xcel
01-05-2007, 02:14 PM
Big 3 aim to make vehicles hold their value better. (http://www.detnews.com/apps/pbcs.dll/article?AID=/20070105/AUTO01/701050416/1148)
http://www.cleanmpg.com/photos/data/501/06_Accord_SDN_EXL_Front_Corner.jpg Sharon Terlep - The Detroit News - Jan. 5, 2007
2006 Honda Accord - Top Residual value of all mid-sized sedans holding onto 73% of its purchase price after 3 years of ownership.
Laurel Mathews pampered the khaki green Jeep Cherokee she bought barely used from a dealer in 2003. Stringent maintenance. Wax-and-polish cleanings. Oil changes every 2,000 miles.
Given the meticulous care -- and the SUV's $15,000-plus price tag -- the upstate New Yorker was more than dismayed when she tried to sell her Jeep two years later.
"I couldn't get more than $5,000," she said, speaking from her Brewster home, where a Honda CR-V now sits in the garage. "It was in perfect condition. That was my baby. I was horrified."
Mathews' experience resonates with the nation's car-buying public and has become a big problem for Detroit automakers.
When consumers shop for a new car or truck they often bring a laundry list of must-have features, be it leather seats and a sunroof or antilock brakes and stability control. They want affordable payments, reasonable insurance rates and the security of knowing their new ride won't break down as soon as they drive it off the lot.
But something less tangible is increasingly driving demand for vehicles: resale value.
In an exclusive survey conducted by J.D. Power and Associates for The Detroit News, nearly two-thirds of consumers who said they avoid U.S. brands pinpointed a fear that American vehicles depreciate too fast.
In total, 8 percent of domestic brand avoiders pegged quick depreciation as the most influential reason they won't consider buying American, the third-biggest factor behind concerns about reliability and quality.
Consumers have reason to be worried. Falling resale values, or residual values, drive up the cost of leases and push down prices when consumers try to sell vehicles on the used-car market.
"People don't buy cars because they have bad resale values, and the cars have bad resale values because people won't buy them -- it's a self-fulfilling prophecy," said Jack R. Nerad, executive editorial director and executive market analyst with Kelley Blue Book's kbb.com.
As the gap in resale values between Asian and domestic models increases, consumers are paying more attention. "They're seeing that the difference between a car that depreciates a whole lot and one that doesn't can be a lot of money," Nerad said.
Image is everything
In an annual Kelley Blue Book ranking of resale values that's based on how much of their original value vehicles retain after five years, only two domestic cars made the top 10 list in recent years -- the 2006 Chevrolet Corvette and 2007 Pontiac Solstice. Four Asian models and five European-made vehicles made the 2007 list.
The Big Three's resale value woes stem in large part from years of trying to boost sales despite declining demand. Deep rebates and massive numbers of vehicles in rental fleets eroded values. Quality issues and lackluster design also have contributed to an image among consumers that many American vehicles are cheap.
The gap in residual values based on the net price of vehicles, which is the sticker price minus any incentives, between Japan's Big Three automakers and Detroit's Big Three grew from about 2 percentage points in 1999-2000 to about 7.5 percentage points in 2004-05, according to an Automotive Lease Guide report.
During that time, Detroit's General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group increased incentives by about $2,300 per vehicle, while Japan's Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. raised discounts by about $375, the ALG report said.
Resale values are largely determined by image and Detroit automakers are taking a hit on two fronts: heavy discounting and muddled brand identities. GM, for instance, has long been criticized for having too many brands and too many models that look too much alike. Consumers learned to wait for big rebates and cheap financing.
The end result is vehicles like the Chevrolet Uplander lose value fast. According to Kelley Blue Book, 2007 models of the minivan will retain only about one-quarter of their original value after five years on the road.
Turning the resale dilemma around has become a key focus at GM, as well as at crosstown rivals Ford and Chrysler. The automakers are attacking the problem by looking at how they dole out incentives, paring back sales to rental fleets, which bolster overall sales but drive down values, and working to get more attractive, better-optioned cars into the hands of consumers.
Turning the tide?
Among Detroit's automakers, GM has been the most aggressive in its efforts to improve residual values.
GM product czar Bob Lutz has been working to revitalize product development and crank out distinctive vehicles consumers will clamor to buy without deep discounts.
The automaker in the last year has cut its sales to rental fleets by about 10 percent while churning out models better equipped with premier sound systems, higher-end design packages and other features such as side-curtain air bags and chrome wheels.
"Why would you buy a vehicle that's going to be worth 35 percent of its original value when you can buy one that's going to be worth 52 or 53 percent of its original value?" Lutz said in a recent interview. "What we were doing was kind of staying alive in the short term by doing a lot of business, moving the iron, but it was hurting our resale value and our brand value in the long term."
