January 2008 - Feature

How Will Future Residual Values Impact Hybrid

By Paul Fortin

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How to Estimate Depreciation

How can a fleet manager estimate hybrid depreciation?

In addition to utilizing fleet management company resources for depreciation estimation assistance, fleet managers can use industry-accepted practices to estimate depreciation on hybrid models.

Because of the uncertainty surrounding hybrids previously outlined, some popular residual value guides currently do not publish residual values for hybrids. In the absence of guidebook data, an accepted industry method uses residual value percentages equal to the same make and vehicle type as the hybrid to estimate residual values.

This practice is easy when a non-hybrid counterpart exists. In other cases, a comparable vehicle of the same make must be used. Since hybrid market demand still exceeds supply, using this method rather than current same age/mileage auction sales to estimate values two to three years from now results in more accurate market value projections.

When using this method, remember that not all hybrids are created equal. Some offer less fuel economy for a much higher MSRP than their non-hybrid counterpart.

For these types of "mild" hybrids, the spread between the two vehicles in the secondary market will compress at a fast rate or diminish altogether. Therefore, as a percentage of MSRP, the hybrid may have a lower residual value percentage than its non-hybrid counterpart.

While depreciation assistance and economic modeling regarding hybrids can be requested from a fleet management company, analyzing all current factors (highway versus city driver, replacement cycle, transaction price, tax benefit considerations, and other fleet factors) is always recommended when looking to hybrids as a solution to lowering fleet lifecycle costs.

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