Toyota and Honda, two of the world's biggest automakers, aren't known for making flashy cars or high-end exotics.

Quite the opposite. More often, they've been called boring. Even Honda's own designers have said so.

Akio Toyoda, that company's chairman and scion of its founding family, was so frustrated with this, he once demanded no more boring cars.

The word boring and the word Lexus would never be used in the same sentence again.

You know, we are always seeing a sort of pedestrian, right? Like you buy a Camry, but you know it's not cool.

Despite the image, Toyota and Honda rule the used car lot. What do you feel about 500 bucks?

Let's do this. These two brands and their luxury divisions hold their values better than any other. It matters a lot.

And it is not something that Honda has been able to achieve overnight. We want to make sure that they've maintained their value above the rest of the competition.

This relentless pursuit of making sure that we're producing what customers want and that they're durable, we stay hyper-focused on that, and we don't take that for granted.

And on top of it, it's a chaotic time in automotive history - with EVs, software, upstart brands, and looming Chinese competition.

So why do Toyota and Honda hold their value so well? And can they stay on top?

Toyota has topped Kelley Blue Book's best resale value list eight times since 2014, including the last four consecutive years.

Lexus has won the group's award five times. 2024 is its third consecutive. Lexus won the luxury category on J.D.

Power's residual awards list. The market tends to have much greater demand than Toyota supplies up front, which keeps resale high, which keeps consumers happy, and the cycle continues on and on.

Honda is another big winner. Among mainstream brands, it bested its Japanese rival in J.

D. Power's ranking. Edmunds data shows, overall, Toyota and Honda are neck and neck, as are their higher-end Acura and Lexus brands.

Honda's numbers are impressive, but Toyota's stand apart. It's the biggest automaker in the world, sells many more cars than Honda and has a greater selection.

For example, Honda doesn't have a full line of pickup trucks. Those typically have lackluster resale values, as they tend to be heavily incentivized and get beat up by owners.

In addition, the higher volume means more supply that should drive down prices.

Not in Toyota's case. Toyota is the number one selling nameplate in the United States automotive industry.

Chevy, Ford kind of go back and forth between who's number two. Toyota is 40% bigger than them.

Toyota, and in a slightly different way, rival Honda have managed to get to this position without relying on some of the strategies other automakers resort to in order to sell cars, which can hurt a brand and drive down resale value.

Automakers do three things to push volume when times are tough: incentives, fleet sales, and leasing.

Take incentives. If you've ever heard that a car loses 10% in value as soon as you drive it off the lot, it's because most cars are sold with incentives, and the market factors that in when determining what your car is worth.

When you do trade in your car at the dealership, the dealer is going to give you a price for it.

That assumes you got some kind of incentive, because chances are you have.

Toyota offers very little in incentives. Honda says it spends about 23% less than rivals. From a sales and production planning to manufacturing, we work very closely to make sure that we have enough inventory on dealer lots to sell, but not too much.

We don't spend a lot of incentive dollars relative to the industry. Then you're going to have higher resale value because the demand that drives the new car side, it's going to drive the used car side.

Fleet sales is essentially bulk sales, like to rental companies or the government. About 14% of Toyota's sales are fleet.

Honda's are just 1.8%. That's far lower than Ford, Chevrolet, and Chrysler. Bulk sales usually come with discounts.

It's kind of like the incentive, but not quite the same. It lowers the transaction price overall of that.

A lot of fleet cars tend to have fewer bells and whistles, and their presence in the used market drives the brand's overall resale value down also.

Your buyer could decide to unload its whole fleet at once.

Well, that's one of the reasons Tesla's retention values are as low as they are. They can't control that aspect of it because they've sold a big chunk of vehicles into the marketplace.

And finally, leasing. Toyota is among the companies with the lowest level of it.

That hasn't always been the case. Honda, on the other hand, is among the highest.

Leases usually have lower payments than purchases. It's another tool automakers use to sell more cars. But if you over-rely on it, you add more vehicles to the used market when the lease is up.

