Remember that whole 'bankruptcy will kill GM and Chrysler residuals?' Not so much.
Back in late 2008, auto executives from General Motors and Chrysler warned of dire consequences in the event that one of their companies was forced into bankruptcy proceedings. With the help of the federal government, little of that doom and gloom materialized, at least when it comes to used car residuals.
Back in May, Automotive Lease Guide used impending bankruptcy as reason to slash the 36 month residuals of all Chrysler-branded products by a substantial 6% off the original retail price. That dropped the residual value of a Chrysler vehicle to an average of 28.8%, while Dodge and Jeep were at 31.3% and 32.5%, respectively.
Just one month later, with Chrysler's bankruptcy in the rearview mirror, and residuals are nearly back at April levels. Chrysler has climbed nearly four points to 32.5%, Dodge is at 34.8%, and Jeep is now at 37.4%. ALM admits that bankruptcy didn't effect residual values like the company thought it would, and as a result, resale values for GM-branded vehicles won't be downwardly adjusted.
Kelly Blue Book reportedly told Automotive News that some of the bounce-back in residuals is due to the fact that relatively low gas prices are making used trucks and SUVs a bit more appealing to customers. With new car sales in the tank, we suspect used vehicles have been in higher demand as well, helping to boost up residuals.
[Source: Automotive News, sub. req'd]
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Reader Comments (Page 1 of 2)
AZZO45b 2:40PM (7/14/2009)
Chrysler residuals already sucked (despite your numbers...) before the bankruptcy
I also heard people saying the auto SUPPLIERS would drop like flies after GM or Chrysler entered bankruptcy... & that is RIGHT ON SCHEDULE!!!
BTW, those auto suppliers also supply the "transplants" but having two big companies fail to pay them was just too much.
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tuxchown 2:46PM (7/14/2009)
I am not certain what you are getting at but those suppliers do exist. I have worked for some of them.
AZZO45b 7:47PM (7/14/2009)
They exist for now tux... & many told Congress that GM or Chrysler going into bankruptcy would probably cause them to follow... most of the congressman just picked their noses & drooled!
As for residuals... how bad can they drop when the selling price was at "fire sale" levels? A year ago my local Chrsyler dealers had 05 & 06 model year Pacificas that were NOT used!!! My neighbor is a contractor & bought a 2008 RAM truck for an Godly 15-16K off its sticker. Sadly I could go on & on...
jinushaun 2:46PM (7/14/2009)
Surgical bankruptcies for the win! All those doom and gloomers were just afraid of making the necessary changes/cuts to create a more competitive GM/Chrysler.
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tuxchown 2:57PM (7/14/2009)
I have doubts it would have gone so well if it hadn't happened the way it did. Not only that, but we still are far from out of the woods with this economy.
Matt 3:05PM (7/14/2009)
Nailed it jinushaun...nailed it.
C11 only helped them. It wiped a TON of debt, allowed those blood-sucking UAW contracts to be broken, and gave them a new lease on life.
And the sooner Ford files, the better they will be as well...unless they like having debt levels four times their income...
Nellydesign 3:37PM (7/14/2009)
Yeah and C11 didn't hurt their market share at all... oh wait...
UCJR 3:52PM (7/14/2009)
@Nellydesign
Market share doesn't mean jack if you aren't making a profit. The 'New GM' has drastically lowered their market break-even point, which means that while they will be selling a lower percentage of the market, they will ultimately be much more profitable because of internal changes than before.
BoxerFanatic 4:37PM (7/14/2009)
And how much has it cost the taxpayers for all of this?
Yay, we get to pay taxes for all that...
merlot066 4:45PM (7/14/2009)
Matt, how soon you forget. Don't you remember back in April when Ford cut it's debt by $9.9 Billion (or 38%) because they did in case you forgot (which I guess you did).
Mr.Oak 2:41AM (7/15/2009)
jinushaun: I love it, there is a pattern forming here. The "Business Analysts" try to scare the be-jesus out of the public. The doom & gloom picture they tried to sell to the public, blew up in their faces.
How refreshing, the SMART guys/gals actually work for the government, and the idiots are corralled in lower Manhattan.
Get used to this. Thus far, everything they said that BO administration would fail at, has ended with a win for the President and his crew.
Torrent 2:52PM (7/14/2009)
Autoblog HAS to have the best captions ever.
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Tourian 4:34PM (7/14/2009)
Best as in only? I visit quite a few automotive sites and this is the only one that uses this type of "humor" at all.
compy386 3:08PM (7/14/2009)
You have the logic wrong here. People anticipate that GM and Chrysler will go bankruptcy way before they actually did. That’s what tanks residuals. It’s anticipation (right or wrong) of a future event. It turns out the event was not as bad as people thought so they’ve recovered, but that didn’t mean that bankruptcy didn’t affect GM and Chrysler’s residuals. What you need to do is see how GM and Chrysler’s residuals change month over month for the past 6 months versus say Ford or Toyota. That will tell you the effect of bankruptcy on GM and Chrysler residuals.
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mutantchimp 3:13PM (7/14/2009)
I think value of the car and production numbers is what effects residuals. I think the residuals on solstice, g8, and vette are fairly good. Sebring.. not so much.
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Kimura 3:25PM (7/14/2009)
Oh look at that. Analysts don't know as much as they think they do.
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Big Mola 3:38PM (7/14/2009)
Exactly what I was thinking. These 'experts' and their cronies in the financing/investing sector sure know their stuff.
elprogramer 3:33PM (7/14/2009)
Erm, the government backed and guided this bankruptcy the entire way, propping up suppliers and the auto manufacturers. Without government intervention, liquidation would have happened, make no mistake about it. It costs a lot of money to buy steel, parts, and paint to make a car.
What basically happened is that the government, General Motors, and Chrysler exploited the bankruptcy laws in the United States to opt out of old contracts with dealerships, suppliers, advertisers, unions, and local governments.
The whole thing has been nothing short of genius, at least in General Motors' case; the initial furor over the ordeal is giving way to the summer urges (and practical applications as older cars need replacement) of Camaros and Malibus.
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jpm100 4:25PM (7/14/2009)
This was one of the most softly executed bankrutpcies in history will a bunch of infused cash. It was also drawn out publicly before it was actually even firmly decided desensitizing the public.
This doesn't compare to an unfinanced abrupt bankruptcy which is what the early predictions were based upon.
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MM 5:51PM (7/14/2009)
The reality is residuals are high because there are still a large number of people who need cars. They are those who have become use to the low lease payments of their GM or Chrysler vehicle and are now having to turn in their cars/ trucks for new ones, the problem is the factories aren't producing cars and dealers are spending large dollars to fill the empty lots with used vehicles. Dealers are spending retail money at the wholesale auctions. Then after fees, cleanup and markup, the vehicles are $4K- $5K more than loan value and thereby making more expensive and harder for people to purchase. This creates less trades, less vehicles going into the wholesale channel, and a percieved shortage thereby making the price of used even higher.
If you can wait to buy a car, do it you'll save thousands in a few months.
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