Vehicles that retain a strong residual value offer an unmistakable benefit to automakers and consumers alike. Such models allow for a competitive cost of ownership and leasing advantage, with some being better values when it comes to leasing.
One of the biggest factors in the total cost of a lease is the vehicle's residual value. This is especially important on the luxury side of the market because leasing tends to be more popular in this sector than on the mass market side.
From a financial viewpoint, the best models to lease are those with a high residual value compared with their original MSRP. Typically, high residual values result in lower lease payments, as well. Consumers who prefer to purchase their vehicles rather than lease benefit, too. High residual values allow owners to accrue positive equity more quickly. This ultimately improves the consumers’ purchasing power when it's time to buy or lease their next vehicle.
This is why J.D. Power has dedicated research resources across both new and used markets. This, combined with our analytical capabilities, allows us to develop highly sophisticated valuation models to forecast residual values. Those efforts come to life through the debut of the J.D. Power Luxury Residual Value All-Stars.
Read about the leaders and key takeaways in the mass market vehicle segments here.
The methodology that drives the J.D. Power Residual Value All-Stars
One of our biggest strengths when it comes to evaluating residual values is the transparency behind how we forecast these figures. The diversity of J.D. Power customer survey data — such as our vehicle dependability study and wholesale and retail sales data — allows us to have a very comprehensive approach to identifying and measuring residual-defining characteristics.
We integrate all of this data to produce residual value figures. Every two months, residual values are created, and identify vehicles forecasted to have the highest residual value at 36 months. The brands and models highlighted possess characteristics attributed to strong residual value including quality, strong performance figures, fuel economy, standard and optional equipment, and attractive design language.
Here are the hottest segments and vehicles that have the strongest residual value outlook on the list of J.D. Power 2019 Luxury Residual Value All-Stars:
The hottest segments and models of the 2019 Luxury Residual Value All-Stars
When it comes to the luxury side of the industry, there are a few segments that are increasingly important with each passing year. SUVs are a key example of this as we have seen several segments in this category grow in popularity over the past few years. Consumers in both the luxury and mainstream marketplaces are drawn to SUVs because of their practicality and increasing levels of fuel efficiency.
Many models are using smaller displacement turbocharged or hybrid powertrains, which is helping to narrow the efficiency gap between SUVs and their car counterparts. As a result, more and more of these models are being built and sold each year.
For context, in 2018 roughly 70% of new vehicles sold were SUVs, trucks or vans, while only 30% were passenger cars. With more SUVs sold on the new side of the market, more are returning to the used side of the market as well. Typically, increased levels of supply returning to the market can suppress used vehicle values, however the outlook for SUVs remains healthy because of increasing levels of demand — for both new and used units.
2019 Lexus NX Compact Premium SUV Segment — 51% J.D. Power Residual Value Projection
One of the hottest segments right now is the compact premium SUV category. With each passing year, market share of this segment increases, along with the footprint and number of vehicles available in this segment. Overall, the compact premium SUV segment is expected to carry an average 36-month residual value of 46%. The Lexus NX is projected to be one of the top vehicles in this category.
As a result, the NX's 36-month residual value is expected to be 51% — or 5 percentage points better than the overall segment average.
The NX was introduced for the 2015 model year and it quickly earned a reputation for being the smart choice catering to buyers wanting sporty style, comfort and reliability. Its unique design is truly like nothing else in its class.
As far as powertrain, the NX is propelled by a powerful and efficient 2-liter turbo four-cylinder and offers an optional hybrid powertrain as well, helping take fuel economy to the next level. The NX hybrid can achieve up to a combined 31 miles per gallon. Very impressive for an SUV.
2019 Land Rover Discovery Mid-Sized Premium SUV Segment — 54% J.D. Power Residual Value Projection
While the 2019 Land Rover Discovery wound up leading the category, there was some stiff competition in residual values for the mid-sized premium SUV segment. Lexus ranked two of the top three models in the J.D. Power 2019 U.S. Vehicle Dependability Study and both vehicles ended up with high residual values; the Lexus GX received 53%, closely followed by the Lexus RX with 50%.
