How often does Budget evaluate the estimated residual values of its vehicles for depreciation purposes?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
cified period of time, subject to certain eligibility criteria (such as car condition and mileage requirements). We depreciate vehicles such that the net book value on the date of return to the manufacturers is intended to equal the contractual guaranteed residual values, thereby minimizing any gain or loss.
Rental vehicles acquired outside of manufacturer repurchase and guaranteed depreciation programs are depreciated based upon their estimated residual values at their expected dates of disposition, after giving effect to anticipated conditions in the used car market. Any adjustments to depreciation are made prospectively.
The estimation of residual values requires us to make assumptions regarding the age and mileage of the car at the time of disposal, as well as expected used vehicle auction market conditions. We regularly evaluate estimated residual values and adjust depreciation rates as appropriate. Differences between actual residual values and those estimated result in a gain or loss on disposal and are recorded as part of vehicle depreciation at the time of sale. Vehicle-related interest expense amounts are net of vehicle-related interest income of $12 million, $34 million, and $1 million for 2024, 2023 and 2022, respectively.
We classify vehicles as held for sale in the period in which they are available for immedia
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, the company regularly evaluates the estimated residual values of its vehicles and adjusts depreciation rates as needed. These evaluations are crucial because Budget depreciates rental vehicles acquired outside of manufacturer repurchase programs based on their estimated residual values at the expected disposal dates, considering used car market conditions. Any adjustments to depreciation are applied prospectively.
This practice has significant implications for franchisees. The estimation of residual values requires Budget to make assumptions about the age and mileage of the vehicles at disposal, as well as the expected conditions in the used vehicle auction market. If Budget's estimates differ from the actual residual values, the resulting gain or loss is recorded as part of vehicle depreciation at the time of sale. This can affect the financial performance of the franchise, as depreciation is a significant expense.
Furthermore, Budget classifies vehicles as held for sale when they are available for immediate sale and the sale is probable. These vehicles are presented separately at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. Budget reassesses their fair value each reporting period until they are disposed of, which can lead to further adjustments in the company's financial statements. This ongoing evaluation and adjustment process highlights the importance of accurate forecasting and risk management in Budget's operations.