The biggest cost of car ownership isn't gas, repairs or even adding that amazing sound system. Nope, it's depreciation, or the car's decrease in value over time.
The autos that depreciate most are frequently high-volume, older vehicles. The winners? Those that are well-designed, well-engineered and are usually in limited supply and high demand, according to Kelley Blue Book, an authority on residual value.
Consider three Ford Motor models: the Ford E-Series van and the Ford Crown Victoria and Mercury Grand Marquis sedans — three of the eight new-model cars with the worst predicted depreciation.
These vehicles are all high-volume. Last year, Ford sold 55,000 Grand Marquis models in the U.S., 63,000 Crown Victorias and 180,000 E-Series vans — a model used primarily for commercial purposes. In comparison, an example of a low-volume car is Ford's $150,000 GT supercar, of which the company sold 2,000 models in 2006.
The Crown Vic, Grand Marquis and E-Series are also getting old. Ford hasn't overhauled the E-Series in 14 years — double the time an average car sees between redesigns. Consumer Reports begins its current online review of the Crown Victoria by stating, "The Crown Victoria/Mercury Grand Marquis twins are both dated, with stiff rides and noisy engines."
But these Ford models are also primarily bought in large fleets, by such outfits as police departments and taxi cab companies. (Dodge's Caravan, another car that depreciates heavily, is also popular with fleets and small businesses.)
"The Crown Vic and E-Series are mostly fleet vehicles," wrote Ford spokesman Jim Cain in a recent e-mail message, "so by the time they are resold, they are very well used."
The businesses that buy these cars, he said, "tend to have severe duty cycles — high annual mileage, long years in service. So the resale values ... don't really factor into the purchase equation for most. Also, many customers purchase conversion vans or otherwise customize their vehicles [for example, the E-Series van is flexible and configurable for different kinds of uses], which throws off the resale equation."
Our list of the eight current-model cars with the worst residual values consists of autos that have the lowest possible ratings for predicted depreciation from Consumer Reports and Automotive Lease Guide, an authority on residual value. CR's lowest predicted reliability rating is a designation of "much worse than average." ALG's depreciation ratings are based on a five-star system, in which a one-star rating is the lowest. After compiling the list, we contacted Kelley Blue Book to see precise projected residual values for each car.
For each car, we have listed its predicted residual value after two, three and five years of ownership.
The first two figures will be most important to people who lease their cars, as the average leased car gets returned after two or three years. For people who buy, the five-year figure is the one to study, as the average buyer sells a vehicle after five years.
The difference between a high and low residual value is significant.
An average vehicle will retain 35 percent of its value after five years, according to Kelley, meaning that a $20,000 new car today will only be worth $7,000 after five years. But Kelley says a car with excellent residual value, such as a new Mini Cooper, will retain over 50 percent of its value after five years. To contrast that with the bottom of the pack, a Crown Victoria will hold only 22 percent of its original value after five years.
Sometimes a specific factor causes a low residual value. For example, General Motors' $32,000 Rainier SUV is on our list, and Buick spokeswoman Debbie Frakes said in a recent e-mail message that that's because "we've announced that Rainier ends production in May."
"A lower depreciation rating is typical for vehicles at the end of their lifecycle," she said. This might seem to negate the supply/demand argument, but the Rainier is going out of production because it has not been popular. Last year, Rainier sales declined 17 percent to 13,000 units.
Sam Locricchio, a spokesman for DaimlerChrysler's Chrysler Group, thinks the $27,000 Dodge Durango SUV is on our list "based on consumer attitudes related to fuel prices."
"For example," he wrote in a recent e-mail message referring to escalating gas prices, "recent fuel cycles can cause — as we've seen in the past — consumers to react more positively toward cars versus larger vehicles such as SUVs."
In response to our inclusion of Dodge's Caravan, he wrote that "from a quality standpoint, the 2006 J.D. Power Initial Quality Survey noted the Dodge Caravan and the Chrysler Town and Country dominated the van category. Point being, the vehicle is recognized by customers as having quality and, apparently, value."
On the other hand, some vehicles depreciate just because they aren't particularly desirable, or in high demand. This is the case with Kia's $26,000 Amanti sedan and the $14,000 Spectra compact car.
In 2006, Amanti sales plunged 49 percent to 10,000 units. Customers just don't seem to want an expensive Kia. And the Spectra, despite being high-volume, has poor test scores. Consumer Reports gives the Spectra below-average marks for owner satisfaction, crash protection and acceleration, and J.D. Power gives the car below-average marks for comfort, mechanical manufacturing quality, mechanical design quality and body and interior design quality.
Kia declined to comment.
Still, those hoping to hang on to their autos for no longer than a few years have options. Kelley Blue Book recommends going easy on customization in order to maximize residual value.
Buyers should also choose a popular exterior color, such as black, white or silver, steering clear of wild hues such as purple and orange. Opt for popular features, such as anti-lock brakes, alloy wheels, CD players or changers, parking sensors, navigation systems, laser- or radar-equipped cruise control and leather seats.