However, neither are expected to be the top performing model in this class. The 2019 Land Rover Discovery's 36-month residual value is expected to narrowly edge out the GX at 54%. The current Discovery is the fifth generation of the model and was introduced in its current form in 2017. Few SUVs are as skillful as the Discovery, both in terms of its off-road capabilities and its passenger hauling ability.
The latest generation has also earned a reputation for having smooth driving manners on-road and a luxury interior with excellent materials, which help it climb to the top of the class.
2019 Lexus LX Large Premium SUV Segment — 52% J.D. Power Residual Value Projection
Large premium SUVs remain popular choices for their ruggedness and people hauling capabilities. The 2019 Lexus LX is a prime example of this. While it’s no secret that the LX is based off the fan favorite Toyota Land Cruiser, Lexus has taken advantage of the Land Cruiser’s rock solid off-road ready platform, refined it and packed it full of enough premium content to transform it into the top contender in its class.
As the flagship SUV of Lexus, the LX does not have multiple trim levels. However, it does come well equipped with a significant list of standard features. The only choices that customers have are the seating arrangement, color and a few extra-luxurious add-ons. The formula is simple yet helps the Lexus earn its 52% residual value projection.
Luxury Car Segment Retention Solid as Well
While for the most part, car segments are not expected to perform as well as their SUV counterparts, residual value expectations are still strong.
2019 Lexus GS Midsize Premium Car – 50% J.D. Power Residual Value Projection
The 2019 Lexus GS has been around in its current configuration since the 2013 model year. However, the GS has aged gracefully and remains one of the top vehicles in its class with a 50% residual value projection.
The GS has an unmistakable appearance and has proven it can go toe to toe with the best competition from other luxury European and Asian brands. For 2019, the GS pares its powertrain menu down by one — the hybrid is gone. Instead, the 2019 GS is offered with a trio of engine possibilities: 4-, 6-, or 8-cylinder power. The GS 300 gets the turbo-4, the GS 350 gets a V6, and the GS F gets a high-performance V8.
2019 Lexus LS Large Premium Car – 44% Power Residual Value Projection
New for 2018, the LS set itself apart from the competition with bold styling inside and out. A new twin-turbo 3.4-liter V-6 makes 416 hp available in rear or all-wheel drive, plus there’s an available hybrid that uses a V-6 and two electric motors. Following the industry trend, a V8 is no longer offered. The LS is priced at a significant discount to an S-class; however, with a 44% residual value projection, it’s top of the class in terms of value retention.
2019 Porsche 911 Premium Sport – 60% Power Residual Value Projection
The 2019 Porsche 911 is special because it also ranked as the most dependable model in the J.D. Power 2019 U.S. Vehicle Dependability Study. True to its iconic heritage and cult-like following, the 911 offers several engine options and precision handling to put them to good use. The cabin has an abundance of premium, high-quality materials.
While the front seats are comfortable, the rear seats are cramped, and you can fold them down to create more cargo space. Make no mistake, the 911 is expensive but, with an estimated 60% residual value projection, owners will be in a good place down the road.
How Toyota and Lexus are Leading the Premium Market in Residual Value
Similar to mainstream segments, Toyota and its premium Lexus brand tend to rank at the top or near the top of their respective classes. This is due to their perceived reliability, quality and inherent value. Most recently, Lexus ranked highest in the J.D. Power 2019 U.S. Vehicle Dependability Study. This was the eighth consecutive year that Lexus has claimed that spot and they have now become a benchmark for the premium industry.
As vehicles continue to become more expensive each year, residual values are more important than ever when leasing or purchasing a new vehicle. Purchasers can use J.D. Power residual values as a guide for smart shopping and making more informed decisions when buying or leasing a new vehicle.
Likewise, automakers, finance companies and dealerships can also use these residual values to forecast their portfolios and make better business decisions as they match vehicle features, inventory and pricing to consumer demands and ultimately decreasing time-on-lot and increasing vehicle transactions.
David Paris is supervisor of market intelligence at J.D. Power. He discusses this second installment of the awards program and more in the podcast below.