Automotive Lease Guide's Residual Value Winners

by the Editors of MSN Autos

Click here for complete article

Posted February 2, 2005

Don't Ignore a Car's Residual Value
By Stacey L. Bradford
January 28, 2005

FOR MANY PEOPLE, researching a new car entails asking friends how they like their cars, flipping through automotive magazines and searching the Web for competitive prices in your area.

That's a good start, but there's one more stone that shouldn't go unturned: residual value.

Posted 10/8/2004 8:10 AM Updated 10/13/2004 3:16 AM

Driving off the lot: Watch out for the cliff
By James R. Healey, USA TODAY

Car buyers fret over purchase price, interest rates, fuel economy and reliability data, looking for cars and trucks they can afford not only to buy, but also to keep. What they often overlook is the biggest — by far — expense of car ownership: depreciation.

If your car depreciates, or loses value, fast, it's not worth much a few years later when it's time to buy a new one. In fact, you might owe more on your car loan than the car's worth.

Worst of the lot: Pontiac's controversial-looking Aztek. The 2005 model is expected to be worth just 27% of its window-sticker price after three years, according to a report for USA TODAY by Kelley Blue Book, veteran tracker of used car values. Most vehicles are worth close to 50% after three years; the best, more than 60%.

Of course, if you're shopping for a used car, you love finding a good car or truck with bad depreciation. The first owner took the big hit, and you wind up with a nice vehicle, cheap. MORE >>

Even at 0%, 6-year car loan could be bad idea
By James R. Healey, USA TODAY

Posted 9/24/2004 3:03 AM Updated 9/24/2004 3:07 AM

The six-year, 0% loans that Ford Motor and General Motors are offering starting this weekend will put a lot of buyers into cars they didn't think they could afford — and keep them there longer than hey expect.
That's because most vehicles depreciate faster than long-term loans are paid off, even when buyers don't have to pay interest. And because the interest-free loans apply only to 2004 models, at a time when about half the vehicles in stock are 2005 models, buyers are starting the depreciation plunge with year-old cars or trucks.
Typically, a six-year borrower would owe more than the vehicle's worth as a trade-in for about four years, making it tough to buy something new until then.

"It's a shock to the consumer: 'Wait, I've been making payments three years, and now you're telling me I still owe more than the vehicle's worth'?" says Raj Sundaram, president of Automotive Lease Guide, an authoritative arbiter of depreciation.
"You could be stuck in this car a long time. It's a decision you'll live with many years," says Charlie Vogelheim, executive editor of Kelley Blue Book, veteran tracker of used-car values. "Consider whether you're better off taking the rebate and getting your own loan," he adds. "Bring a calculator."
Ford's 0%, 72-month loans can't be combined with other incentives. That could be a big sacrifice. Ford is giving $5,000 rebates on minivans, $4,500 on Explorer sport-utility vehicles, up to $3,500 on F-150 pickups.
GM says long loans can be combined with certain incentives called "bonus cash," but not with other rebates. GM brands not eligible: Cadillac, Saab, Hummer.
Buyers with marginal credit ratings won't qualify for the best rates.
Buyers able to make big down payments or pay cash could benefit from the long loans. "One argument is: Take the money you'd have put down and invest it, and use their money interest-free," says Rob Gentile, director of auto price services for Consumer Reports magazine. Five-year certificates of deposit are paying about 4.5%. Even so, he says, most people shouldn't take the long loans: "You'll still be making payments after the warranty expires, so you could be facing both payments and repair bills."
GM announced first, saying it would offer the 72-month, 0% loans for 72 hours, Tuesday through Thursday. Ford fired back with the same deal, but starting Sunday, hoping to siphon buyers waiting for GM's program to begin.
GM hopes the deal puts a strong finish on September sales. Its share of U.S. new-vehicle sales has slipped to 27.5% this year, from 28% a year ago. Wall Street's auto-industry analysts have fretted about rising GM inventories of unsold leftovers, though GM says that's under control.

LEASE PROFITS SPEEDING AWAY FROM BANKS
Author: AUDREY Y. WILLIAMS, Staff Writer

Can you guess how much a new car leased today will be worth three years from now?

Apparently, a growing number of bankers can't either.

With the auto market already flooded with used cars, banks are having a harder time getting top dollar for leased vehicles they put up for sale after the lease has expired. As a result, a growing number of them are losing money in their auto-leasing operations, as their profits are already being squeezed by rising interest rates, restructuring charges and credit quality issues. MORE >