When choosing a new vehicle, its projected resale, or residual, value is one of the most important factors to consider. If you're leasing a new model, the residual value determines your monthly payment. If you're buying, it tells you how much you can expect the car to depreciate. Because new-car depreciation is the single biggest car-ownership cost, residual value gives you the inside on how much your vehicle will cost you over its life.
Residual value is an estimate of the future worth of a new vehicle. Calculated by the Automotive Lease Guide (ALG), residuals forecast what a new car will sell for several years down the road, when its original owner trades the vehicle and it enters the pre-owned market.
That forecast is vitally important to banks, lending companies and other outfits that finance vehicle leases. To figure out payments, they start with a car's residual value, which tells them how much they can expect to get for a particular vehicle when its lease expires. Subtracting the residual from a vehicle's purchase price, they have an estimate of how much value the lessor — that's you — will use up over the term of a lease. To set a monthly payment, they divide that used value by the number of months in the lease, then add a rental fee.
Similarly, when you buy a new vehicle, its residual value points to how much you can expect to get for it when eventually you decide to sell or trade in that car, van, SUV or truck. Some vehicles hold their value much better than others, which means that the trade-in you'll get for one model can be higher than you would garner from a comparable car by a competing brand.
Residual value also gives you an insightful clue about the underlying quality and reliability of an automobile. A vehicle has a higher residual if it is highly valued by used-car buyers. One big reason used-car buyers seek certain models more than others is because they trust those models more to hold up well with age.
Of course, residual value is only a forecast of future worth. A vehicle's actual resale value can change over time, as market conditions change. Also, the actual value of a specific used vehicle depends a great deal upon its condition. An entire vehicle class might diminish in public appeal, the way the popularity of large SUVs fell when hurricanes blew gasoline prices skyward in 2005. For example, a particular model might drop in value if a massive recall dents public confidence.
But ALG takes pains to consider all such factors when it sets residual values for every model sold in America. “We examine a number of different variables,” explains Raj Sundaram, president of ALG. These variables include price trends in the vehicle wholesale market, directions in which vehicle segments are moving, brand popularity and performance, a company's fleet sales and its incentive strategy, to name a few.
Still, Sundaram explains that the company's residual-value forecasts sometimes turn out to be higher or lower than eventual, actual values. “Crossover utilities, midsize and full-size cars and mid-compact cars outperformed our expectations,” he said. “Luxury cars, sporty cars and minivans — with the exception of Honda Odyssey and Toyota Sienna — underperformed our expectations.”
Surprisingly, he notes that full-size SUVs recovered much resale value after their big dip last year. “The 2002 model-year, full-size SUV resale values in 2005 were higher than the original residual forecast,” he said.
Unless you obtain them from a lessee or lender that subscribes to ALG's service, you can't get the monetary values ALG assigns as each vehicle's residual value. But you can see how specific models rank on the Residual Value Tool of ForbesAutos.com partner site cars.com.
You can also consider the winners of the rating agency's 2006 Residual Value Awards, which are detailed here. The awards honor the 2006 models in each vehicle segment that retain the highest percentage of their original price by depreciating the least. To see the entire list, view the Top 10 High Resale Value Vehicles slideshow.
On the following pages we list the vehicles with the highest residual value in each of 10 categories covered by ForbesAutos.com. Pricing is based on 2006 base MSRP (manufacturer’s suggested retail pricing) and residual values are 36-month projections for March through April 2006.