Compact cars hold value

BREE FOWLER
Toronto Star
Jul 29, 2008

NEW YORK–Compact cars such as the Honda Fit and Chevrolet Aveo are now expected to retain more of their value than trucks and sport utility vehicles once prized for the resale demand, according to a car value tracking firm.

Automotive Lease Guide Inc., which provides residual value forecasts, attributed the reversal to soaring gas prices and a weak economy that have steered consumers away from gas-guzzling SUVs and trucks and toward more fuel efficient cars.

"If you look at it from a dollars and cents perspective, it's just going to be really expensive to drive a car that's not fuel efficient and that is going to effect the values of those cars,'' John Blair, ALG's chief executive, said Monday.

Residual value forecasts for compact cars with high fuel efficiency, including hybrids, rose an average of 5 percentage points, while the outlook for full-size pickups and full-size and midsize SUVs fell an average of 8 points, ALG said.

The company now expects the Fit to retain an average of 56 per cent of its manufacturer's suggested retail price after three years, up 10 percentage points from 2007. The Aveo's expected value jumped 9.3 percentage points to 42.8 per cent.

At the same time, ALG cut the projected average value of the Ford Expedition SUV by 12.2 percentage points to 32.4 per cent, while the residual value of the Chevrolet Suburban fell 9.5 percentage points to 29.7 per cent.

That means the buyer of a 2008 Expedition XLT, with a base MSRP of $31,345, could expect to sell it for about $10,156 after three years, a drop of more than $3,800 from the previous forecast.

Lower used car values also mean higher leasing costs for automakers and consumers. Chrysler LLC said last week that its financial arm is getting out of the leasing business, in part because it is losing money when it tries to sell the vehicles drivers return at the end of their leases.

Ford Motor Co. said its credit arm took a $2.1 billion charge during the second quarter because of the drop in the residual value of leased vehicles, mainly trucks and SUVs.

Wholesale prices of used trucks and SUVs have dropped significantly in recent months, according to data released Wednesday by the National Automobile Dealers Association's Used Car Guide.

Prices of used pickup trucks tumbled 11.2 per cent during the second quarter, while prices of used SUVs fell 9.6 per cent, the group said.

At the same time, prices of passenger cars rose 3.5 per cent, boosted by strong demand for compact and midsize models, the NADA said. All of the NADA data refers to vehicles between one and five years old.

The NADA also attributed the changes to rising fuel costs, saying that for every $1 increase in the cost of a gallon of gas, large pickups decline in value by an average of $2,200, while resale prices of compact cars rise by an estimated $980.

The group added that the effects of high gas prices have become a long-term depreciation trend, and as a result, it is making ``fairly aggressive" devaluations of trucks and SUVs through the end of the year.