Life in limbo is costing GM and Chrysler.
New numbers show the residual values of GM and Chrysler cars have taken a hit. Meanwhile, another survey of car buyers shows a sizable drop in the percentage of buyers who are considering buying a GM or Chrysler. In other words, as we wait to see if these two auto makers can avert bankruptcy some buyers would rather pass on plunking down thousands with either of the troubled companies.
CNW marketing surveyed 40,000 people in the market for a new vehicle the first two months of this year. It found if those people actually bought a new car or truck, GM and Chrysler would lose market share. In essence, the number of people who say they are willing to consider a product from those two auto makers is lower than the actual market share for both companies. Yes, I know some of your are reading this and saying, "Of course fewer people are interested in driving GM and Chrysler since those guys would be bankrupt were it not for billions in government aid."
Perhaps even more troubling is the impact life on the edge of bankruptcy has had on the residual values of GM and Chrysler vehicles. As Tom Walsh of the Detroit Free Press first pointed out Thursday, it's quite good if a three year old vehicle with 36,000 miles is worth 50% its initial as-new price. If it is worth only 40%, that's worrisome.
According to the Automotive Lease Guide, residual values of GM and Chrysler are down compared to March of last year. Two Chrysler brands in particular (Chrysler and Jeep) have values that dropped 7% to under 40%. By comparison, the average Honda residual value is unchanged at 52.7%. Ford, which is not taking Federal aid, has also seen residual values drop roughly 5%, in line with the industry average.
Residual values are incredibly important because they have a huge impact on sales.
Think of it this way: if you are looking for a new car that you know you will sell or trade-in 3, 4, or 5 years down the road, would you want to buy one where the value will be 40% or 50%? It's not a hard choice.
These numbers show that the constant chatter about whether or not GM and Chrysler should restructure in bankruptcy, is hurting both auto makers. People are re-assessing if one of their vehicles is a good investment.
All the more reason both companies need clarity as soon as possible on what Washington will, or will not do for them.
- Plus: Fiat Says It Won't Assume Chrysler Debt in Deal
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