The residual, of course, is the predicted value of a vehicle when the leasing contract ends two, three, or four years down the road. Lease payments are based on the difference between the sale price and the predicted or residual value. In essence, someone who leases is renting the car for a monthly payment based on the difference between the selling price and the residual, with interest-rate charges and fees also included.
The point is, higher residuals make for lower monthly lease payments, which further drive the new vehicle market. No one is able to predict whether leasing will return to “a massive” 42.4 per cent of the total vehicle market as was the case in 2007. On the other hand, the leasing market today is three times what it was in the depths of the last economic downturn in 2009 (7.1 per cent).
A return to high levels of leasing will change the sales mix of both new and used vehicles. Leasing enables consumers to get more vehicle for the same monthly payment they would make on a fully purchased vehicle. Lower monthly payments bring more buyers into the new vehicle market, too. And leasing accelerates the “churn” or turnover in new vehicle sales. Meanwhile, a larger supply of off-lease and off-fleet used vehicles makes for a more complete used vehicle market.
2. Fuel economy
The car companies as a group are serious about dramatically improving fuel economy in virtually every vehicle they sell. How? With a range of technologies and design refinements.
Let’s start with CVTs or continuously variable transmissions. Nissan Motor has been an industry leader in pushing CVTs as one way to improve fuel economy. The gearless transmission is efficient, but gearheads are unimpressed. Automotive News calls this the “sneer factor.”
Citing figures from IHS Automotive, the industry publication says CVTs accounted for just 1 per cent of the North American market in 2005, but by 2010 CVTs accounted for 7 per cent of all transmissions. IHS expects CVT penetration will soar to 16 per cent of vehicles sold in North America in 2015, notes Automotive News.
No wonder the redesigned Honda Accord will come with a CVT this fall. Rumour has it Toyota will put a CVT in its redesigned Corolla compact next year, too. They will be joined by others already in the market, such as Subaru’s Legacy and Impreza. The company says CVT transmissions have been essential to the Impreza’s 36 per cent fuel economy improvement.
Then there’s weight loss as a fuel efficiency driver. The 2013 Nissan Pathfinder is being stripped of more than 200 kg compared to the SUV it replaces, going from a truck-like frame to unit-body or car-like construction. Nissan says that will help boost fuel economy by as much as 30 per cent.
Finally, engines. They keep getting smaller and smaller and more fuel efficient, yet with direct fuel injection and turbocharging buyers are losing on the power front. The new Fusion, for instance, will have only a four-cylinder lineup, though it will be a comprehensive one.
3. Managing the gizmo parade
As The New York Times recently noted, buying a car these days is a lot like buying a gadget. Even budget rides can be had with navigation system, satellite radio, Bluetooth interface, voice activation and no end of infotainment options, including state-of-the-art surround sound.
Ford Motor has been among the leaders here. The company says its SYNC voice-activated in-car connectivity system, introduced in 2007, is now installed in more than 500,000 Ford vehicles in Canada. SYNC includes voice-activated phone dialling, contact synchronization, MP3-player integration, Bluetooth audio streaming and turn-by-turn audio directions.
Ford says its own research has found that customers who bought 2011 models of Ford vehicles treat SYNC as a must-have technology and purchased the system 82 per cent of the time. Also, more than 80 per cent of SYNC users said they are likely to recommend the system to others. SYNC has grown to include SYNC with MyFord Touch (introduced in 2010) and while Ford has been criticized for creating an overly complicated system, it’s here to stay – with refinements, of course.