Economically old before physically old

A vehicle can become economically old long before it becomes physically old. It can still start every morning, meet its technical specification and have years of useful life ahead of it while the assumptions around its price, residual position, capital recovery or serviceability have already moved on.

This is not specifically an EV residual-value story. Automotive has lived through severe used-car dislocations before, including the exceptional movement of 2021 and 2022. The more useful management question is what happens when several economic timelines around the same vehicle move independently and the consequences sit with different functions.

I would separate four clocks. The technology clock changes what the current and next product can do. The commercial and residual clock changes effective new-car economics and the market's expectation of vehicles already in circulation. The capital clock reflects the recovery period management accepted when it committed development, industrial and network investment. The capability clock determines whether the installed parc can be diagnosed, repaired and returned to service predictably.

They do not have to move in the same direction. A product cycle can accelerate while demand slows. Effective price can move without a comparable move in used values. Service capability can lag even where vehicle demand is strong. Capital is different again because part of that clock is chosen by management when the investment is approved.

Yesterday's contract meets today's market

This mechanism matters most in markets where leasing, PCP, guaranteed-future-value products or other return-option structures are material. Where the customer carries most resale risk through conventional finance or hire purchase, captive residual exposure is less important. That scope distinction matters, particularly across markets with very different financing structures.

A contractual residual is set when the business is written. The market keeps moving afterwards. Volkswagen states that special sales incentives and increased price pressure in the new-car business can affect used-car price levels. The contract written yesterday does not automatically reset because the effective price of a comparable new vehicle changes today.

The exposure is financially material without implying a crisis. Volkswagen reported €1.025 billion of impairment losses on lease assets and investment property in cost of sales in 2025, compared with €973 million in 2024, predominantly in Financial Services and based on updated residual-value information. In the same year, Financial Services increased its operating result from €3.1 billion to €3.7 billion. The useful point is therefore not that residual risk overwhelmed the business. It is that residual assumptions are actively re-priced and their consequences can appear somewhere other than where the original commercial decision was taken.

Ownership is not always simple either. Volkswagen distinguishes between residual risk held directly by its financial services companies and indirect risk transferred to third parties such as dealers through residual-value guarantees. If a guarantor defaults, that risk can return to the Group. The pricing decision, the contractual exposure and the eventual loss-bearing entity do not necessarily sit in the same place.

BMW Financial Services North America provides an even more operational example. In sales-support programmes, contractual residual percentages on some vehicles can be set above the independent ALG residual values used for securitisation. The securitisation is funded against the lower ALG value, while the customer's purchase option remains based on the higher contractual residual. The customer sees one monthly affordability proposition. Management needs to see whether support sits in vehicle price, finance rate or residual assumption because those routes create different economics later.

That is why I would avoid any simple discount-to-residual formula. Effective new-vehicle price can move through list price, incentives, finance support or policy. Used-car supply and demand can overwhelm the relationship, and incentives themselves often rise because demand is already weak. The mechanism is real. A fixed public elasticity is not.

Capital remembers an earlier future

A vehicle can also become economically older because the reference product changes around it. A three-year-old car does not need to become technically worse for a newer vehicle with better range, charging speed, software, efficiency or price-performance to change what customers are willing to pay for the older generation. The physical product can remain sound while its relative economic position changes.

Capital does not reset at the same speed. Development programmes, tooling, factories and network investments are committed against assumptions about technology, demand, volume and product life. Some of those assumptions may have to earn their return for years after the market view that justified them has changed.

Porsche's 2025 product-strategy realignment is useful precisely because it demonstrates that the mismatch does not only run in the direction of faster technology. Volkswagen reported that Porsche postponed certain all-electric vehicles, extended combustion-engine products and rescheduled a planned electric platform into the 2030s. The rescheduling resulted in €2.0 billion of impairment on capitalised project costs and provisions for outstanding obligations.

The operating point is narrower than the accounting event. Capital is committed against one view of the future, while the future can move faster, slower or simply differently. Management may then be changing today's product or pricing response while still recovering investment committed under yesterday's assumptions.

The installed parc has its own clock

Economic usefulness also depends on whether the market can keep the vehicle operating predictably. High-voltage competence, battery diagnostics, software diagnosis, ADAS calibration, specialised repair methods, tooling, technical information and parts availability do not scale automatically because the vehicle parc does.

The UK's Institute of the Motor Industry reported 74,734 EV-qualified technicians at the end of 2025, around 35% of the UK technician workforce, and projects a shortfall of more than 43,000 by 2035 if training does not accelerate. That is UK evidence, not a global technician ratio, but it shows how vehicle adoption and repair capability can move on different timelines.

There is no defensible public formula connecting workshop waiting time to a specific residual-value percentage. I would not claim one. The management inference is simpler: a fleet operator or second owner cares whether a vehicle can be diagnosed locally, how long it will be off the road, whether battery and electronic systems can be repaired economically, and how predictable parts and insurance-related repair costs are. Serviceability therefore affects the economic usefulness of the installed asset even where the vehicle itself remains technically viable.

Rational decisions can still add up badly

The organisational problem appears because the four clocks are normally managed in different places. Pricing protects current competitiveness and volume. Product engineering moves the portfolio. Captive finance manages the live book. Used-car teams watch return and market behaviour. Aftersales builds capability. Capital allocation works from investment cases approved earlier.

Each function can make a defensible decision inside its own remit while the combined economics around a model, market or cohort deteriorate. A price action can improve today's order bank while changing the reference point for contracts already written. A product change can improve competitiveness while altering the position of the outgoing generation and the assumptions under remaining capital. A technically successful launch can still expose a repair network that is not ready for the installed parc.

This is why I would not solve the problem with another dashboard. More information is useful only if a material change in one area reaches the people carrying the consequence somewhere else, and if somebody can decide when those objectives conflict.

One lifecycle view, not five local optimisations

The practical change is to bring material product, pricing, residual-support, capital and service decisions onto one lifecycle view by model, market and cohort. That does not require a new committee if an existing product, market or performance forum can already carry the decision. It requires the visibility and decision rights to stop evaluating connected exposures independently.

First, the same view should make effective new-car price, live residual exposure, used-car and return signals, remaining product and capital assumptions, and service readiness visible together. These measures do not need to collapse into one artificial score. They need to be visible to the people making decisions that move them.

Second, material movement in one clock should create a cross-functional trigger. A significant repricing should be checked against live residual cohorts rather than only current volume and margin. A major product change should show what it means for the outgoing generation, remaining capital assumptions and network readiness. Used-car return behaviour and serviceability signals should reach the teams setting future residual assumptions and product economics.

Third, there needs to be a decision owner when the objectives conflict. Otherwise pricing can protect volume, finance can protect the book, product can protect competitiveness and aftersales can protect capacity while nobody decides whether the combined answer still makes economic sense.

The vehicle may still be physically fine. The economic assumptions around it may no longer belong to the same generation.