Created on Friday, 11 March 2011
Consumers shopping for a new vehicle consider many items, including price, styling, fuel economy, standard equipment, safety features and finance costs.
Often overlooked is a vehicle's retained value, sometimes called residual value — i.e., its predicted market value, typically after four or more years.
No one can predict a vehicle's precise value, four years after it's been driven off the showroom lot. No two used vehicles are alike and each depreciates differently. The criteria for determining valuations is something of a science and, in Canada, nobody performs this better than Canadian Black Book.
Canadian Black Book provides vehicle market values for cars, trucks, vans and SUVs. This compilation of values is considered the benchmark in the auto industry and is used extensively by dealers, consumers, insurance companies and financial institutions.
Last spring, Canadian Black Book launched a consumer web site (canadianblackbook.com) that allows users to evaluate trade-ins, research future valuations and get professional, car-buying advice. The site has become a popular web address for car buyers and sellers, attracting more than 2 million visitors within the past year.
The company also publishes its annual "Retained Value Awards," where vehicles are rated to determine the highest percentage of their original MSRP (Manufacturer's Suggested Retail Price) over the past four years across 17 categories.
For auto manufacturers, earning a Retained Value Award is a measure of high praise from a trusted source. These accolades are an important selling feature inside the showroom and in marketing materials.
Studies have shown that customers who drive vehicles with higher retained values are more inclined to shop the same brand again. In an era when customer retention is king, high residual value is a coveted benchmark in our industry.
Market values for four-year-old vehicles range between 20 to 60 per cent of a vehicle's MSRP value. These values help dealers to determine benchmark prices (market values) of trade-ins and vehicles purchased at auto auctions. They also provide an important discussion point between salespeople and car buyers.
High retained values have an impact on leasing as well. A vehicle with higher-than-average residual value will lease at a lower monthly rate than a comparable, competitive vehicle that has a lower retained value. These vehicles will have more equity and command a higher price at the end of a lease than vehicles with lower retained values.
An important caveat about retained values is that they serve only as a benchmark. The Black Book values provide dealers, industry professionals and consumers with a starting point when determining a car's inherent value after four years of ownership. The residual value is affected by other factors as well.
Customers sometimes wonder why a dealer might offer less than the Black Book value for their vehicle on a trade. That's because these values also take into account a vehicle's condition. Few trade-ins or lease returns meet the ideal. Local demand for particular models, seasonality and reconditioning costs are among the many factors that affect these values.
Canadian Black Book ratings are helpful for consumers in other ways. Vehicles with the highest retained values also tend to have the highest customer satisfaction ratings and lower repair costs (and lower cost of ownership).
Residual value is an important piece of information that no car buyer should be without. It's not the only consideration to make before purchasing a vehicle, but it shouldn't be ignored.
When you are in the market for a new vehicle, I'd recommend researching the retained value of the vehicles on your short list, and the present value of your trade.
This information will come in handy when deciding what brand and model to choose.