Why is certain optional equipment worth so much more than other options that might cost the same or more when new?

This is another great example of the law of supply and demand being extremely demonstrable in the used vehicle market. When new, what manufacturers charge for options is largely dependent on the expense to produce the option. When used, the value of options is much more dependent on demand. Diesel engines, for instance, in a 2004 Chevy pick up retailed for about $5,100 and today they are so popular and relatively rare that we add $6200 for the option and that may not be enough. On the other hand in 2004 night vision was a $2,200 option on a Cadillac Deville and we have a $500 add for it, and that may be too much. Ultimately the value of options is determined by consumers. If they demand it and are willing to pay for it, it will have value, and vice versa. VW Jetta diesels (TDIs) cost about $1500 more than a comparable gas engine and today are often worth about $4,000 more. There is a large demand and short supply, and consumers are willing to pay a premium for them. On the other hand, few people care if the Jetta has OnStar, a $700 option, and consequently we have no add for it.  If I were a consumer and the Jetta fit my needs, I’d be standing in line for the new high tech diesel engine version soon to be introduced for sale in this country.

How can I estimate the probable depreciation of vehicles I am interested in?

The best way to check anticipated depreciation is to estimate the transaction price of the vehicle you are considering, estimate the number of years you plan to keep it, and look up the wholesale value of the same vehicle that number of years older and subtract that number from the estimated transaction price.

For instance, if I’m interested in a 2005 Lexus GS330 and plan to keep it 3 years, I would look up the value of a 2002 model of the same vehicle and subtract that number from the estimated (or actual) transaction price for the 2005 vehicle to get the probable depreciation. 
2005 Lexus GS330:  $25,000 (estimated purchase price) 
2002 Lexus GS300:  $14,400  (book value)   

The difference between the two values is $10,600, so you could anticipate depreciation of that amount over 3 years.  These kind of estimates are very accurate unless there is a major (and significantly more desirable) redesign of the vehicle in question over that span of years.For instance, if you are considering a 2005 Mercedes E320 which was redesigned in 2003 and plan to keep it three years, you would be comparing its transaction price with the wholesale value of a 2002 model, the previous (and much less desirable and valuable) design. The anticipated depreciation would be invalid because the new design is worth considerably more than the old design. There is a $7,000 difference between the 2003 (new design) E320 and the 2002 (old design) E320, much more than one would expect if there had been no redesign involved (the difference between a 2004 E320 and the 2003, both new designs is only $3,300, the difference between a 2002 E320 and a 2001, both previous designs, is only $2100). That throws the calculation off considerably.

Why do some vehicles depreciate so rapidly? Which are among the worst?

Used vehicle pricing is a great example of the law of supply and demand. Vehicles that depreciate rapidly have a much greater supply than demand which obviously puts downward pressure on their pricing. They are readily available and not highly sought after, so essentially the only way to make them sought after - create demand - is to make the price overwhelmingly attractive. A 2006 Chevrolet Impala LTZ and a 2006 Honda Accord V-6 comparably equipped each cost about $25,000 when new. Today, about two years down the road the Accord is worth $4,000 more than the Impala.

 

Primarily because of fleet sales (sales to rental car agencies in particular) and heavily incentivized leases, there are many more Impalas returning to the market and little demand compared to the comparable Honda. The only way for the Impala to compete for the hearts, and dollars, of the retail consumers is to be priced significantly lower than the comparable Honda. A$4,000 savings can be very enticing for someone just looking for basic transportation.

 

The worst performing vehicles in terms of retaining value as used vehicles tend to be the domestic vehicles that are highly incentivized when new (they need to be in order to create demand vs. their more popular import competitors) and those with large fleet sales. Cars like the Chrysler Sebring, Chevy Malibu, Ford Taurus, vans like the Ford Freestyle, Chevy Uplander, Dodge Grand Caravan, and SUVs like the Chevy Trailblazer, Ford Explorer, and Dodge Durango are good examples. Compare a Ford Freestyle with a comparable Honda Odyssey or a Chevy Trailblazer with a comparable Toyota Highlander and you will see what I mean.