We’ve all heard this saying before. As soon as your drive that car off the lot, it’s instantly worth less than what you just paid for it. It’s a slightly souring thought for a car buyer, since getting a new car should, in theory, be an exciting time. The unfortunate truth is that if you just financed a brand new 2019 Nissan Rogue for $30,000, guess what? It’s no longer worth $30,000 the moment you sign on the dotted line.
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That old adage rings true for used cars as well since, as a general rule, the more owners of a car, the less valuable it is since there are more potential unknowns and inevitably, more miles.
Even though vehicle depreciation is inevitable, not all vehicles depreciate at the same rate. Much of this has to do with perceived market value and brand reputation. But before we get into which brands and vehicles hold their value the best, first we need to understand what depreciation actually is.
What is Depreciation?
The loss of value of a car or any other object over time is what’s known as depreciation. While depreciation is pretty straight forward for car owners new and used, when it comes to depreciation, lessees have a major advantage over those who finance or own.
Since with a lease, the bank is the sole owner of the car, as a lessee, you are not stuck with a depreciating asset. Obviously, this comes with limitations such as mileage allowances, since the bank needs to know how to properly assign value to the vehicle when it is returned.
What is Residual Value?
However, the banks know this as well and will try to protect their losses as best they can be calculating what’s called residual value. Residual value is essentially the estimated value of the vehicle at lease end, or your purchase option if you choose to buy your lease out.
Now the true value of the vehicle could deviate from the residual value for a number of reasons, such as future actual market value changing, mechanical problems such as recalls and so on. The good news for you is, as I mentioned earlier, that’s not your problem anymore, it’s the bank’s, which brings me to a very important question.
Should I Lease a Car with High or Low Residual Value?
The short answer is yes, you should lease a car with high residual value, but there are so many other factors that go into determining the makeup of a lease payment. On paper, it would make sense, since there is more of a gap to cover in the three years or so that the car is being leased, thus choosing a car with strong residual value would mean fewer depreciation costs for the lessee to cover.
Let’s take the Nissan Rogue again for example compared to a similar vehicle, the Honda CR-V. If the $30,000 Rogue has a residual value of $18,000 and the $30,000 CR-V has a residual value of $20,000, that’s a $2,000 difference. You would think since the Rogue has a larger financial gap to cover during the lease, the payments would be higher, right? Not necessarily. Since Nissan could be offering more incentives and rebates compared to Honda, the actual price comes down, resulting in much cheaper lease payments despite the lower residual value.
It’s another way for automakers to sway consumer purchase decisions from one brand to another.
If you were financing these two vehicles, however, the CR-V would be the smarter choice, since it has a better chance at holding its value over the course of a long period of time, which makes all the difference as a car owner. With a lease, you’re only on the hook for three years and then it’s a clean slate and on to the next ride.
Which Brands Depreciate the Least?
According to data company ALG, which gives out annual Residual Value awards, the top brands for the highest residual value in 2019 are Subaru and Land Rover. Both of these brands have built a loyal and dedicated following and when you combine that with Subaru’s stellar reliability and Land Rover’s unique luxury feel, they’ve created a market where the value of their vehicles are in demand. Because of this, depreciation moves at a slower pace, the residual value stays high, and resell value is strong as well.
Other brands that scored well are Toyota, Jeep, Honda, and Porsche, just to name a few. Notice that all of these brands have a proven track record of reliability, safety, longevity, and market value, all important factors when determining depreciation.
If you’re looking to finance rather than lease, Kelly Blue Book also published their Resale Value Awards for 2019, with Toyota and Porsche taking the top spots for mainstream and luxury brands respectively. Toyota placed three models in the top 10 with the 2019 Tacoma taking top spot honors, while Porsche placed their 2019 Macan crossover at number 10.
This is a very important list to take a look at if you are purchasing a vehicle since you want to know that the car you just bought is going to retain its value over time. Uber-popular models such as the Jeep Wrangler also did extremely well, as did several workhorse pickup trucks that are known to hold their value extremely well.
What Vehicles Hold the Best Residual Value?
Ok, back to leasing. It’s no secret, certain cars are just more popular than others. Chalk it up to a cult following, good looks, consistency or brand loyalty, but there are always specific models that will be in demand year after year. Because of this, depreciation remains slow and residual value stays high.
Take a quick look at ALG’s top cars when it comes to maintaining high residual value.
| Make | Model |
|---|---|
| Audi | A3 |
| Dodge | Charger |
| Honda | Accord |
| Honda | FIT |
| Lexus | LS |
| Lexus | RC |
| Nissan | GT-R |
| Subaru | Impreza |
| Subaru | WRX |
| Volvo | V90 |
| Jaguar | I-PACE |
| Jeep | Wrangler |
| Land Rover | Discovery Sport |
| Land Rover | Range Rover |
| Land Rover | Range Rover Sport |
| Land Rover | Discovery |
| Toyota | Sequoia |
| Honda | Pilot |
| Subaru | Forester |
| Subaru | Outback |
| Subaru | Crosstrek |
| Toyota | Tundra |
| Toyota | Tacoma |
| Honda | Odyssey |
| Mercedes-Benz | Sprinter |
| Mercedes-Benz | Metris |
Let’s recap
If you’re interested in leasing, residual value and depreciation may not be the most important information to look at when you’re just trying to score a great deal on a new car. Lease incentives, manufacturer rebate amounts, and other factors play a large factor when determining lease payments.
However, when financing or buying outright, knowing which car brands and models have a history of high resale value is extremely important to ensure your asset is holding its value over time.
Questions about how depreciation or residual value affects everything from lease payments to market value? Contact the automotive experts at Capital Motor Cars. Our staff of trained consultants will walk you through all of the ins and outs of car shopping and are here to assist you on your car buying journey.
