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SUV Residuals Drop 10% While Incentive War Grows Fiercer

July 23, 2001

Average residual percentages have slid to 40 percent of MSRP sticker prices on used SUVs, from 50 percent on 36-month leases one year ago, according to industry reports.

This loss of residual values is driving up lease payments in the largest off-lease model year ever. Ford Explorer lease payments, for instance, are up $80 per month, according to reports.

Ford had added incentives on its top-selling 2002-model Explorer, in part to combat persistent headlines on the controversial Firestone tire recall.

Though incentives helped Explorer set United Statesm sales record of 42,833 in June, Ford's added July rebates are causing its rivals to fire back with incentives of their own -- one again ratcheting up the seemingly endless -- and for the manufacturers, increasingly expensive -- incentives battle.

Adding to the cutthroat competitive atmosphere in the SUV arena is that fact that the number of SUV nameplates has risen to 56 from 31 brands this juar year, vs. 45 from 24 brands in 2000.

Automaker profits are taking major hits with falling residual values spawning losses on off-lease units -- especially when added to the tidal wave of incentives that none of the Big 3 American manufacturers seems willing to curtail.

Ford's United States dealers are complaining of glut of leftover 2001 and even some 2000 Explorers, while 2002 Explorers roll in, according to industry reports.

Subsidized loans this month on 2002 Explorers hit a whopping 90 percent of transactions, already double the incentives level in April, Explorer's launch month.

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