Posted 10/8/2004 8:10 AM Updated 10/13/2004 3:16 AM

Driving off the lot: Watch out for the cliff
By James R. Healey, USA TODAY

Car buyers fret over purchase price, interest rates, fuel economy and reliability data, looking for cars and trucks they can afford not only to buy, but also to keep. What they often overlook is the biggest — by far — expense of car ownership: depreciation.

If your car depreciates, or loses value, fast, it's not worth much a few years later when it's time to buy a new one. In fact, you might owe more on your car loan than the car's worth.

Worst of the lot: Pontiac's controversial-looking Aztek. The 2005 model is expected to be worth just 27% of its window-sticker price after three years, according to a report for USA TODAY by Kelley Blue Book, veteran tracker of used car values. Most vehicles are worth close to 50% after three years; the best, more than 60%.

Of course, if you're shopping for a used car, you love finding a good car or truck with bad depreciation. The first owner took the big hit, and you wind up with a nice vehicle, cheap.

Mini Cooper by Mini
Vehicles with the best residual value
Vehicle
Price
3-year
5-year
Mini Cooper S
$20,900
62%
52%
Volvo XC90
$36,500
62%
52%
Nissan 350 Z
$36,100
62%
51%
Acura TL
$32,700
62%
48%
Infiniti G35 Coupe
$34,100
62%
48%
Mazda RX-8
$27,200
62%
47%
Honda Odyssey
$28,800
62%
45%
VW Jetta TDI
$19,200
62%
45%
Honda Civic
$16,000
61%
44%
Toyota Tacoma PreRunner
21,800
60%
45%
Note: Values based on the November/ December 2004 Kelley Blue Book Residual Values Guide. High performance, low volume vehicles or vehicles with an original manufacturer's suggested retail price over $40,000 were not taken into consideration. Source: Kelley Blue Book

Often a steep drop in value isn't because of poor quality. "Sometimes it's because it's ugly, as in the case of the Aztek. Or it's overpriced, like the ($65,000) Volkswagen Phaeton, or the Cadillac Allante years ago," says Charlie Vogelheim, Kelley Blue Book's executive editor.

Also look for used cars that are reputable but were overshadowed when new. Mazdas, Mitsubishis and Buicks often fit that description, he says.

To avoid troublesome used models, rummage for last April's Consumer Reports magazine auto issue and use the list of "used cars to avoid."

Plenty of Web sites, including this one, give you a rough idea of a fair price for a used car, but if you're buying new, it's hard to tell whether you're about to get the next Aztek on the depreciation charts. To help, keep in mind:

•If it's popular new, it's probably worth more used.

As boring as it sounds, and as much as it'll rankle fans of Detroit brands, the numbers show that your best overall bet is a Honda or Toyota just like the ones everybody else is buying. They are popular with individual buyers rather than rental fleets and have good reputations for reliability — two things that slow their depreciation.

That individual-buyer factor is important. Ford Taurus is the fourth-best-selling car because it's a commodity, cranked out in batches for rental-car companies and other multicar fleet buyers. It's sold new at big discounts; then, used ones flood the market in numbers beyond the demand.

A 2005 Taurus would be worth 36% of its sticker price three years from now, Kelley Blue Book says. In contrast, it expects a Honda Accord to be worth 56% of its new price after three years.

In real money that's a 3-year-old Ford worth $7,920 vs. a Honda worth $12,320, if both were $22,000 new.

Full-size pickups are another good bet. New, they are the best-selling vehicles of any kind. Used, they are eagerly sought by buyers who need work trucks and would rather bang up a 3-year-old pickup than scratch and bend a $40,000 new one. Yes, pickup prices have gotten that high.

