ALG checks public perception with automotive residual value ratings

From shows like the pic at Edsel Ford grounds to hot rod events like the Detroit Autorama’s Ridler Award, to the Concours d’Elegance and the Motor Trend Car of the Year, each award is sought by manufacturers and car builders everywhere as a prize to be placed on the promotional mantel. Every award has its own persona, though, and keys into a select group of factors.

According to ALG which publishes the "Automotive Lease Guide" - the standard for Residual Value projections in North America, residual value is one of the best metrics for evaluating the overall strength of an automotive brand,

The group has been forecasting automotive residual values for over 50 years in both the U.S. and Canadian markets. Based in Santa Barbara, California, ALG is a leading provider of data and consulting services to the automotive industry; and is trusted by the credit agencies who provide your automotive financing.

The annual ALG awards focus on residual value forecasts, and include vehicle quality, production levels relative to demand, and pricing. These factors are the basis for marketing strategies, because residual value forecasts project how much your car investment will be retained.

For the record, depreciation is the most expensive cost aspect for a new or nearly new vehicle. So, the ALG Residual Awards are like the Good Housekeeping Seal of Approval or Michelin Guide ratings for consumers as well as the automotive industry. They reflect 19 vehicle categories and also the two brands with the highest overall predicted residual values among all mainstream and all luxury vehicles.

By ALG’s own definition, “residual value is the dollar amount a specific vehicle will be worth at the end of a lease.” Few appreciate this is analogous to depreciation value, and worthy of attention. It is the reason one car of the same category will carry a higher monthly lease rate than another.

For example, the most common lease term is a three-year period. That is a sufficient gage to determine value, as most cars lose the bulk of their value in those years. A vehicle with a high residual value will have a low depreciation rate based on a forward-looking calculation; and, therefore, will be worth more money when you go to trade it in at a dealership or sell it to a private party. It should not be confused with resale value which is based on historical activity.

How the public perceives a brand, though, can have a huge effect on its sales. For example, few people realized that the Buick Rendezvous was built on the same platform as the Pontiac Aztec. This can in part be attributed to the Buick brand and the public perception that the Buick division of GM made higher quality, low-maintenance vehicles than its sister division, Pontiac. The same occurs between companies.

The mother of all factors is obviously price, which attempts to predefine value. If a manufacturer prices a new vehicle too high relative to public perception, though, they will be forced to offer those ‘manufacturer incentives’ we all hear about on TV, radio and the newspapers. While this may help a brand move vehicles in the short run, it negatively impacts residual values in the long run, because over time it lowers the perceived quality of the brand.

It’s akin to a company making a secondary offering on their stock; it cheapens the value of those already owned.

How a brand manages its vehicle lineup also factors into residual value. Some manufacturers are adept at continually refreshing their vehicles year after year. This type of vehicle revitalization generates a public buzz and keeps vehicle content and appearance in line with consumer trends. This strategy helps to boost residual values.

Other cost factors like taxes and fees, insurance premiums, fuel costs, maintenance costs, repairs and interest on financing are important, but may be overcome if public perception deems it otherwise.

For your perusal, ALG provides depreciation information on their website at ALG.com/DepreciationRatings.