SANTA BARBARA, Calif., July 28, 2008 (PRIME NEWSWIRE) -- Automotive Lease Guide (alg), Inc., a leading provider of residual value forecasts and consulting services to the automotive industry, today announced a significant repositioning of its residual value forecasts. The repositioning is in response to the sharp increase in fuel costs over the past five months, which has spurred consumers to flee vehicle segments with poor fuel economy, such as SUVs and full-size pickups, and to seek more fuel-efficient options.
ALG has been gradually lowering residual values on pickups and SUVs for several years, as more alternatives such as crossovers have entered the market and as gasoline prices have increased. However, ALG believes that the rise in gas prices from approximately $3 per gallon to over $4 per gallon between February and June of this year, amplified by the challenging economic conditions and credit crisis, has caused a structural break in consumer demand for vehicles with low fuel economy.
The new demand dynamics in the industry have had a dramatic effect on vehicle sales and prices, and ALG has repositioned its residual values to reflect this new paradigm. John Blair, chief executive officer of ALG, said, "The auto industry has experienced a shift that will have a significant impact on long-term used vehicle price trends. We are confident that implementing this residual value adjustment better reflects the future demand conditions in the used car market."
ALG has increased residual values on compact cars (including hybrids) with high fuel economy an average of five percentage points compared to forecasts made during 2007. Conversely, residual values for full-size pickup trucks, full-size SUVs and mid-size SUVs have all been shifted downward an average of eight percentage points versus last year. The residual repositioning will have a significant impact on the cost of leasing. In the compact segment, for example, if a $15,000 vehicle that had a 36-month residual value of 45% a year ago is now expected to retain 50% of its value after three years, monthly lease payments would be approximately $20 lower, all else being equal. For a full-size SUV with a $42,000 sticker price and an 8.5 percentage point decline in its residual value, monthly lease payments would rise approximately $100, all else being equal. Changes in manufacturer cash incentives and/or finance support often materially affect actual lease terms.
The following tables illustrate the changes in residual values for selected compact and full-size SUV models:
CHANGE IN 36-MONTH RESIDUAL VALUES
(As a percent of MSRP)
Model YOY
Average 2007 2008 Change
Honda Fit 46.0 56.0 10.0
Chevrolet 33.5 42.8 9.3
Aveo
Hyundai 33.3 41.8 8.5
Accent
Kia Rio 32.3 39.2 7.0
Toyota Yaris 43.7 50.3 6.6
Suzuki SX4 39.5 45.3 5.8
Nissan Versa 43.3 48.4 5.1
Model YOY
Average 2007 2008 Change
Ford 44.6 32.4 -12.2
Expedition
Chevrolet 42.2 31.8 -10.4
Tahoe
Chevrolet 39.2 29.7 -9.5
Suburban
GMC Yukon Xl 40.0 31.3 -8.6
GMC Yukon 42.7 34.2 -8.5
Chevrolet 45.5 38.5 -7.0
Avalanche
Toyota Sequoia 44.6 38.3 -6.3
Nissan Armada 44.9 39.1 -5.8
Although automakers are adjusting their production to reflect the changes in demand, ALG believes it will be a challenging transition to this new environment, especially if gas prices continue to rise.
Blair said, "The sea change in consumer sentiment away from gas-guzzling vehicles will continue to drive down used vehicle prices in the truck and SUV segments. When economic conditions improve, we expect a more stable environment, but we would not expect used vehicle prices to return to 2007 levels unless gas prices drop to sub-$3.00 levels for at least a year."
About ALG (www.alg.com)
Based in Santa Barbara, California, Automotive Lease Guide (ALG) is a leading provider of data and consulting services to the automotive industry. ALG publishes the "Automotive Lease Guide" -- the standard for Residual Value projections in North America, and has been forecasting automotive residual values for over 37 years in both the U.S. and Canadian markets. ALG is a company of DealerTrack Holdings, Inc. (Nasdaq:TRAK).
Safe Harbor for Forward-Looking and Cautionary Statements
Certain statements in this press release regarding changes in residual values, the impact of these changes on lease prices, and shift to more fuel efficient vehicles and all other statements in this release other than the recitation of historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve a number of risks, uncertainties and other factors that could cause actual results, performance or achievements of DealerTrack Holdings, Inc. to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.
Factors that might cause such a difference include: the price of gasoline, the state of the U.S. economy, consumer preferences as to vehicles and other risks listed in our reports filed with the SEC, including DealerTrack's Annual Report on Form 10-K for the year ended December 31, 2007. These filings can be found at www.dealertrack.com and the SEC's website at www.sec.gov. Forward-looking statements included herein speak only as of the date hereof and we disclaim any obligation to revise or update
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