Automotive Leasing Surges, Especially for GM

Detroit Free Press

Recov­er­ing nice­ly after bank­rupt­cy and the down-cur­rent in the auto indus­try, Gen­er­al Motors is surg­ing back into the crit­i­cal bat­tle­ground of auto­mo­tive leas­ing.

Find out more about the crit­i­cal role resid­ual val­ue plays in leas­ing com­pe­ti­tion.

Four sum­mers after Gen­er­al Motors and Chrysler careened through Chap­ter 11 bank­rupt­cies, the nation’s auto indus­try has a dozen major car­mak­ers fight­ing for cus­tomers on the most lev­el play­ing field since for­eign brands hit America’s shores in big num­bers 40 years ago.

A crit­i­cal bat­tle­ground today is in auto­mo­tive leas­ing, where the Detroit Three automak­ers, led by GM, have sud­den­ly surged back into the fray, armed with stronger prod­ucts that result in bet­ter trade-in prices and high­er resid­ual val­ues.

The high­er trade-in val­ues allow deal­ers to offer more attrac­tive month­ly lease pay­ments. They also offer the promise of return cus­tomers because as a lease ends the dri­ver will like­ly need anoth­er car.

“There’s been a very strong improve­ment by domes­tic brands and Kore­an brands in resid­ual val­ues. They are real­ly clos­ing the gap, ver­sus the tra­di­tion­al lead­ers,” said Eric Lyman, vice pres­i­dent of TrueCar’s ALG unit, the auto indus­try author­i­ty on resid­ual val­ue data.

Resid­ual val­ue, stat­ed as a per­cent­age, is the esti­mate of a vehicle’s val­ue after depre­ci­a­tion over a spe­cif­ic time peri­od, such as over a 24- or 36-month lease.

In an analy­sis done for the Free Press, cov­er­ing the years 2008–13, ALG said the aver­age resid­ual val­ue of GM prod­ucts gained 13% — mov­ing from 41.8% to 47.3% — while long­time indus­try lead­ers Hon­da and Toy­ota saw resid­u­als rise only 4% and 5%, respec­tive­ly, over the same peri­od.

Ford’s resid­ual val­ues gained 11%, Chrysler’s were up 7%, Nis­san up 2% and Volk­swa­gen declined 3%. South Korea’s Hyundai Group post­ed the biggest 5-year improve­ment of 29%.

Hon­da and Toy­ota still lead the pack with aver­age resid­u­als in the mid-50s, but the major brands are now bunched more close­ly togeth­er than in the past. This is very impor­tant in the bat­tle for lease cus­tomers: A 10% dif­fer­ence in resid­ual val­ue on a $30,000 car, for exam­ple, would result in a $74 month­ly pay­ment dif­fer­ence on a 36-month lease, total­ing near­ly $3,000 over the life of the lease.



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