It's simple supply and demand. Interesting thing with Toyota is we perhaps don't know how big Toyota could actually be, because they are not really doing the sorts of activities to stoke demand artificially in the form of unnatural level of incentives, or pushing out production to the fleet channel.

Toyota tends to avoid a lot of these brand-destroying activities, even as they're number one.

This is days supply, a way of measuring how much inventory a dealer has. You want that number to be low.

Lower day supply means cars are selling faster. The three brands with the lowest numbers: Lexus, Toyota, and Honda. Frankly, it's probably lower than I'm comfortable with.

I'd like to have a few more days supply in stock, but managing that, not overbuilding, also impacts the long-term resale value of the products.

Our target is to make sure that the dealers have enough supply on dealer lots to sell in one month, and they're turning their inventory every month, and that will also go into how we're able to maintain our residual values because we're able to maintain the right mix of inventory, which is not an easy thing to do.

And it's a constant challenge that we work on.

Here's days to turn - the number of days it takes to sell a car - for a handful of mainstream US brands.

Toyota is by far the lowest. Honda is third, barely edged out by Subaru. In addition to all this, these companies, especially Toyota, have strong reputations for quality, durability, and reliability.

These three words even form a slogan at Toyota, often abbreviated as QDR.

The culture here is completely different at Toyota, and I think that's a huge competitive advantage.

QDR is the cornerstone. Customer satisfaction and focus is the cornerstone. And we just relentlessly kaizen...you know the term kaizen.

It's always trying to improve. Quality and reliability, helped it overcome early failures in the US market and win over a skeptical public.

We came to the US, we built cars that weren't exactly what the US market wanted, and we had to go back and re-engineer our vehicles to make sure that they appeal to consumer tastes here.

Lexus and Toyota top Consumer Reports reliability ranking with Mini in third place and Honda and Acura in fourth and fifth.

In 2024, the group began ranking 5 to 10-year-old used cars, and Toyota and Lexus topped that list, too.

The Honda brands don't fare nearly as well in J.

D. Power's dependability study, but Toyota and Lexus top it. A lot of consumers are willing to pay more, both for the perception and the reality that a Toyota vehicle is not going to break down.

There are examples of people driving their Lexuses and Toyotas well past a million miles.

It is rare, but those vehicles can certainly go the distance. These automakers are also the number one and number two sellers of hybrids in a market that can't get enough of them.

It takes just 26 days for a dealer to sell a hybrid, compared with 58 days for the industry overall.

Same with resale. Three-year-old used EVs hold 44% of their value.

Plain gas cars, 65%. Hybrids, 72%. Automaker profits usually hover in the high single digits to low double digits range.

Every automaker is tempted to build and sell just a few more units. But carmakers' costs are high and mostly fixed.

About 70% of the price of a vehicle goes to the direct cost of producing it, building the engine, stamping the sheet metal, keeping the factory lights on.

Two-thirds of what's left is eaten up by marketing, product development, and everything else, so about 10% profit.

If a company makes a million cars, profits don't flow until they've sold about 900,000.

You want to build one more, you want to sell one more because that's closer.

You get to Nirvana, where the profits just start flowing in. But the challenge is if the demand isn't there.

That's where fleet comes in, incentivizing comes in. All kinds of things come
into play.

What sets Toyota and Honda
apart is they tend not to build cars they aren't sure
they can sell. So it's a tightrope walk in
manufacturing, and nobody walks that better than
Toyota.

The renowned Toyota
Production System especially is credited with
introducing revolutionary manufacturing principles,
including, among other things, concepts sometimes
called lean manufacturing or just-in-time production.

The idea: reduce waste of
all kinds and improve efficiency as much as
possible.

Nothing is made until there
is a need for it that holds true through the entire
chain. Toyota Production System is
probably the closest thing we have to a pull system
still in the auto industry.

