Why does the 2104 Toyota Prius have a 42% better resale value than the Nissan Leaf?

You will be surprised at the answer. Basically, it’s all your fault.

When the National Automobile Dealers Association (NADA) released their findings this past month regarding value retention most people keyed-in on the vehicles at the top of the list, and rightly so. Vehicles that have a high retention of value are also the same cars that have the lowest depreciation, and there are huge financial advantages to buying one the cars at the top of the list in its given category. For example, the Prius is the top affordable green car in terms of value retention and thus it would seem the owner will get more back when they trade or sell their car for a newer one. What few folks like to talk about are the vehicles that are at the bottom of the list. According to the NADA report, that car is the Nissan Leaf. The interesting thing is you put it there.

NADA’s report is not a subjective ranking. It is not a list of editors’ favorites, or a guestimate of what a car might be worth. Rather, it is simply a report of what the actual resale values are of models for sale over the past few years based on actual sales data. NADA takes used car value information about the most popular trim level sold for a given model and then compares that to the vehicles’ MSRP. The cars at the top of the list retain their value best.

The Prius from model years 2009 to present has a value retention of 54.3%, second highest overall on the NADA list of green cars after the pricey Lexus CT 200h. That means if the MSRP for the Prius was $30K even, it would be worth $16,290 after 3 years. The Leaf has a value retention of just 38.2%, which is the lowest value retention of any car on the NADA list – not just green cars. So, a Leaf selling for $30K would have a resale value of $11,460. To equal the Prius’ resale value the Leaf would have to increase by $4800, or 42% of its current resale value.

The Leaf is an excellent vehicle and it has proven to be very reliable. Although the Leaf is burdened with a higher maintenance cost over the first three years of its ownership compared to the Prius, it does have good long-term cost of ownership as well. The reason that it is worth so little used is that you and your neighbors give the new Leaf buyers a $7,500 federal tax break. That is big bucks. Even worse when it comes to the Leaf’s value retention, states like to also throw taxpayer money back at new Leaf buyers. Incentives vary, but $2500 is typical, and some states, like Georgia, offer as much as $5,000. So a used Leaf faces not just the usual loss of value any used car has, but when compared to a new Leaf, one has to factor in that up to $12,500 is taken off the new Leaf’s cost. A new one with an MSRP of $30K costs just $17,500 out of pocket for many buyers. Leaf Prices have also gone down since it was first introduced. That hurts the resale value too. People know it could happen again.

Before we go too much farther, we need to point out that given the free money back from our governments, the Leaf might still – overall – be a great new car value. It depends how you look at it. Buyers who do get the full discount don’t actually lose when they resell because they started out at a lower initial cost. Make sense? The key here is to not be the sucker that pays for Leaf and does not maximize the possible taxpayer funded give-backs. This is a real issue here in my state where there is currently no state rebate, but one is pending. Whatever you do, don’t buy a Leaf in a state like mine until they settle on your green car kickback and make it law. Also, remember that some Prius models in some states like California also get state rebates, though not as much. It doesn't seem to hurt the Prius resale value.

There is great news if you want a Leaf though and don’t want to worry about getting stuck with a used one that has such low value. In most states, leasing a Leaf side-steps most of the devaluation. The end of lease value is set by the company providing the lease (Nissan). It would appear that Nissan is setting that value artificially high, which is great news for people who want a Leaf. Even better, the tax breaks and state kick-backs can be mostly rolled into the lease. Over the period of the lease the Leaf can be incredibly inexpensive. Although the higher maintenance cost does somewhat cut into the owner’s savings on gas compared to other green cars like the Prius, the dollar signs are still pointing in the right direction.

The Prius has long been a safe bet. Toyota is frequently awarded top scores in reliability and other important long-term considerations that affect the value of a car. Some of our California readers caution that even though the Prius is the most commonly sold nameplate in the State of California, one should be sure they are getting the “High Occupancy Vehicle” lane sticker they hope to before committing to a new one. The winds of change are blowing in the Golden State and 50 MPG is not considered very green there anymore. So beware changes to the car-pool lane qualifications.

The upshot of this is analysis is that Leafs are cheap to lease and one can very happily drive one (within a 45 mile radius) for very little money. If you consider buying a Leaf do it with your eyes open and your calculator in hand. My state of Mass. is about to join the party and offer me a $2500 rebate right at the dealership if I buy a Leaf and you can bet I will be running the numbers to see how close to free the car will be if I lease vs buy.