Pontiac Aztek by Wieck
Vehicles with the lowest residual value
Vehicle Price 3-year 5-year
Pontiac Aztek
$22,600
27%
18%
Chevy Blazer (two-door)
$25,395
27%
19%
Buick Century
$23,000
29%
19%
Suzuki Vitara
$19,200
30%
19%
Mitsubishi Diamante
$29,700
31%
20%
Chrysler Sebring Sedan
$20,600
32%
20%
Ford Ranger (Longbed)
$14,500
33%
20%
Mercury Sable
$22,100
33%
20%
Chevy Aveo
$10,500
35%
22%
Jaguar X-Type
$34,000
36%
20%
Note: Values based on the November/December 2004 Kelley Blue Book Residual Values Guide. Source: Kelley Blue Book

•Big rebates that make new vehicles a bargain ruin the value of similar used vehicles. Great when you buy, lousy when you sell. For every $1 in new car rebates, the same model, used, drops at least 60 cents in value, auto executives say.

That's partly why the best-selling Japanese brands hold value better than the top-selling Detroit brands: Honda and Toyota are stingy with discounts.

The traditional Big Three Detroit makers spent an average $4,045 per vehicle last month on sales incentives. That calculation by number cruncher Autodata includes all vehicles, not just those with incentives. Honda averaged a relatively paltry $704 last month; Toyota, $845. Nissan's moving more toward the Big Three, averaging $2,137. European brands averaged $2,561.

•Buyers who pay more than sticker price for a hot model are in trouble. Three years from now, nobody will care if that used Mustang or Prius you're trying to sell was the first on the block. It's just another used car, worth the same as others like it — whose owners got theirs at a discount.

•Special models can skew depreciation. Sports cars, some luxury models and others with strong appeal to enamored buyers hold their values well. Thus, the Mini Cooper S and the Mazda RX-8 sports car are expected to depreciate slowly.

Diesel cars and trucks hold their value better than gas-power vehicles do, according to Automotive Lease Guide, whose projections are considered definitive by automakers.

ALG's data show that a new diesel truck averages $4,926 more than the same truck with a gas engine. After a year, the diesel's worth $8,098 more than the gas model. After three years, $9,422 more.

That might not wipe out the truck's overall depreciation, but it more than repays the initial cost of the diesel option.

The diesel-powered Volkswagen Jetta drops 21% in value the first year, another 8% the second year, and 12% more by the time it's 3 years old. The gas-power Jetta drops 28%, 12% and 12% during the same periods, ALG says.

BEST IN CLASS
Best residual values, by vehicle category
Category Vehicle
Price
3-yr.
5-yr.
Sedan Honda Civic
$16,000
61%
44%
Coupe Infiniti G35
$34,100
62%
48%
Convertible Nissan 350 Z
$36,100
62%
51%
Wagon VW Jetta Wagon TDI
$19,300
62%
45%
Hatchback Mini Cooper
$20,900
62%
52%
Pickup Toyota Tacoma PreRunner
$21,800
60%
45%
SUV Volvo XC90
$36,500
62%
52%
Minivan Honda Odyssey
$28,800
62%
45%
Note: Values based on the November/December 2004 Kelley Blue Book Residual Values Guide. High performance, low volume vehicles or vehicles with an original manufacturer's suggested retail price over $40,000 were not taken into consideration. Source: Kelley Blue Book

Gas-electric hybrids seem to depreciate at about the same rate as conventional cars, according to limited data. The first hybrids were sold in the USA in December 1999 in small numbers. It'll be a few more years before they are on the used car market in sufficient numbers to definitively peg their depreciation, ALG says.

A question mark: How long will hybrids' expensive battery packs last? The warranty on them is good for eight years, and makers say they're probably good for at least twice that. Honda says it has no record of batteries needing replacement in its Insight hybrid, on the market since 1999, longer than any other. Consumers have to hope the batteries are long-lived. Otherwise they'll pay thousands of dollars for new ones.

ALG says that Toyota's Prius hybrid, the best-selling gas-electric car, drops 23% the first year, 9% more the second year, 10% more the third year. First-year depreciation is slightly less than gas cars, but overall the Prius depreciates at about the same rate as other Toyotas, ALG says.

ALG uses actual transaction prices, which generally are less than sticker prices. And it assumes wholesale prices on the used cars — what a dealer would get for them at an auction. Despite the different formula, ALG data show patterns similar to Kelley Blue Book's: What is well-regarded now will be worth more later.