Impact of Consumer Demand and the Resale Value of Cars and Trucks in the United States in 2008 and 2009.

On December 10, 2008, Automotive Lease Guide (ALG) releases its Automotive Consumer Studies. The report provide insight into vehicle demand in 2009 and how each vehicle brand holds up against each other in terms of resale value and quality score.

Among the highlight of the report are as follows:

VEHICLE DEMAND
Vehicle demand for 2009 is expected to drop significantly, judging by the drop of around 30% for 2008 (until November 2008).

In a recent survey, 64% of respondents intend to purchase a used or new car but the budget for such purchase has fallen.

The recent rise in gas prices have significantly impacted the driving habits of the lowest income group in the country compared to the medium and high income earner.

As much as 70% of respondent feel that the high gas prices have changed their decision on the type of vehicle they decide to purchase.

Concerns about recession, high gas prices, stock price and home prices do impact the respondents decision on their next vehicle purchase plans

VEHICLE RESALE VALUE
In the used vehicle market, only 5% to 10% of the vehicle’s resale value is tied to the actual quality score of the vehicle.

Strong Branding of vehicle is equating to vehicle quality over a long period of time.

Quality of vehicle is based more on perception derived from consumers’ belief, advertisement medium, recommendation from friends and family and consumer perception from recalls made by vehicle manufacturer rather than the actual physical measurement of the vehicle quality.

The Top 20 ALG Perceived Quality Score for vehicle brands are:

1)Toyota 2)Honda 3)Nissan
4)Subaru 5)VW 6)Mazda
7)Saturn 8)Mini 9)Ford Trucks
10)Buick 11)Mitsubishi 12)Chevrolet Trucks
13)Scion 14)GMC 15)Chevrolet Cars
16)Ford Cars 17)Mercury 18)Dodge Trucks
19)Smart 20)Hyundai

Note that the domestic brands occupy the lower rung of the ranking apart from the mostly Korean made vehicles. The report is in line with the current economic outlook. With the Big three automaker still facing resistance for a bailout from the lawmaker, it is impacting the economy and the job market.

The potential fall-out of the Detroit car industry is not because of a lack of automotive ability. General Motors and Ford are very good at producing cars. Both of these cars manufacturers have thriving and profitable overseas operations, manufacturing and marketing cars based on local designs and facilities.

Their problem lies in the North American market especially the cost structure that has evolved with its unions and to make matter worst, the impositions by regulators. The American manufacturers are not competitive in their home market but they are extremely so in Europe and China.

The unknown effect on the US economy of an auto industry bankruptcy is its greatest threat. It is in my opinion, the main reason the big three will get their loans. If the Detroit factories close, there could well be unforeseen consequences. A continued well publicized potential bankruptcy of Detroit carmakers could continue to undermine the US recovery.