Residual values ​​help determine the price of used cars

The residual value of new cars is important for the used car market for both sellers and buyers. It is important to consider when buying a used car, as it can greatly affect the price you will pay for the car.

Residual values ​​are predictions made by companies like Automotive Leasing Guide (ALG) on the value of a new car three years after purchase. These values ​​are important because they help new car manufacturers such as Chrysler, for example, to determine how much to charge for leasing a vehicle.

By the way, here’s an explanation on how ALG residual values ​​are set. “ALG has developed a methodology for predicting last generation and trained technical staff with extensive experience in economics and analysis techniques. ALG staff gathers industry data from a wide variety of sources, including manufacturers and vehicle auctions, and inspects and tests each one of the vehicles.

Let’s look a little more detail the case of the Jeep Grand Cherokee. Bloomberg News (via Detroit News) wrote an article about the launch of the Jeep Grand Cherokee 2011 model Bloomberg reported that: “The changes from the previous model and strategy of volume and price of Chrysler, increased residual value the Grand Cherokee 4×4 to reach 45 percent in the third quarter from 35 percent the previous year. ”

What is the lesson that can be a buyer of used cars with this information? The Jeep Grand Cherokee 2010 model will cost much less used than the 2011 model Jeep Grand Cherokee when both are three years old. That should help you determine how much it will cost to buy a particular vehicle.

One of the reasons for the significant drop in the residual value is that the 2011 model is much better than the Jeep Grand Cherokee model 2010. But, and this is a big but, actually you determine how valuable a vehicle is for you if you have the mind set on a particular model (as usually is the case of people when buying a used car).

In the example cited by Bloomberg, a new Grand Cherokee 2010 that cost $ 30,000 it will be worth $ 10.500 when is three years old. A 2011 model, costing them $ 30.000 to buy new, cost $ 13.500 when he turns three years. (Assuming that both are in the same conditions and have the same characteristics.)

With this information in mind, you have to ask yourself for the reasons to buy a Grand Cherokee. Is it for practical purposes? Are you buying the Grand Cherokee for its four-wheel drive functionality? Because you like its cargo space? Or, did you are buying for emotional reasons because you like its new design and want to have any additional devices?

For practical reasons, the 2010 model will fulfill all the same functions. For emotional reasons, the 2011 model might meet your needs, but with an additional 30 percent in the price, which is fine if you can afford to pay the difference.

Another way to use the residual value is to determine to what extent will lower the price of used car you are buying for the first two years after purchase. The best way to determine this is through a search engine. Go to Google, for example, and enter the model year of the car, the model name, and residual value of five years (ie 2010 Grand Cherokee residual value of five years).

This information can be valuable to you if you sell used cars quickly. Otherwise, if you have them for a long time (say more than three years), the residual value should not have an impact on your buying decision.