SUVs’ contracted residual values are much higher than the prices that the used-vehicle marketplace currently commands, meaning lessors could be impacted with multibillion-dollar losses industry-wide. That is according to the latest Retail Automotive Summary from CNW Research.
Nearly 800,000 SUVs are slated to come off-lease this year and similar numbers are projected through 2010.
This could prove to be problematic for lessors. For instance, residual values for SUVs coming off-lease in 2008 were projected at 51 percent of original capitalized cost, taking the average of all potential lease returns. However, assuming there's no further drop in value, CNW indicated the actual prices for the segment are currently only 34 percent of the original value.
“That difference translates into more than $6,100 per unit in missed residual values or $4.88 billion,” said CNW president Art Spinella. In 2009, that figure could rise to $5.24 billion before falling back down to $4.74 billion in 2010.
CNW has noted the segment had steady residuals three or four years ago. However, as the new- and used-vehicle market has recently hit a dramatic downturn, the industry was caught by surprise, Spinella said.
Small businesses that utilize open-end leases could bear the brunt of this value collapse, as well. Essentially, they are responsible for the gap between contracted end-of-term price and actual market value, CNW reported.