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CNBC ON DIGG

Residual Values Hold Up Through Bankruptcy

Published: Tuesday, 7 Jul 2009 | 9:46 AM ET

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By: Phil LeBeau

When you have a car company going through the great unknown of bankruptcy, you take the good news when it pops up. For Chrysler, the good news is the way residual values for new Chrysler vehicles are not only holding up, but actually rebounding a bit from when the company first filed for bankruptcy. It is the kind of proof the supports the arguments from the White House and elsewhere that bankruptcy would help, not hurt, Chrysler and GM.

According to Automotive Lease Guide, the residual values for Chrysler vehicles are all up 3.5 - 5 % for July and August compared to May and June.

Specifically, here are the residual values for each brand and how much they have increased:

cnbc.com

Remember, the residual value is what percentage of the sticker price a new vehicle is expected to have in three years. Predictions are based on a number of factors, including the used vehicle market, how big the incentives are for new models currently in showrooms, and of course how the brand itself is doing with new car buyers.

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That last point is one that many thought would sink Chrysler when it filed for bankruptcy.

The fear was prospective buyers would avoid Chrysler, Dodge and Jeep out of fear the parent company wouldn't honor warranties, etc.

President Obama took that fear off the table when he said, "I stand with Chrysler" and pledged the Federal government would honor all warranties. Since then, Chrysler sales have not plunged as many, including me, predicted long ago when we discussed the problem of Chrysler going bankrupt.

While rebounding residual values is encouraging, it doesn't mean Chrysler is out of the woods. It still has a long ways to go to get back on track. But, for the moment, it's clear the worst looks to have passed, and Chrysler vehicles should hold their value compared to their level before bankruptcy.

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