How do Guaranteed Future Value plans work?

Buying a new car is fun and exciting - but can be daunting all at the same time.

There's no other feeling like driving off the lot in your new vehicle, but the reality is that as soon as you're handed the keys, the car starts to lose value.

This is particularly prescient with electric vehicles, where there is a level of 'unknowability' to the car's battery system.

What will EVs be worth in the future?

You know how on your smartphone you can check to see how much of your phone's battery is still usable? Well, just like a phone, most battery systems used in cars will eventually degrade over time, losing capacity as you recharge them - and therefore losing driving range, too.

But EVs typically don't have a 'State of Health' menu screen, so when it comes time to sell the car, the real-world remaining range could be an impediment to finding a buyer.

Further, as technological development of vehicle battery systems continues to ramp up, there is an understandable level of concern around whether the current tech will still be worth something in the future.

Indeed, resale values are the single biggest ownership cost for a car buyer.

While out-of-pocket costs like insurance, registration, fuel or maintenance might spring to mind as the most expensive elements, but for many new-car buyers, tens of thousands of dollars could be lost in the first few years of ownership.

What is Guaranteed Future Value?

It's enough to make you second-guess your investment, and a number of car brands are moving to act on this understandable unease by offering a so-called Guaranteed Future Value for a car if you pay for it through a dedicated financial services offering.

When you sign up to a finance package for a new vehicle, you'll know what it will cost you to pay for the vehicle on a weekly or monthly basis, over a set period of time (typically three to five years), and what the car's future value will be once that period is up.

There is fine print to consider. From the outset, you might need to nominate an estimated number of kilometres you'll travel each year in order to come up with a fair value.

Brace for a little bit of crystal-balling, however, with wild resale fluctuations for some vehicles (including electric cars) making it difficult to predict what a car might be worth - and that in itself could make for a far less stressful ownership experience to lock in a value from the moment you take delivery.

At the end of the finance period, a customer will typically have the choice to either trade-in at the agreed rate, keep the car by paying out the agreed amount, or hand the car back to the dealership at which point there's no additional cost to the first owner, if it meets the wear-and-tear requirements - which you'll also need to agree to.

Why is there uncertainty around EV resale values?

Skoda Australia's managing director, Michael Irmer, says that resale values - particularly for EVs - is at the forefront of people's minds, and the brand's GFV program is designed to help alleviate the anxiety of the unknown.

In particular, Irmer called out battery electric vehicles (BEVs), as the purchase price is higher, the running costs are lower, but the technology advances are constant, and that means existing vehicles might be outdated sooner.

"For a consumer, there are two other things which are really important. One is, how is it going to be with selling the car in a couple of years - especially when you see the news coming from the UK, the Americas or from Europe, people are a little bit fearful [of BEV resale values]," Irmer says.

Cupra Australia brand director, Ben Wilks, pointed out the benefits of the Spanish marque's GFV program, Cupra Choice, for owners who finance in-house rather than through alternative means like banks or family loans.

"I really encourage people to jump back to our website, jump on the stock list and look at those prices - the dollars per week with a guaranteed future value over three years at a 1% interest rate," he says of a promotional finance rate until June 30 on selected vehicles. "It's a very compelling offer for customers."

Which car manufacturers offer Guaranteed Future Value in Australia?

GFV programs currently offered by car brands in Australia include: Audi Choice, BMW Full Circle, Cupra Choice, MyFord Finance GFV, Land Rover Guaranteed Future Value, Lexus Ownership Solutions, Mazda Assured, Mercedes-Benz Agility, Mini Flex, Nissan Future Value, Peugeot Guaranteed Future Value, Toyota Access, Skoda Choice, Subaru Guaranteed Future Value, and Volkswagen Choice.

Other brands including Kia and Hyundai are considering adding GFV programs, with those brands expected to develop in-house financial services divisions by the end of 2024 in order to back the GFV programs offered.

Hyundai Australia chief operating officer, John Kett, says the brand is focusing on a new GFV product to help EV customers, primarily, with their concerns about the resale value proposition.

"Residuals are key; second life of the EV is something I think we're all trying to try to work our way through to give consumers confidence that an EV does have a life beyond its eight-year battery warranty," Kett says.

"I think that's where our focus is, to bring some focus around the fact that (BEV) residual value is more than an eight-year lifespan. And I think that's what we've been trying to focus on."

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