Attempting to boost it's position in the price sensitive compact car market, Toyota is cutting it's lease rates on the newly redesigned 2014 Corolla, and boosting the car's residual value.
Considered a gamble in the automotive industry, Toyota is trying to regain it's market share in the competitive segment. The move is not without controversy though. Skeptics are questioning Toyota's new residual values for the Corolla, which have been set significantly higher than in the past. For Toyota's strategy to work, the lease-end value of the Corolla must be much higher than those of it's competition, many of which have produced higher residual values than the Corolla for some time.
By increasing the anticipated value of the Corolla at lease-end, a lower principal is carried on the lease, which reduces monthly payments for the customer. The compact car segment is very price sensitive, and lower lease payments could help Toyota to regain it's position as the king of the compacts. The Corolla wore the crown for nine consecutive years until 2012, when it was overtaken by the Honda Civic. The Civic wasn't a better car, according to critics, but with additional incentives offered by Honda, it became a hit with buyers.
This year, there are almost no incentives being offered with the Civic, but Toyota will offer several as soon as it launches the 2014 Corolla later this month.
Most three-year leases from Toyota Financial Services will be assigned a residual value of 63 percent for a lease of 15,000 miles per year, and 65 percent on the Corolla S. An increase of 2 percent will be added to all trim levels on leases of 12,000 miles per year.
While critics feel that these values are overly optimistic, potentially putting Toyota at risk for losses in three years, Toyota says that they are merely being aggressive and are not taking undue risks. They say that by increasing residuals, brand value is preserved and it will cost them less than by offering lower up front prices.
The risk for Toyota comes when the car is returned after 36 months and put up for auction. If the set residual value is higher than what used car dealers are willing to pay, then Toyota Financial loses on the difference. If the difference is 3 percent, as estimated by critics, then Toyota might lose $600 on a $20,000 car. Since Toyota hopes to sell 330,000 Corollas next year, those losses could add up.
Toyota is predicting that the redesigned 2014 Corolla's new features and design will be more appealing to consumers, increasing long term resale value by several percentage points. When it's rivals were redesigned, they too saw increased residuals. The 2013 Corolla's projected residual value was only 53 percent, while the 2013 Honda Civic was forecasted at 58 percent. The 2012 Corolla model was only estimated at 48 percent.
By Linda Aylesworth - autoExpert.ca