It's called a pull system
because production is pulled by demand. The reputation
for quality and durability also goes back to
manufacturing on a Toyota factory floor.

For example,
any employee can stop the assembly line by pulling a
cord if they notice a defect.

That allows the company to
catch things early. They're making big
investments in training every worker or every
maintenance worker, every engineer, and how to solve
problems.

They also standardize
designs. Even something as simple as
the hood of a car will be designed similarly across
models.

And when you standardize,
you're making a larger volume, which reduces cost,
but also you can fine-tune and work out any quality
issues over years of practice.

They will work on
testing and retesting and retesting and fine-tuning
the standards until it's almost perfect.

The company also moves
slowly and thoroughly, even when it takes big leaps. It considered 80 different
potential technologies for its hybrid powertrain on the original Prius.

It doesn't stuff cars with features customers aren't asking for, so there is less pressure to include the latest and greatest.

This is also true of Honda. We've had a relentless focus on cost controls. Some brands may put a piece of equipment on a car because it's more profitable.

Right. And that just doesn't enter our mentality. It's what is what the customer wants and at what price.

You do risk losing customers to the latest and greatest, but by going with tried and true technology, it's really enabled them to say like, look, you might miss out on a few gadgets here and there, but we're going to build a vehicle that, you know, is going to go forever.

But that also means it rolls out new technology much later than competitors.

Toyota has been criticized for this in the past. Even Honda that they're not jumping right into, you know, full EV.

Toyota and Honda buyers are the most loyal. That said, their records do have a few blemishes.

They're not perfect. No one is. There has been a widening scandal over falsified safety check data in Japan.

Toyota and Honda have been swept up into it. Honda said in February it will have to recall 750,000 vehicles over faulty airbags.

Toyota will replace engines in over 100,000 Tundra and Lexus LX SUVs.

Tacoma, the most legendary resale values, durability where you just run into a rock. It'll be fine. Transmission recall, complete replacement.

Toyota's V6 twin-turbo recalling the engines, right? So we're talking about major component failures. And this is where you start to see maybe some consumers might start to break.

But the transition to EVs, while rocky, won't stop, and Toyota's reputation for moving slowly has earned it criticism.

Toyota was long the leader known for alternative powertrains, and more or less invented the hybrid industry as we know it today, bringing the original Prius to market and continuing to iterate on that technology.

And yet a new technology came around and they're a laggard in EV transition.

The brand has only two EVs, the bZ4X and the Lexus RZ.

The bZ4X's rollout was, by many accounts, a disaster. They literally had the wheels falling off.

They had a stop-sale on the bZ4X, and that was kind of like, of all brands. Younger buyers are a bit less brand loyal than previous generations, and right now, many say the future is basically anyone's game.

Any incumbent, no matter how well-run or beloved, faces threats.

The variation now in ideas and innovation that has come to the auto industry is, I think, on a scale we haven't seen before.

And with that means the winners and losers are not always guaranteed. One of the strengths of Chinese manufacturers, for example, is their ability to move very quickly.

Why Used Toyotas And Hondas Are So Expensive

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Toyota and Honda vehicles retain high resale values due to their focus on durability, quality, and reliability, supported by strategic manufacturing and sales practices like limited incentives and low fleet sales.

Unlike competitors, Toyota and Honda prioritize customer demand and controlled supply, avoiding artificial boosts through high incentives, fleet sales, or excessive leasing, which often depress resale values.

Despite a strong legacy in hybrids and high customer loyalty, Toyota and Honda face challenges from the rapid shift to EVs, new technologies like software-defined vehicles, and agile Chinese competitors.

Despite often being described as **'boring' or 'pedestrian' brands**, Toyota and Honda, along with their luxury divisions, consistently dominate the used car market by retaining their value better than any other automaker. This phenomenon is a result of a relentless focus on producing durable, customer-centric vehicles, a strategy that has not been achieved overnight.

