The Estimated True Values of New 2007 Big Three Vehicles
by James Bleeker
The following table provides the estimated true values and
ranges of true values of Big Three vehicles for model year 2007.
The column entitled "Discounted Fractional Loss from Accelerated
Deterioration of Big Three Vehicles" should provide some guide for
subsequent years.
The computations for these true value estimates are quite
involved.
Note |
What appears below is a summary of what appeared in an Auto
on Info article dated November 2006. |
We begin with the observation
that in the past many U.S. consumers have valued a new vehicle
by the number of features it has without regard to the model's
reliability and durability. The following chart helps depict
this; the mean of the base-price midpoints is the average of the
midpoints of the base-price range of each model.

We assume that Toyota vehicles bare true value, that is, that
the U.S. marketplace has properly priced vehicles by Toyota
Motor Corporation.
We draw upon Toyota
age-equivalent estimates for typical 1998 Big Three vehicles.
These estimates appear in the table below and are quite close to
the
Toyota age equivalents for
1999.
We engage the assumptions that
Toyota quality has been rather constant and that the gap between Toyota
quality and Big Three quality has remained rather steady.
Manufacturer shares of
Consumer Reports' Used Cars to Avoid
indicate that this is, in large measure, the case; however,
products by Ford Motor Company have clearly improved some.
We (1) take the 1998 Toyota age-equivalent estimates for
the Big Three and their brands at age 3 years and (2) look up
the approximate fractions of original value that a typical
Toyota retained in late 2006 at each of the corresponding
age-equivalent estimates (from National Edition: N.A.D.A.:
Official Older Used Car Guide: 1987 through 1998: Passenger
Cars, Light Duty Trucks: May through August 2006, by using
midpoints of model ranges but not weighing the midpoints by
model sales).
We compute the gap between each
of the fractions
computed above and the fraction of original value that
a typical Toyota vehicle retained in late 2006 at age 3 years. This gap gives
the estimated fractional loss resulting from the
accelerated deterioration of vehicles by the Big Three. The
following table provides these fractional losses.

We next discount the estimated
fractional loss in value resulting from the accelerated deterioration of
Big Three vehicles to the present (when the vehicles were brand
new) at the rate of 6% per annum,
compounded annually. This gives us the values appearing in the
top table under the column entitled "Discounted Fractional Loss from Accelerated
Deterioration of Big Three Vehicles."
For estimates of 2007 manufacturer and
brand averages of model midpoints of manufacturer suggested retail
prices (M.S.R.P.s), we multiply the 2006 values by 1.035, as the
annual rate of growth of such, compounded annually, since 1997
has been 3.5%. These estimates appear in the top table under the
columns entitled "Estimated 2007 M.S.R.P. Range" and "Estimated
2007 M.S.R.P. Range."
Finally, we (a) multiply each of the fractional loss values times each of the corresponding range and average values and
(b) then subtract each product from the corresponding range or
average value to obtain the values appearing in the columns
entitled "Estimated 2007 True Value Range" and "Estimated 2007
True Value Average."
Caution |
The
foregoing computations do not take account of Big Three
accelerated deterioration after the third year, and
consequently, the estimated true value averages may
overstate the worth of Big Three vehicles. |
The following table summarizing results from
an online survey of Auto on Info suggests that a knowledgeable
consumer may offer much less than what the top table suggests is
the true value of a Big Three vehicle.
Median Value of a New Big
Three Vehicle as Assessed by Mini-Survey Respondents
Reporting Ownership of a Reliable Two Product on or
before July 8, 2005, by Manufacturer |
Manufacturer |
Big 3 Vehicle Valued at
Only 50% of What Is Currently Asked |
Big 3 Vehicle Valued at
Nothing |
Big 3 Vehicle Valued at
Nothing Plus Respondent Would Require $20,000+ per Year
to Drive It |
Big 3 Vehicle Valued at
Nothing Plus Respondent Would Require $200,000+ per Year
to Drive It |
Respondent Unwilling to
Own a Big Three Vehicle under Any Circumstance |
Toyota Motor Corporation |
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Honda Motor Company |
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Disclosure |
Site manager is currently a
very small shareholder of Ford Motor Company (2010-04-27). I am not,
and have not been, a
shareholder of any other motor vehicle manufacturer. |
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