- The Washington Times - Friday, January 4, 2002

It is no stretch to call the Kelley Blue Book the bible of car-buying, because potential car buyers consult it religiously.
How is this compendium of car values compiled, and how did it come to be in the first place? Like many great inventions, it began inadvertently.
In 1918, Leslie Kelley created what eventually became the country's largest used-car dealership, the Kelley Kar Co. in Los Angeles. In its prime in the '40s, some 600 employees sold 1,000 new and used cars each month.
Mr. Kelley hit upon the idea of publishing lists of used autos he wanted, and how much he would pay for them. By 1926, his lists were so respected for accuracy that he published the first Blue Book of Motor Car Values.
Although Mr. Kelley sold his car company in 1962, along with the book that it spawned, the Blue Book continues today as one of 12 vehicle value publications produced by Kelley Blue Book. About 80,000 Blue Books are published each year. The goal of the book remains unchanged to publish accurate car values.
"We go to the marketplace to establish values," says Charlie Vogelheim, executive editor of the book. Kelley editors monitor dealership sales and auctions where large numbers of transactions can indicate a trend for a vehicle, says Mr. Vogelheim. This means they examine tens of thousands of transactions each week.
"Computers allow us to be more competent in what we do," Mr. Vogelheim says. "We can look at (a car's sales) history and project forward from the historical curve to a degree."
These projections are extremely important, because the people involved in the buying and selling of cars dealers, banks, financial institutions depend on the book to make a living. Leasing down payments, residuals, new car loans all are affected by "the book." If Kelley gets it wrong and car professionals miscalculate their numbers, a great deal of money can be lost, and heads can roll.
"Vehicles that are in great numbers (such as the Ford Taurus) are not that challenging (to calculate), but the higher the dollar value of a car, or the lower the vehicle volume, the harder it is to gauge, so we work harder to accurately determine those values," Mr. Vogelheim says.
Today there are distinct regional fluctuations to contend with. Most regional price differences are accounted for by factors such as urban vs. rural, flat terrain vs. mountainous, Sun Belt vs. Snow Belt. However, sometimes states that are close to each other do not have comparable car values. Washington and California can have very different pricing, Mr. Vogelheim says. Spokane is more comparable to Boise, Reno and Flagstaff than to San Francisco. Car prices in San Francisco are more in line with prices in Seattle because both cities have hilly terrain, frequent rains and style-conscious populations.
Regional differences can include color preferences. Lighter-colored cars, which tend to stay cooler and fade less under the unrelenting sun, are more popular and therefore valuable in the Sun Belt, Mr. Vogelheim says. A warm climate favors convertibles for obvious reasons. It also necessitates certain options. Anyone who has been in Phoenix, Houston or Dallas in the summer will attest that air conditioning is a must.
In cold-weather climates, cars with traction control, ABS brakes and heated seats are very popular. Mr. Vogelheim notes that Subaru has done a particularly good job of marketing itself in cold-weather regions by identifying its vehicles with performance under duress.
There are, however, some anomalies that are not easily explained. For example, Saab and Volvo are Swedish-built cars that are perceived as cold-weather vehicles. Both do particularly well on the East Coast, but they also do well in Portland and Seattle.
An urban market means more traffic, so cars with automatic transmissions will be more valuable there because of stop-and-go freeway driving. Only the most avid driver appreciates up-shifting and down-shifting in halting traffic.
In mountainous areas, 4-wheel drives and larger engines are valued more than in other markets, since power is particularly important in the mountains.
When asked which cars or trucks have not met expectations, Mr. Vogelheim says that initial projections for the Ford Excursion proved to be overly optimistic. The SUV's value depreciated more quickly than anyone anticipated a fact that was soon apparent in the marketplace. In retrospect, the problem was that there simply was not room for two vehicles in the highly segmented large-sized-SUV market, where the GMC Suburban dominates.
What is the average "hit" a new car will take in its first year for depreciation? The average value of a new car after the first year is about 80 percent to 85 percent of invoice, Mr. Vogelheim says. "Be careful. That is not MSRP, but less. In addition, you lose what you paid in taxes, delivery cost, luxury tax and gas-guzzler tax. To generalize, you will lose about 15 percent of the car's value each year. I stress that that is a generalization. Every car is different."
But if you lost 15 percent each year, wouldn't that mean you would reach zero pretty fast?
No, says Mr. Vogelheim. If a car is worth $50,000 one year, it will be worth $42,500 the second year, $36,125 the third year, $30,706.25 the fourth, $26,100.31 the fifth, etc. You lose 15 percent of the car's value for that year. Historically, SUVs have done better than that, but big American luxury vehicles like Cadillacs and Lincolns have fared faster.
At what point does an old car become a classic, with its value starting to increase?
"It depends on the car entirely," Mr. Vogelheim says. "Any old car is going to have some notoriety if it is kept up. Right now it is the muscle cars, but it was the Gremlins when 'Wayne's World' came out."
Mr. Vogelheim thinks there may be some great deals at high-end auctions these days, because dot-comers who fell in love with dream cars like a Mercedes gull-wing or a Jaguar XK 120 have seen their economic bubble burst and are dumping these wonderful vehicles. With more of them on the market, the prices have plunged.
As for the best way for a consumer to use the Blue Book, Mr. Vogelheim recommends going to the Kelley Blue Book Web site (www.kbb.com), where you can plug in all sorts of variables.

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