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Will your car hold it's value










Reprint of an oldie but a goodie

















Will Your Car Hold Its Value? A New Study Does the Math

Source: Wall Street Journal-By KAREN LUNDEGAARD

Looking for the best lease deal -- or for the brands that are most likely to hold their value three years from now?

For the first time, Automotive Lease Guide, the auto industry's main arbiter of how well car values hold up, is ranking brands by their predicted resale values. The results, which will be formally released Wednesday, give consumers a sense of which auto makers consistently score well across their entire lineup. U.S. brands such as Chevrolet and Ford ranked below average, while European brands and top Japanese brands did well.

The data also show notable variation from model to model. Both Acura and Ford, for example, have sport-utility vehicles that cost between $37,000 and $38,000. In three years, however, the Acura MDX is estimated to be worth $21,400, while the similarly priced Explorer's value drops to $14,425. A fully loaded Isuzu Trooper fares even worse, retaining about 31% of its original worth for a resale value of $11,675.

These so-called residual values are a major factor in setting prices for car leases. The more value a car retains over time, the less consumers have to shell out in monthly payments. In much the way the Kelley Blue Book is often quoted for a vehicle's trade-in value, ALG's figures are widely used by banks and finance companies when setting pricing terms for leases.

The brand rankings run counter to some closely watched quality studies. Domestic auto makers are largely absent from ALG's top ranks, mainly because of their strategy of increasing incentives and raising prices. (Raising prices, without adding features to justify the increase, ultimately hurts the resale value.) DaimlerChrysler AG's Jeep was the highest-performing of the Big Three brands, at No. 6. GMC also beat the average at No. 7.

The winners: Volkswagen among the mass market-manufacturers and Mercedes-Benz among the luxury makers.

When Automotive Lease Guide assigns a residual value to a car or truck, it bases its judgment on a variety of factors, including consumer appeal and levels of production. Surprisingly, quality isn't the most important factor in determining the score, though it counts. Volkswagen and Mercedes, for example, have been hit with reports of quality problems in recent years. In fact, Volkswagen ranked behind Detroit's Big Three in the most recent J.D. Power and Associates survey of new-vehicle quality.

"Appeal is a stronger factor than initial quality" in determining a car's future value, says Raj Sundaram, president of ALG . While appeal is a somewhat intangible value akin to sexiness and prestige, it can actually be measured. One of Mr. Sundaram's yardsticks: He looks at whether a vehicle is in short supply and whether people are paying more or less than sticker price. ALG , based in Santa Barbara, Calif., also checks the reviews in car-buff books and mainstream media to get a sense of buzz.

Another key factor in calculating a vehicle's score is pricing strategy. Too many incentives can lower the residual, with cash incentives making more of a difference than lower loan rates. Other factors include how many vehicles are sold to rental-car and other fleet companies.

Some European car makers, by not selling to car-rental companies and limiting incentives, have kept their residual values high. VW and Mercedes "don't play the fleet game," noted Mr. Sundaram.

Behind Volkswagen in the mass-market category were Honda, Toyota, Subaru, and Nissan. Following Mercedes were luxury-makers BMW, Acura, Lexus and Audi.

The average residual for nonluxury cars was 41.5% of the original cost. ALG says Chevrolet, Ford, Mercury and Chrysler fell below that figure, though it wouldn't release the order in which those brands ranked. GMC benefited from the number of trucks in its lineup; its sister brand, Chevy, was dragged down by the high percentage of cars in its lineup. Cars typically have lower residuals than trucks because they are released to rental fleets and are facing slower-growing demand.

Among the brands not beating the 49% average for luxury cars were Jaguar, Infiniti, Cadillac and Volvo. [Land Rover, Mini, and Porsche weren't included in the ALG rankings because volumes were too low.]

Lloyd Hansen, Ford Motor Co.'s vice president who oversees pricing and incentives, says Ford "takes residuals very seriously" and often structures incentives to offer the type that hurt the numbers the least, such as low interest rates. Still, he said Ford's internal residuals are often different than ALG's. "ALG is just an opinion," Mr. Hansen said.

Paul Ballew, GM's executive director for market and industry analysis, said GM is taking steps that will ultimately improve residuals, such as finding the proper balance between supply and demand, restricting leasing and fleet sales, improving quality, and delivering more new models it hopes will be hits.
 
Here are the vehicles that are expected to hold their value best.
 






























































SEGMENT
BEST MODELS
ASKING PRICE
PRICE AFTER 3 YEARS
Compact car
Mini Cooper
$19,800
$12,078
Midsize car
Volkswagen Passat
$28,872
$15,013
Sports car
Porsche 911
$87,500
$48,125
Near luxury car
BMW 3 Series
$39,257
$20,806
Luxury car
Mercedes CLK
$51,275
$30,765
Minivan
Honda Odyssey
$26,876
$15,051
Subcompact SUV
Honda CR-V
$20,540
$10,681
Compact SUV
Acura MDX
$37,500
$21,375
Fullsize SUV
Toyota Sequoia
$37,842
$18,921
Compact truck
Toyota Tacoma
$21,200
$10,812
Fullsize truck
Toyota Tundra
$25,653
$13,083
 
Source: Automotive Lease Guide
 
 














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