Toyota has a particularly strong track record, **topping Kelley Blue Book's best resale value list eight times since 2014**, including the last four consecutive years. Lexus has also secured this award five times, with 2024 being its third consecutive win in the luxury category. This consistent performance stems from a market demand that often outstrips Toyota's initial supply, creating a cycle of high resale values and satisfied customers.

Honda also demonstrates impressive resale values, often **neck and neck with Toyota in overall rankings**, according to Edmunds data. While Toyota sells a greater volume of vehicles and has a wider selection, including full lines of pickup trucks, both brands maintain their strong market position without resorting to aggressive sales tactics that can devalue a brand.

Toyota and Honda differentiate themselves by largely avoiding common automotive industry strategies that can depress resale value, such as **heavy incentives, extensive fleet sales, and over-reliance on leasing**. Unlike many competitors, Toyota offers minimal incentives, and Honda spends significantly less on them, ensuring that the initial sale price accurately reflects the vehicle's worth, which in turn supports higher used car prices.

Fleet sales, which involve bulk purchases by rental companies or governments, typically come with discounts and can flood the used market with lower-spec vehicles, thereby lowering a brand's overall resale value. While approximately 14% of Toyota's sales are fleet, **Honda's fleet sales are remarkably low at just 1.8%**, a stark contrast to other major manufacturers.

Similarly, leasing, though offering lower monthly payments, can introduce a large volume of used vehicles into the market once leases expire. Toyota is among the companies with the **lowest levels of leasing**, while Honda is among the highest. However, Toyota generally avoids these demand-stoking activities, choosing instead to focus on building cars they are confident will sell without artificial market manipulation.

The ability of Toyota and Honda to maintain low 'days supply'—the amount of inventory a dealer has—is crucial. Lexus, Toyota, and Honda consistently have the lowest numbers, indicating that **their cars sell faster than those of competitors**. This careful inventory management prevents overbuilding, which directly impacts the long-term resale value of their products.

Quality, Durability, and Reliability (QDR)

A cornerstone of Toyota's and Honda's success is their **strong reputation for Quality, Durability, and Reliability (QDR)**, a slogan that embodies Toyota's corporate culture. This commitment to continuous improvement, known as 'kaizen,' has been vital in overcoming initial challenges in the U.S. market and appealing to consumer tastes.

These brands consistently **top reliability rankings**, with Lexus and Toyota leading Consumer Reports' lists, including their new ranking for 5 to 10-year-old used cars. This translates into a strong consumer perception—and reality—that Toyota and Lexus vehicles are less likely to break down, with numerous examples of them lasting well over a million miles.

Toyota and Honda are also leading sellers of hybrids, reflecting a market where **demand for these vehicles is extremely high**. Hybrids sell significantly faster than conventional gas cars or EVs and retain a higher percentage of their value, further bolstering the brands' strong market position.

The Toyota Production System and Innovation Approach

Toyota's renowned production system, characterized by **lean manufacturing and just-in-time production**, is pivotal to its success. This system emphasizes reducing waste and maximizing efficiency, ensuring that nothing is made until there is a confirmed demand, effectively creating a 'pull system' of production.

The commitment to quality is ingrained in their manufacturing process, allowing **any employee to stop the assembly line if a defect is noticed**, catching issues early. They also standardize designs and rigorously test components, fine-tuning them over years to achieve near-perfect quality and reduce costs through higher volumes.

Toyota and Honda also adopt a cautious approach to new technology, **avoiding stuffing cars with unrequested features**. While this means they introduce new technology later than some competitors, it ensures they deliver proven, reliable innovations, such as the 80 different technologies considered for the original Prius hybrid powertrain.

Despite their strong records, **Toyota and Honda are not without blemishes**. Recent widening scandals over falsified safety check data in Japan have impacted both companies, alongside recalls for faulty airbags (Honda) and engine replacements (Toyota). These major component failures could potentially erode consumer trust.

