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What Is the Residual Value of a Car and How to Calculate It?
Learn what the residual value of a car is, why it matters for car traders, and how to choose vehicles that hold their worth.
If you’re running a fleet company, it’s in your best interest to choose cars that retain their value over time.
Why?
Because cars with higher residual value mean lower depreciation costs, better resale prices, and more cost-effective fleet management. Understanding residual value helps you make smarter buying and leasing decisions, so let’s see what this value is all about.
What is the residual value of a car?
The residual value of a car is its estimated worth at the end of a lease or a predefined period of ownership. It represents how much value a vehicle retains over time, and it’s often shown as a percentage of its original price.
For instance, a Skoda Octavia bought for €30,000 may have a residual value of 55% (€16,500) after three years. A Renault Trafic, originally priced at €35,000, could retain 50% (€17,500) in the same period.
Knowing the residual value of cars you’re getting lets you estimate their future resale value, so that you can make profits when it’s time to sell or upgrade your fleet.
► Residual value vs resale value
You’ll often hear about the terms residual value and resale value in the same context. They are related, but different.
Residual value is a predicted amount, typically determined at the start of a lease.
On the other hand, resale value refers to the actual price a car can get on the market when sold.
► Residual value vs depreciation rate
There’s also depreciation rate, another factor you’ll have to consider when choosing vehicles for your fleet.
Depreciation is the rate at which a car loses value over time, and it directly impacts residual value. Cars with slower depreciation rates usually have higher residual values, making them more attractive for leasing and resale.
Why does the residual value matter for dealers?
Now that you’ve seen what the residual value of a car is and how it relates with the resale value and depreciation, let’s look at why it’s important for dealers.
The biggest reason why residual value matters is predicting future resale values. If a car holds its value well, it means bigger profits when reselling to businesses, fleets, or other car traders.
But if you’re looking at a car with poor residual value, even if it may seem cheaper at first, it could end up costing you more in the long run due to faster depreciation and lower resale prices.
Next, if you’re leasing out or renting vehicles, knowing the residual value will help you set the right pricing.
A car that holds its value well means you can offer lower monthly lease payments while still making a profit. That makes your deals more attractive to businesses looking for fleet vehicles.
Plus, when the lease is up, you’re left with a car that’s still worth a good amount, so you can resell it for a solid price.
Lastly, high residual value makes ex-lease cars easier to sell. Businesses often prefer them over privately owned cars because they’re well-maintained and have a clear history, and that helps you sell faster and at better prices.
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Calculating the value + formula to use
To estimate a car’s residual value, dealers typically use this basic formula:
Residual value = Original price × Residual value percentage
For example, if a vehicle costs €30,000 new and is expected to retain 55% of its value after three years:
€30,000 × 0.55 = €16,500 (Residual value after 3 years)
You can use this formula when:
- Assessing lease terms and setting end-of-lease buyback prices
- Comparing models for your inventory
- Forecasting profits for future resale
► Tip for dealers: Tools like Autovista Group, DAT (Deutsche Automobil Treuhand), and Eurotax offer up-to-date residual value forecasts tailored to the European market.
Factors influencing residual value
Although the common residual value ranges from 40% to 60% over three to five years, there are three crucial factors that influence more precisely how much a car retains its worth.
Factor #1: Brand reputation and reliability
Cars from brands known for durability and low maintenance costs often have higher residual value. Buyers also prefer models with easily available spare parts, which keeps their value high as they’re easier to maintain.
Factor #2: Mileage and condition
A well-maintained car with lower mileage will always retain more value. High-mileage or poorly maintained vehicles depreciate faster, even if they were originally in high demand.
Factor #3: Market demand
Trends change, and so do resale values. What holds value today might not in a few years, so car traders need to stay on top of the current state of the market. SUVs, electric cars, or fuel-efficient models may have the best residual value at different times, and that’s why you should keep your eye on demand trends and buyer preferences.
Residual value optimization strategy
So, how do you maximize the value of a car at the end of its lease? It’s best to approach residual value optimization from multiple angles. Here are a few strategies you can use to maximize resale value and reduce depreciation.
|
STRATEGY |
HOW IT HELPS |
|
Pick high-resale models |
Focus on brands and models known for their reliability and consistent demand, as these will stay valuable for longer. |
|
Keep service records |
Well-documented service history over the lease makes buyers more confident in purchases and keeps resale prices higher. |
|
Follow market trends |
Stay updated on which vehicle types hold their value best and adjust inventory accordingly. |
|
Set smart lease terms |
If you set the residual value competitively before the lease, you’ll make the lease more attractive to customers while also ensuring that you can resell the car at a good price when the lease is up. |
How to choose the right car? Examples of cars with high residual value
It’s time to put theory into practice! We chose five models that have proven to retain their value over time.
► Mercedes-Benz EQC
This fully electric luxury car is in a high demand in the SUV segment. You can expect it to retain its value due to its luxury brand and innovative Mercedes-Benz technology.
► Toyota Yaris Hybrid
The Toyota Yaris Hybrid was among Toyota’s top-sellers in Europe in 2024, which shows its high market demand. This model is known for its dependability and low running costs, and that contributes to its strong resale value.
► Mazda CX-5
Another high performer in the European SUV market, Mazda CX-5 retains its value because of its build quality, fuel economy, and efficient engine options.
► BMW X1
Compared to larger SUVs, BMW X1 offers a more compact alternative, and that makes it an excellent fleet vehicle to stock in urban areas. The strong brand reputation, efficient engines, and modern tech features help it retain value well over time.
► Volkswagen T-Roc
This Volkswagen model found its way to Autovista’s Residual Value Award winners in 2023 in the Small Car category. So, if you’re looking for a car with strong resale potential, you might want to consider the T-Roc and its quality, design, and practicality.
FAQ
What is a good residual value after 3 years?
A good residual value after three years is typically 50–60% of the car’s original price. Vehicles that retain at least half of their value in this period are considered strong investments.
Is 50% a good residual value?
Yes, a 50% residual value is generally good, it means that the car is holding its value well.
At what age do cars lose the most value?
Cars lose the most value in the first three years, often depreciating 40–50% of their original price. After this period, depreciation slows down and used cars become more stable in value.
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