GM sales chief Mark LaNeve points to three key GM vehicles he says are closing in on Asian competitors in the resale market. The 2005 Chevrolet Cobalt had a three-year residual value of 30 percent, compared with 47 percent for the Honda Civic. Two model years later, the 2007 Cobalt is expected to keep 44 percent of its value, compared with the Civic's 47 percent, according to GM.
Sales lot tells the story
One glimpse around Fairlane Ford's used car lot in Dearborn sheds light on both the temptation and drawback of pushing quantity over resale value.
Dealer John Markovski's lot is swamped with used Taurus sedans, once the most popular car in the United States. Markovski is almost giddy as he talks about how little the sedans go for, sometimes less than $10,000 for a well-stocked, low-mileage car. Good news for someone looking to get a deal on a used car, but the decline in price doesn't project an image of value and exclusivity that sells new, more expensive cars.
Ford stopped making the Taurus, taking a hit on overall sales, as it steps up efforts to pare sales to rental fleets.
"The consumer will soon learn that we're doing a much better job," Cisco Codina, Ford's group vice president of North American marketing, sales and service, said in a recent interview.
He said Ford has made strides in increasing the resale value of new models such as the Ford Fusion sedan, Expedition SUV, and new Edge crossover, as well as the Lincoln Navigator SUV and MKX crossover.
Buy or lease, it matters
Just a few years ago, consumers paid little attention to resale values. The stat was mostly used by dealers to set lease rates. But American cars began diminishing in value more quickly than their Asian and European competitors after the Detroit automaker flooded the market with incentives after Sept. 11, 2001.
Metro Detroiters overwhelmingly lease their vehicles, rather than buy them because of employee discounts. So the depreciation issue is less prevalent locally. But in other markets, especially on the East and West coasts, more people buy and as a result weigh resale values when picking their wheels.
"Consumers owning domestic vehicles came to trade their car in thinking they had an asset and it turned out they had negative equity," said James Clark, Automotive Lease Guide consulting director.
Rosario Criscuolo, president of Spartan Toyota in Lansing, said Toyota's strong resale values allow dealers to offer attractive lease rates (that's because the higher the resale value, the more you can lower the leasing price because the vehicle doesn't depreciate as rapidly).
"Resale values are key for us," Criscuolo said. "It makes our leases inexpensive."
Back in Brewster, N.Y., Mathews says her Jeep experience made resale value a serious consideration when she shops for a car or truck.
Reliability is still the major factor, but no longer the only one.
"It's not the main thing," she said of resale value. "But it's important."
http://www.cleanmpg.com/photos/data/501/06_Accord_SDN_EXL_Front_Corner.jpg Sharon Terlep - The Detroit News - Jan. 5, 2007
2006 Honda Accord - Top Residual value of all mid-sized sedans holding onto 73% of its purchase price after 3 years of ownership.
Laurel Mathews pampered the khaki green Jeep Cherokee she bought barely used from a dealer in 2003. Stringent maintenance. Wax-and-polish cleanings. Oil changes every 2,000 miles.
Given the meticulous care -- and the SUV's $15,000-plus price tag -- the upstate New Yorker was more than dismayed when she tried to sell her Jeep two years later.
"I couldn't get more than $5,000," she said, speaking from her Brewster home, where a Honda CR-V now sits in the garage. "It was in perfect condition. That was my baby. I was horrified."
Mathews' experience resonates with the nation's car-buying public and has become a big problem for Detroit automakers.
When consumers shop for a new car or truck they often bring a laundry list of must-have features, be it leather seats and a sunroof or antilock brakes and stability control. They want affordable payments, reasonable insurance rates and the security of knowing their new ride won't break down as soon as they drive it off the lot.
But something less tangible is increasingly driving demand for vehicles: resale value.
In an exclusive survey conducted by J.D. Power and Associates for The Detroit News, nearly two-thirds of consumers who said they avoid U.S. brands pinpointed a fear that American vehicles depreciate too fast.
In total, 8 percent of domestic brand avoiders pegged quick depreciation as the most influential reason they won't consider buying American, the third-biggest factor behind concerns about reliability and quality.
Consumers have reason to be worried. Falling resale values, or residual values, drive up the cost of leases and push down prices when consumers try to sell vehicles on the used-car market.
"People don't buy cars because they have bad resale values, and the cars have bad resale values because people won't buy them -- it's a self-fulfilling prophecy," said Jack R. Nerad, executive editorial director and executive market analyst with Kelley Blue Book's kbb.com.
As the gap in resale values between Asian and domestic models increases, consumers are paying more attention. "They're seeing that the difference between a car that depreciates a whole lot and one that doesn't can be a lot of money," Nerad said.
