No Flash in the Pan, Kia Starts Holding Its Resale Value
Kia (KIMTF.PK) is in demand right now, but historically the Kia brand had only half the value equation right. The part it had right was that Kias were cheaper than the competition, with more standard features. Where it went wrong was, Kias didn't hold their value. Kia quality used to be spotty. It also didn't help that Kia styling was undistinguished.
That's changing for Kia with better quality, and an even higher level of content. Better styling also helps. Automotive Lease Guide, a widely used auto industry benchmark for setting the residual values on leases, has hiked residual values for the Kia brand 7 percentage points this year, while on average the industry only improved about 3 percent, Kia officials said.
The residual value is an estimate of how much a car will be worth at the end of a lease, expressed as a percentage of the sticker price. The most often-quoted residual value is for a 36-month lease, although 48-month leases are also common.
In leasing, the customer in effect borrows the difference between the up-front cost at the beginning of the lease and the estimated residual value at the end. A higher predicted residual value means the customer has to borrow less, which lowers monthly lease payments.
Kia said ALG gave the 2011 Kia Sportage, for instance, an estimated 36-month residual value of 61 percent of suggested retail. Tom Loveless, sales vice president said that's higher than competing models like the Subaru Forester, the Honda CR-V or the Nissan Rogue.
It's also 20 percentage points higher than the outgoing 2010 Kia Sportage, the company said. The 2011 Sportage starts at $18,990, including destination charge. An additional 20 percentage points means the new Sportage is expected to be worth almost $3,800 more after 36 months than if it had the same residual as the old Sportage.
If Kia passes along the entire difference, that could represent more than $100 per month off the monthly payment on a 36-month lease. The new model is arriving in showrooms this month.
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