The transition to electric vehicles (EVs) presents a significant challenge. Toyota, despite inventing the hybrid industry, is **criticized for being a 'laggard' in EV adoption**, with only two EV models to its name. The rollout of the bZ4X, in particular, was plagued with problems, including wheels literally falling off.

The automotive industry is facing unprecedented innovation from new brands like Tesla and Rivian, and aggressive competition from Chinese manufacturers capable of rapid product development. These new players benefit from trends like **software-defined vehicles and quicker innovation cycles**. While Toyota and Honda express confidence in their customer focus, the changing landscape presents a substantial challenge to their long-held dominance.

Toyota and Honda are known for being reliable and often called 'boring,' despite their chairman's efforts to change this perception.

These brands, including their luxury divisions, consistently hold their value better than any other in the used car market.

Their success stems from a relentless focus on producing durable cars that customers want, though their records aren't perfect.

Toyota has frequently topped Kelley Blue Book's best resale value list, and Lexus has won multiple luxury awards.

High demand for Toyota vehicles, exceeding supply, keeps resale values high and consumers satisfied, perpetuating the cycle.

Honda is also a strong performer, besting Toyota in J.D. Power's mainstream brand ranking, with both brands and their luxury counterparts being neck and neck in Edmunds data.

Toyota, as the world's largest automaker, sells more cars and has a greater selection than Honda, yet maintains high resale values despite higher volume, which typically drives prices down.

Toyota and Honda avoid common automaker strategies like heavy incentives, fleet sales, and extensive leasing, which can hurt brand perception and resale value.

Toyota offers minimal incentives, and Honda spends significantly less than rivals, leading to higher resale values due to sustained demand.

Toyota's fleet sales are low at 14%, while Honda's are exceptionally low at 1.8%, contrasting with competitors who use bulk sales, often with discounts, which can reduce overall brand resale value.

Toyota has one of the lowest levels of leasing, while Honda is among the highest, despite leasing potentially adding more vehicles to the used market and affecting supply and demand.

Inventory Management and Manufacturing Excellence

Lexus, Toyota, and Honda maintain low 'days supply' (inventory on hand), indicating fast sales and impacting long-term resale value positively.

Honda aims for dealers to have enough supply for one month, turning inventory regularly to maintain residual values through a balanced inventory mix.

These companies, especially Toyota, are renowned for Quality, Durability, and Reliability (QDR), a cornerstone of their culture and a significant competitive advantage.

Toyota's "Kaizen" culture of continuous improvement, combined with strong quality and reliability, helped them overcome early failures in the US market.

Toyota's manufacturing prowess, particularly the Toyota Production System, emphasizes lean manufacturing and just-in-time production to reduce waste and improve efficiency, ensuring production is driven by demand.

Employees can stop the assembly line if a defect is found, allowing early correction and continuous improvement through training and standardized designs, which reduces costs and refines quality.

Toyota moves slowly and thoroughly, exploring many technologies before adoption, and avoids stuffing cars with unrequested features, a strategy also embraced by Honda.

Honda focuses on customer needs and price rather than just profitability when adding equipment, ensuring cost control and long-term reliability over fleeting gadgets.

This cautious approach means new technology is rolled out later than competitors, drawing criticism, particularly concerning EV adoption.

Despite high loyalty, Toyota and Honda face challenges including a falsified safety data scandal in Japan and significant recalls for faulty airbags and engines.

Toyota, despite pioneering hybrids, is seen as a laggard in the EV transition, with a disastrous rollout for its bZ4X EV, which included a stop-sale due to wheels falling off.

Younger buyers are less brand-loyal, and the auto industry faces unprecedented innovation, upstart brands like Tesla and Rivian, and quick-moving Chinese competition, all posing threats to incumbents.

The rise of software-defined vehicles, allowing remote updates, presents a new advantage for some competitors.

Despite challenges, Toyota expresses confidence in staying customer-focused, acknowledging the significant hurdles ahead.

Why Used Toyotas And Hondas Are So Expensive

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