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Value Estimates of GM's 2007 Vehicles
Auto on Info November 2006
True Value Estimates of GM's 2007 Vehicles
By James B. Bleeker
The objective of this page is to come up with the best estimate available from existing data of the true value of a typical new product of General Motors Corporation and each of its domestic marques, where true value is based on engineering quality - reliability and durability - and a U.S. consumer with knowledge of the quality of each model on the market, an understanding of the knowledge, and a decision-making process unencumbered by past normatively motivated attitudes and repetitive behavior.
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.
However, the number of U.S. consumers who have knowledge of vehicular reliability and durability and for whom reliability and durability are of significance is growing, as the following chart helps depict.
See also the article "AFP Reports J.D. Powers Says 61% of U.S. Car Buyers Want Reliability and Durability: More Disastrous News for GM?" Auto on Info, October 2006.
This raises the question: For consumers with both a desire for and knowledge of engineering quality, what is the true value of a General Motors vehicle?
We begin by assuming that Toyota vehicles bare true value, that is, that the U.S. marketplace has properly priced vehicles by Toyota Motor Corporation, the auto manufacturer, along with Honda Motor Company, that has for decades dominated measures of reliability and durability (see, for example, "The 2006 Updates: Toyota and Honda Account for 4 of 5 Most Durable Sport-Utility Vehicles; General Motors - 7 of 10 Worst: Will a Typical 1998 Toyota SUV Be More Trouble Free at 21 Years of Age Than a Typical 1998 GM SUV at 3?" Auto on Info, October 2006, "October 2006: The 2006 Updates: Toyota and Honda Account for 4 Most Durable Vehicle Lines; General Motors - 4 of 10 Worst: Will a Typical Toyota or Honda 1998 Model Be More Trouble Free at 20 Years of Age Than a Typical 1998 GM Model at 3?" Auto on Info, October 2006, "Reliability Updates: For Vehicles 6-to-8 Years Old, Toyota Accounts for 7 of 10 Best, GM - 17 of 36 Worst," Auto on Info, August 2006, "Reliability Updates: For Vehicles 5-to-7 Years Old, Toyota Accounts for 9 of 13 Best, GM - 17 of 42 Worst," Auto on Info, August 2006, "Reliability Updates: For Vehicles 4-to-6 Years Old, Toyota Accounts for 8 of 14 Best, GM - 19 of 47 Worst," Auto on Info, August 2006).
We next use the following table to draw upon Toyota age-equivalent estimates for typical 1998 vehicles by GM and its several marques.
For derivation, see "The 2006 Updates: Toyota Age-Equivalent Estimates: Estimates of When a Typical 1998 Model of Toyota Motor Corporation Will Be as Troublesome as Typical 1998 Models of General Motors Corporation and Its Several Marques Were Circa 3 Years, 4 Years, ..., and 7 Years of Age," Auto on Info, November 2006.
We then construct a table that (1) sets forth the above Toyota age-equivalent estimates for GM and its marques at age 3 years, (2) the approximate fractions of original value that a typical Toyota vehicle currently retains 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), (3) the marque and manufacturer means of the midpoints of 2003 GM model M.S.R.P. ranges, and (4) the resulting true value estimates of typical 2003 vehicles by GM and its several marques at age 3 years.
An assumption made is that Toyota quality has been rather constant over the past 18 years, or at the very least the gap between Toyota quality and GM quality has remained steady. The following chart suggests that the gap is widening and that the above table may overstate, rather than understate, the true value of a 3-year-old GM vehicle.
We now turn our attention to the true value of a typical new vehicle by GM and its several marques. To do this, we compute the gap between the fractions given in the last table and the fraction of original value that a typical Toyota vehicle retains at age 3 years. This gap gives us a measure of the estimated loss in value resulting from the accelerated deterioration of GM's vehicles.
We next discount the estimated loss in value resulting from the accelerated deterioration of GM vehicles to the present at the rate of 6% per annum, compounded annually. For estimates of 2007 manufacturer and marque means 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%. The following table summarizes the results and provides the estimated 2007 average M.S.R.P.s and the estimated true values of a typical 2007 GM, Buick, Cadillac, Chevrolet, GMC, Pontiac and Saturn vehicle.
Note that the foregoing computations do not take account of General Motors' accelerated deterioration after the third year, and consequently, the estimated true value averages may overstate the worth of GM vehicles. For reference, the following chart depicts GM's steep decline in Reliability Score averages after the third year.
Sources for the manufacturer 1997-through-2006 means of the midpoints of the base-price range of each model: Consumer Reports, April 1997, pp. 28-53, Consumer Reports, April 1998, pp. 31-57, Consumer Reports, April 1999, pp. 33-59, Consumer Reports, April 2000, pp. 35-62, Consumer Reports, April 2001, pp. 33-61, Consumer Reports, April 2002, pp. 31-71, Consumer Reports, April 2003, pp. 39-80, Consumer Reports, April 2004, pp. 33-76, Consumer Reports, April 2005, pp. 41-78, Consumer Reports, and April 2006, pp. 40-78
Source for Toyota's pre-1999 original M.S.R.P.s and current market values: National Edition: N.A.D.A.: Official Older Used Car Guide: 1987 through 1998: Passenger Cars, Light-Duty Trucks: May through August 2006
Source for Toyota's 2003 original M.S.R.P.s and current market values: Midwest Edition: N.A.D.A.: Official Used Car Guide: 1999 through 2006: Passenger Cars, Light-Duty Trucks: July 2006
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