An important measure of a good deal is residual value – what a new vehicle is worth down the road in two, three or four years. And while car companies follow various strategies and then implement tactics designed to keep their residuals as high as possible, some factors are out of their hands.
Wage growth is one of them, notes ALG, a firm that provides residual value projections used by leasing companies. The higher the residual, the lower the monthly leasing payment, so ALG’s residual predictions have a significant impact in the market.
So what about wages and how do they affect the resale value of vehicles?
“More money in consumers’ pockets leads to increased residual values, as the demand for all vehicles increases,” ALG said in a recent analysts note. “Conversely, when wages are declining, residual values can be negatively impacted as would-be buyers hold on to existing vehicles for longer.”
But you shouldn’t be worried about a precipitous drop in residuals based on wage trends, according to ALG.
“Despite the most turbulent economic times in recent history, wages in Canada have held up remarkably well,” says ALG. “Weekly earnings (including overtime), as measured by the Canadian Statistics Department, have not declined on an annual basis in any year, despite the recession.”
ALG notes that average wages have risen steadily over the past three years – the average Canadian wage hit $872 a week in 2011 – and ALG expects wages to keep rising on average about 1.8 per cent a year over the next six years.
ALG’s model for predicting residuals also takes into account a bunch of other factors, including home and gasoline prices, as well as consumer confidence. The forecaster expects consumer confidence to remain steady, while gas prices should rise slowly over the next five years, reaching an average of $1.44 per litre by 2017. And ALG expects home prices to rise by about 1.9 per cent a year.
If you’re shopping for a vehicle with an eye to residual values, ALG believes rising gas prices bring down the average 48-month residual by 0.9 per cent – although the average does not tell the whole story. Small cars, fuel efficient cars, get a boost in value from rising gas prices (1.3 per cent), while gas-guzzling SUVs and pickups decline in value by about four per cent, says ALG.
Meanwhile, rising home prices “boost the wealth of most consumers, and consequently have a positive impact on residuals,” says ALG, adding that over a 48-month period rising home values will boost residuals by between 0.3 per cent and 1.3 per cent.
Deals of the Week finds this sort of “think-tank” stuff pretty interesting and potentially useful for buyers looking to maximize a deal. ALG’s residual projections certainly matter for anyone leasing a new ride, or for the buyer planning to sell in a few years.
Take the 2012 Toyota Yaris subcompact. ALG expects the Yaris to be worth 53 per cent of its original price in two years, which is identical to what ALG expects the overall Toyota vehicle average to be – but notably below the subcompact average of 56 per cent after two years.
For the record, ALG expects the Yaris to hold 45 per cent of its value after 36 months, 37 per cent after 48 months and 31 per cent after 60 months. The subcompact average is 47 per cent after 36 months, 38 per cent after 48 months and 31 per cent after 60 months.
Despite what Toyota refers to as the Yaris’s “epic” reliability, ALG points out that it “does not stand out among a quickly growing array of strong products” in the subcompact segment. And Toyota Canada is not spending much to make the 2012 Yaris a particularly great deal, either. New graduates should qualify for a $500 factory-to-customer rebate and Toyota is offering a 0.9 per cent rate if you finance or lease for 36 months. That’s about it.
A better deal on a subcompact can be had on the Hyundai Accent. Hyundai Canada has in play a $1,600 factory-to-dealer sales sweetener. This offer can be stacked or combined with a 2.8 per cent finance rate for up to 96 months.
Here’s a look at three other appealing offers, too. As usual, Deals of the Week obtained pricing information from www.carcostcanada.com, among other sources. Consult your dealer for all the details.
2012 Hyundai Accent L auto hatchback
- MSRP: $14,799
- Freight, dealer prep, air conditioning tax: $1,495
- Dealer discount (estimated): $350
- Factory discount: $1,600 (dealer cash factory-to-dealer rebate)
- Taxable subtotal: $14,344
- Total price with 13 per cent HST: $16,208.72
- Can be combined with 2.8 per cent smart finance rate for up to 96 months
2012 Jeep Patriot Sport FWD
- MSRP: $17,995
- Freight, dealer prep and air conditioning tax: $1,695
- Dealer discount (estimated): $425
- Factory discount: $1,750 (consumer cash factory-to-dealer rebate)
- Taxable subtotal: $17,515
- Total price with 13 per cent HST: $19,791.95
- Can be combined with 3.99 per cent financing for up to 60 months
2012 Nissan Titan Crew Cab S SWB
- MSRP: $39,898
- Freight, dealer prep, AC tax: $1,830
- Dealer discount (estimated): $1,500
- Factory discount: $6,500 (stackable trading dollars factory-to-dealer rebate)
- Taxable subtotal: $33,728
- Total price with 13 per cent HST: $38,112.64
- Can be combined with 0.0 per cent financing for up to five years.
2012 Acura TL Auto SH-AWD
- MSRP: $43,490
- Freight, dealer prep, AC tax: $2,045
- Dealer discount (estimated): $1,400
- Factory discount: $1,000 (trading dollars factory-to-dealer rebate)
- Taxable subtotal: $43,135
- Total price with 13 per cent HST: $27,057.85
- Factory discount: $4,000 (non-stackable trading dollars factory-to-dealer rebate)
- Final price: $44,742.55
Pricing information source: www.carcostcanada.com . Calculations based on Ontario customers. Please note that while the information above is accurate at the time of publication, incentives are given at the discretion of individual dealers, and may be changed or discontinued at any time. Dealer discounts are negotiated with the customer on a case-by-case basis.