Residual Values

Whether you're seeking a new automobile or a secondhand model, awareness of residual values is crucial for selecting the best prospects. Used mainly by the leasing industry, residual values are predictors of what a new car or truck will be worth, compared to its initial price, when it's two, three, or four years old. Resale value, in contrast, specifies what the vehicle actually will sell for, once it's reached the used car marketplace.

Numbers Game
Residual values may be expressed either as percentages of the original selling price, or in dollar amounts. When comparing vehicles, percentages work best. High residual value means the car holds its value well. That's good news for new-car buyers who expect to resell later, because it will probably command a good price at that time. High residual figures are less welcome for the used-car buyer who likes that particular model, because it's likely to be more expensive secondhand.


One model might earn a predicted residual value, as a three-year-old vehicle, of 60 percent or more. Another could have a predicted worth of only 35 percent of initial selling price, which means it's likely to depreciate rapidly. That one should be favorably priced for the eventual used-car customer, but the original owner will have taken quite a hit.


Automotive Lease Guide (ALG) is the best-known publisher of residual values; it's the company's sole business. Similar residual-value guidebooks are issued by Kelley Blue Book (KBB), which caters to consumers, and by Black Book, which makes its publications available primarily to dealers and financial institutions. Each guidebook provides residual-value projections for all popular models, after 24, 36, 48, and 60 months of life.

Shop Wise
New-car shoppers need to determine which vehicles of interest are likely to hold their value best. Anticipated resale value is only one factor to consider in making the buying decision, but it's an important one. Unless you plan to keep it for many years, why buy a car that will be worth little after three years? Used-car shoppers must make comparisons in the opposite way, searching for models that have depreciated rapidly. But beware of vehicles that decline fast for tangible reasons, such as reliability problems.