillac has a big push on to sell new models this year and things may change but until now they, along with Lincolns, have been big losers dropping Daddy's proverbial 50% in value in year one.

Another site, Cars.com, has studied residual values for three years and ranks the Honda Odyssey as a winner, holding 60% of its value with the Toyota Tacoma not far behind at 57%.

LeaseCompare.com, yet another US site, matches many of Edmunds worst but also adds, after just three years, Buick Century at 30%; Ford Taurus at 29% and the Oldsmobile Alero at 28%.

There's no service in Canada that provides exactly the same kind of figures but no car buyer should walk into a dealership without first visiting Phil Edmonston's lemonaidcars.com. Though Phil doesn't break it down quite the same way, he does regularly list his best and worst buys.

The residual value figures are useful if you plan to trade in every two to five years. Longer than that and the exercise becomes a little futile -- most cars have lost so much of their value it's hardly worth the calculation. I was saddened, but not surprised, to find that my top of the line Eddie Bauer, 4WD, 1991 Ford Explorer has lost 98% of it's value. Still runs like a top though and I have no plans to put it out to pasture any time soon.