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.

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."

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.

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