What methods do you guys use to assume car value in three years when debating to buy vs lease?
I have been going to kbb and plugging in a similar model from 3 years ago, and looking at used cars on autotrader, etc.
Is there a more sophisticated method I should be using?
Generally I run the number at rv, +/-2%, and +/-5% of rv to determine how far off if predicted value the vehicle would have to be to change which option makes sense
I’ll look at current CPO used and normal used car prices. However, you have to consider the generation cycle when looking at 3 year old used models and also consider the generation cycle in the future. I would say if you’re buying a car at near the end of the generation cycle, the resale value would be less than if you bought it at the beginning. Used car prices do curve down but in my opinion, the cheapest lease returns are available when the inventory levels are the most.
You can get a forecast by running a three year old model into Carvana and seeing what they would give today as a % of the original MSRP. It can be tricky with options, but for the most part they don’t seem to alter the Carvana offer very much anyway.
I was doing this on Macan’s to build a simple forecast of 5 year depreciation for a 2020 and I was surprised how closely it aligned with the realized depreciation on 2016’s up to today.
Given how ridiculously high used car values have been lately, I wouldn’t expect the numbers you get today to be representative of what to expect in 3 years
You could definitely do something more nuanced than what I’m doing that attempts to account for the higher inflation rate of used cars in 2020. That said, given the data available, I’m not sure how to make a more informed projection since these are actual offer prices and you can match them to precise original MSRP’s.
If you are looking for an accurate number …N/A
If you are looking for a guesstimate:
-new car residual for 36 (this is not accurate for some vehicles whose residuals are as worthless as the paper they are written on due to either being junk BMW/Volvo or possibly vehicles that will start growing in popularity due to emissions laws/Land Cruiser)
-Edmunds depreciation curves available for most models. They forecast the depreciation, but these are forecasts.
-Used car following. Not many people are waiting and outbidding lease return S90s, but you bet your bottom dollar that theres a whole lot of folks waiting for granny driven LX570s.
Don’t know how precise it is, but I have used the car depreciation calculator over at car edge to get a rough idea of future resale values.
I like that you can adjust for miles, current age and price.