Image is everything
In an annual Kelley Blue Book ranking of resale values that's based on how much of their original value vehicles retain after five years, only two domestic cars made the top 10 list in recent years -- the 2006 Chevrolet Corvette and 2007 Pontiac Solstice. Four Asian models and five European-made vehicles made the 2007 list.
The Big Three's resale value woes stem in large part from years of trying to boost sales despite declining demand. Deep rebates and massive numbers of vehicles in rental fleets eroded values. Quality issues and lackluster design also have contributed to an image among consumers that many American vehicles are cheap.
The gap in residual values based on the net price of vehicles, which is the sticker price minus any incentives, between Japan's Big Three automakers and Detroit's Big Three grew from about 2 percentage points in 1999-2000 to about 7.5 percentage points in 2004-05, according to an Automotive Lease Guide report.
During that time, Detroit's General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group increased incentives by about $2,300 per vehicle, while Japan's Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. raised discounts by about $375, the ALG report said.
Resale values are largely determined by image and Detroit automakers are taking a hit on two fronts: heavy discounting and muddled brand identities. GM, for instance, has long been criticized for having too many brands and too many models that look too much alike. Consumers learned to wait for big rebates and cheap financing.
The end result is vehicles like the Chevrolet Uplander lose value fast. According to Kelley Blue Book, 2007 models of the minivan will retain only about one-quarter of their original value after five years on the road.
Turning the resale dilemma around has become a key focus at GM, as well as at crosstown rivals Ford and Chrysler. The automakers are attacking the problem by looking at how they dole out incentives, paring back sales to rental fleets, which bolster overall sales but drive down values, and working to get more attractive, better-optioned cars into the hands of consumers.
Turning the tide?
Among Detroit's automakers, GM has been the most aggressive in its efforts to improve residual values.
GM product czar Bob Lutz has been working to revitalize product development and crank out distinctive vehicles consumers will clamor to buy without deep discounts.
The automaker in the last year has cut its sales to rental fleets by about 10 percent while churning out models better equipped with premier sound systems, higher-end design packages and other features such as side-curtain air bags and chrome wheels.
"Why would you buy a vehicle that's going to be worth 35 percent of its original value when you can buy one that's going to be worth 52 or 53 percent of its original value?" Lutz said in a recent interview. "What we were doing was kind of staying alive in the short term by doing a lot of business, moving the iron, but it was hurting our resale value and our brand value in the long term."
GM sales chief Mark LaNeve points to three key GM vehicles he says are closing in on Asian competitors in the resale market. The 2005 Chevrolet Cobalt had a three-year residual value of 30 percent, compared with 47 percent for the Honda Civic. Two model years later, the 2007 Cobalt is expected to keep 44 percent of its value, compared with the Civic's 47 percent, according to GM.
Sales lot tells the story
One glimpse around Fairlane Ford's used car lot in Dearborn sheds light on both the temptation and drawback of pushing quantity over resale value.
Dealer John Markovski's lot is swamped with used Taurus sedans, once the most popular car in the United States. Markovski is almost giddy as he talks about how little the sedans go for, sometimes less than $10,000 for a well-stocked, low-mileage car. Good news for someone looking to get a deal on a used car, but the decline in price doesn't project an image of value and exclusivity that sells new, more expensive cars.
Ford stopped making the Taurus, taking a hit on overall sales, as it steps up efforts to pare sales to rental fleets.
"The consumer will soon learn that we're doing a much better job," Cisco Codina, Ford's group vice president of North American marketing, sales and service, said in a recent interview.
He said Ford has made strides in increasing the resale value of new models such as the Ford Fusion sedan, Expedition SUV, and new Edge crossover, as well as the Lincoln Navigator SUV and MKX crossover.
Buy or lease, it matters
Just a few years ago, consumers paid little attention to resale values. The stat was mostly used by dealers to set lease rates. But American cars began diminishing in value more quickly than their Asian and European competitors after the Detroit automaker flooded the market with incentives after Sept. 11, 2001.
Metro Detroiters overwhelmingly lease their vehicles, rather than buy them because of employee discounts. So the depreciation issue is less prevalent locally. But in other markets, especially on the East and West coasts, more people buy and as a result weigh resale values when picking their wheels.
"Consumers owning domestic vehicles came to trade their car in thinking they had an asset and it turned out they had negative equity," said James Clark, Automotive Lease Guide consulting director.
Rosario Criscuolo, president of Spartan Toyota in Lansing, said Toyota's strong resale values allow dealers to offer attractive lease rates (that's because the higher the resale value, the more you can lower the leasing price because the vehicle doesn't depreciate as rapidly).
"Resale values are key for us," Criscuolo said. "It makes our leases inexpensive."
Back in Brewster, N.Y., Mathews says her Jeep experience made resale value a serious consideration when she shops for a car or truck.
Reliability is still the major factor, but no longer the only one.
"It's not the main thing," she said of resale value. "But it's important."