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.