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.