What are car residual values?
30 March 2021
What is a residual value of a car? Autovista24 deputy editor Tom Geggus explains the terminology, the different types, and how it can be calculated.
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Monthly Market Dashboard: Modest RV improvements in March
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Transcript – What are car residual values?
I’m Autovista24 deputy editor Tom Geggus here with your handy ‘what is’ definition. Now, in simple terms a residual value or RV for short is how much a vehicle is worth after a certain amount of time and mileage with any number of different combinations of age and mileage. There are practically an infinite number of different scenarios which could be applied to a vehicle.
For example, Autovista Group’s residual value intelligence site uses a standard scenario of 36 months and 60,000 kilometers or 40,000 miles in UK. Now, car residual values can be understood in two ways. The first is on absolute value terms; so how much money a vehicle is worth after reaching age and mileage milestone. The second way of understanding the car’s residual values is as a percentage which gives us its value retention. This means taking the resale value of a vehicle and calculating it as a percentage of the new price. It is important to note that this differs from depreciation which indicates how much value a vehicle has lost.
Now, let’s take a look at this car as an example. It has just hit the showroom floor of 50,000 Euros and we want to know it’s forecast residual value. So, if we want to know what it’ll be worth in 36 months having done 60,000 kilometers we can look at how other models performed historically on average. This would lead us to predict that on hitting our standard scenario, it will be worth twenty thousand Euros. As an residual value percentage this would be a retention value of forty percent and for those of you good at math’s, this leaves us with a depreciation of sixty percent as the car has lost thirty thousand Euros in value.
Now, let’s take a walk into the used car section of the showroom. Here we have found the same model but it’s three years old. Using the same method, we can find its current residual value. Today residual values apply to all different types of vehicles and markets aggregates can be calculated by segment brand and fuel type across a country. Now, to learn more head over to autovistaintelligence.com.
Thanks for watching. Are there any other automotive terms you’d like us to define? If you’ve enjoyed this video please subscribe to and like the Autovista24 YouTube channel. For more videos in the ‘What is’ series click here. We’ll catch you next time.