The longer you keep a vehicle in service the lower its net depreciation expense, right? Not always. In our Mar/Apr 05 issue we presented a few makes and models that disprove the prevailing wisdom. (“Will Keeping Vehicles Longer Lower Depreciation Expense?”) We’ve expanded the study to encompass more vehicles and study their net depreciation costs over 24, 36 and 48 months.
We’ve uncovered more models in which monthly depreciation expense over two or three years is about equal or less than over four years. These models are good candidates for “short cycling,” i.e., retaining them for less than the usual number of months of service life. Looking at whole segments, minivans and smaller SUVs have the most models in our study group with depreciation rates favorable for short cycling.
We priced all models at invoice minus fleet incentives. We used Black Book, a used-vehicle guide, to determine residual values for each model at 24, 36 and 48 months. We assumed 2,000 miles a month and accumulated mileage of 48,000 at 24 months, 72,000 at 36 months and 96,000 at 48 months. High mileage was deducted accordingly.
The chart illustrates the results. Each model shows an estimated two-, three- and four-year depreciation expense amount and average monthly net depreciation amounts at 24, 36 and 48 months.
Open and print this chart for the story:
Five of the six compact models reviewed achieved their lowest depreciation expense by retaining them for four years. These models depreciated at a fairly even slope from two to four years. The exception was the Hyundai Elantra GLS. Its average net depreciation at 24 months was $171, substantially lower than at 36 months ($198) and even lower than 48 months ($186).
The intermediates depreciated less predictably. Another Hyundai, the Sonata GL, is a good candidate for two-year short cycling ($207 at 24 months, $228/36, and $212/48).
Other models look good for two- over three-year retention. The Ford Taurus and its twin, the Mercury Sable, depreciated less per month after two years than three. The Mitsubishi Galant DE and Buick Century Custom suffer only slight drops in monthly depreciation from two to three years.
The Honda Accord LX is a contender for three- over four-year retention: it depreciates $233 a month at 24 months but levels off at $200 for 36 and 48 months.
One model in this group achieved a lower depreciation expense at two years versus three and four—the fleet-popular Chevrolet Impala ($225/24, $258/36 and $246/48). The other models depreciated evenly.
Five out of 10 models in the minivan category emerged as potential short-cyclers.
The Honda Odyssey LX is a prime contender. Its average monthly depreciation expense worked out to a miserly $80 per month over 24 months and 48,000 miles, then dropped to $148 at 36 months and $186 at 48 months—over twice the depreciation than at 24 months. The Toyota Sienna CE, Chrysler Town & Country, Dodge Caravan SE and Nissan Quest also fared better at two years over four. The Nissan Quest and GMC Safari dropped less than $4 in average monthly depreciation from two to four years.
The Toyota Tacoma is the only model of the four small/medium pickups studied to have a lower depreciation at 24 months than at 48 months.
However, four of the five full-size pick-ups have a lower depreciation expense at 24 months compared to 48.
Of 10 mid-size SUV models reviewed, eight achieved our lower 24-month depreciation expense. The Toyota Highlander has the distinction of achieving a Black Book-Clean value at 24 months that exceeds its original invoice cost.
The Highlander enjoys a generous fleet incentive while holding a very strong residual value. In reality you won’t find a two-year-old Highlander worth more than a new one. Yet the Black Book numbers—as well as other vehicle price guides—testify to this vehicle’s very good value.
It Pays to Study Depreciation
Studying any vehicle’s estimated depreciation expense pays off in two areas. First, certain models can be identified as being viable candidates for two- or three-year retention over four. Of the 52 models in the study, we found 21 that had a lower average monthly depreciation cost at 24 months. Six more models were a few dollars off.
We’ve found the majority of the short-cycle candidates fall within the minivan, full-size pickup and SUV categories.
Second, be it at 24-, 36- or 48-month cycles, there are considerable overall net depreciation expense differences between models.
Vehicles that have lower monthly depreciation values earlier in their lifecycle don’t necessarily offer the best overall value—their values have simply declined more irregularly than the normal pattern.
To close we’ll repeat one of our mantras in Business Fleet: It pays to analyze the total cost of ownership of a vehicle, not just the initial cost.