Bankruptcy rumors hurt residual values for GM and Chrysler

The GM brand with the worst residual values is Saab, followed by Saturn and Hummer

The GM brand with the worst residual values is Saab, followed by Saturn and Hummer

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General Motors and Chrysler just can’t seem to get a break. Not only are they dealing with one of the worst market slumps to hit the auto industry in decades, fears of bankruptcy are turning away potential customers in droves and now those same fears are also sending residual values of their vehicles plummeting.

Residual value refers to the value of a car after a certain, specified period of use. The value is calculated as a percentage of the car's original price and it’s these percentage figures that have been dropping sharply for GM and Chrysler, reports the Detroit Free Press.

In fact, three of GM's brands have suffered an average 9% drop in residual values over the past year, with some GM brands hitting the lower 30th percentiles after a standard three years or 36,000 mile period. Usually, a good residual value sits at around the 50% mark and brands such as Volkswagen, BMW and Honda boast figures close to this rate. Brands from GM, on the other hand, such as Hummer, Saab and Saturn, are all flailing in terms of residual value, with the worst struck Saab brand commanding less than a third of the sticker price of their cars after just three years or 36,000 miles of use.

Chrysler and Jeep both saw their residuals drop by around 7% points, dipping below the 40% mark. Due to the current credit crunch, industry residuals fell by 5% overall, a figure that Ford managed to keep pace with but that its Detroit counterparts are struggling to match.

The gaps in residual value have a large impact on car buying - if a Saab model is going to be worth a third of its value in three years, while a similarly priced Honda is going to be worth 50% of its value, consumers are much less likely to go for the Saab.
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Comments (2)
  1. GM and chrysler have been artificially inflating their residuals (when it comes to leasing) for years. I remember my mechanic showing me his lease agreement where they presumed that his silverado would be worth 67% of its MSRP after 3 years.. thus making his fully loaded silverado lease out at about $175.

    theyve been getting asses behind the wheels for years by playing this game. ford started doing that at one point but it floods the used market with hugely overpriced vehicles that the OEM has to mark down at a loss anyways.

    at least theyre correcting this now.

  2. I have heard so many people who were thinking about a Camaro now saying they won't touch it until the mess is over with GM. Worst case scenario they fear that should the company go completely under (unlikely) there will be no more dealers to provide service, and no more spare parts after a few years.
    I tell them that unless they buy the Camaro they are lusting after, then the worst case scenario might just happen...

    In my opinion, what a car is worth in 3 years isn't that important, it's what it's worth to you, and what it's worth to buyers 8-10 years from now, which is how long you should keep a car to not lose money on the whole process.

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