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LukkWhich factors decide a model’s future residual value?
From vehicle design to external market conditions, discover how and why certain factors have critical effects on car residual values.
How to forecast residual value
Discover the data you need to reliably forecast a car’s residual value.
How a vehicle’s features impact its residual value
Understand what effect aesthetics, functionality and total cost of ownership have on a car’s residual value.
Which market factors influence residual value
Learn how sales strategies and market changes can strengthen – or damage – residual values.
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How to forecast a vehicle’s future residual value
To reliably benchmark how a car will perform across markets and customer segments, it’s essential you know how to calculate future residual values.
A vehicle’s residual value can rise or fall can be influenced by a great number of factors. This includes influences like:
- Aesthetics
- Functionality
- Total cost of ownership
- Sales strategies and discounts
- Electric vehicles
To accurately forecast – and reassess – how influencers like these will affect a vehicle’s value, automotive experts rely on statistical models and historical data.
Why a vehicle’s aesthetics impact its residual value
A car’s appearance evokes powerful feelings and emotions which are crucial to purchasing decisions.
Positive responses create value and increase the desire for ownership. On the other hand, an unappealing car generates a perception of low enjoyment – and therefore low value.
It is important that a car continues to evoke a positive emotional response over time. Otherwise, you risk bringing a vehicle into your portfolio that feels outdated and undesirable almost immediately after launch.
So, it’s crucial you stock emotive and fresh cars – even in the used-car market.
How a car’s functionality influences its residual value
Another key aspect that provokes an emotive response in buyers is functionality. To maintain a high residual value, a vehicle must be comfortable and it must be easy for customers to understand key functions.
A salesperson can explain a car’s features in detail – aiding comprehension and boosting residual value. But some sales take place without a salesperson. So, a complex offering leads to consumer disappointment, damaging the model’s residual value as a consequence.
How a car’s total cost of ownership impacts residual values
Consumers on both the new and used-car markets make decisions based on efficiency, weighing up what they can expect in return for their investment. This often includes comparing equipment, features and running costs.
A low total cost of ownership improves a model’s perceived value, in turn boosting its residual value. So, a vehicle with superior cost performance strengthens the manufacturer and the model’s position on the new and used-car markets.
How new-car sales strategies impact long-term residual values
For a brand or model to maintain stable residual values, its sales planning must successfully balance supply and demand in the used-car market.
Over-ambitious volume planning for a new model may rely on value-harming measures like cash discounts and self-registrations to achieve sales targets. This results in an over-supply of the model, weakening residual values.
A strong fleet presence can also lead to an imbalance between supply and demand. A vehicle might be in high demand from corporate buyers, but not from private buyers.
Short-term business (OEM/dealer registration and rental) can cause the most harm to residual values, as these registrations are aimed at generating volume artificially.
Our Car to Market team provides hands-on consulting to help optimise residual values up to four years before a model launch. Click below to learn more.
Why new-car discounts harm long-term residual values
Aggressive cash discount campaigns damage residual values.
Firstly, allowing cash discounts on one model can harm other models’ residual values. When a more desirable vehicle is discounted and becomes cheaper than a less desirable vehicle, the less desirable vehicle’s value is pushed even lower.
Secondly, used-car buyers will expect those discounts to translate into cheaper prices on the used-car market, further harming residual values.
How electric vehicles are affecting residual values
The demand for fuel-efficient cars is increasing for both cost and environmental reasons. That means models with reduced C02 emissions and fuel costs, together with full hybrid, plug-in hybrid or all-electric vehicles are becoming more desirable.
So, your future portfolio decisions should reflect these preferences – or else you’ll stock undesirable vehicles with weak residual value and high financial risk.
Our specialist electric vehicle volume and forecast data – EV Volumes – provides a complete understanding of EVs in all their powertrain variations. Click below to learn more.