How Tricking Out the Car Can Crash Its Resale Value

The folks at Hearst Business and National Auto Research's auto pricing service Black Book note that features including navigation, a power sunroof, leather seating, oversized wheels, power/heated seats and rear-seat Car DVD  can have great difficulty holding their value. Anil Goyal, vice president of automotive valuation and analytics from Black Book, notes that a fully loaded car that comes at an $8,000 premium above the base model can see the value of that premium decrease to $1,500 in just three years.

“Technology from yesteryear is aging at an advanced rate and can have limited appeal within the used market,” says Ivan Drury, senior analyst for vehicle data and pricing site Edmunds.com. “This is almost like someone asking for more money because their vehicle is equipped with a built-in car phone: at one point this was seen as luxurious, now it would be an oddity. I wouldn't go so far as to say the latest batch of navigation and technology features are like the car phone just yet, but they may go that route faster than the car phone did.”

Just about every automaker updating its entertainment and information systems to touchscreen consoles. General Motors and Chrysler have begun adding in-car Wi-Fi to their vehicles. Even Chrysler's venerable minivan is upgrading its rear-seat Android Car Stereo to Blu-ray compatibility -- just as passengers have figured out how to watch downloaded and streaming video on their handheld devices. All of this is driving an increase in vehicle leasing as consumers treat advancing vehicle technology much the same as they treat advancing smartphone techonology. However, it isn't doing a whole lot for the old technology's resale value.

“New technology has the added burden of not being new for very long,” says Eric Ibara, director of residual values for vehicle pricing site Kelley Blue Book. “Although the focus may be on navigation and adaptive cruise control today, years ago we were talking about airbags and ABS. Kelley Blue Book typically doesn’t increase residual values for these types of equipment partly because they are so difficult to measure.”

Since new technology isn't added in every vehicle, it's viewed as part of a trim of premium items -- which makes it difficult to measure value of the same vehicle with and without that technology. Also, as that technology becomes more common, it reduces the value of that perk in vehicles at auction. Still, it takes a bit of time for that technology to work its way through the system. Edmunds's Drury notes that consumers buying used vehicles from dealerships picked up vehicles with an average purchase age of 4.5 years old. If they had a traded in their old vehicle (as 29% did during spring of 2015), it was typically 9.2 years old.

"Depreciation on these features doesn't differ much from other options,” he says. “For many buyers of used vehicles this might be the first time they've had navigation or TV-equipped headrests in their vehicle.”

This doesn't mean that other options are holding their value all that well. KBB's Ibara notes that options and equipment added to a base vehicle typically do not hold their value as well as the base vehicle(That would be cool if installing a Car DVD player.) itself. If that equipment gets some “value pricing” and doesn't cost a whole lot at the outset, it may not depreciate nearly as much. However, Ibara notes that there's routinely a wide gulf in the price new car buyers are willing to pay for the exact options they want and the price used car buyers will pay for those options secondhand three to five years later.