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Automotive Lease Guide Downgrades Projected Residuals for Explorer

by Staff
September 27, 2000
2 min to read


A guide the automotive industry widely uses to set lease terms for new vehicles has downgraded Ford Motor Co.'s Explorer sport/utility vehicle, citing the Firestone tire recall and a saturation of the SUV market as a whole. The Automotive Lease Guide's (ALG) devaluing the Explorer could result in higher monthly lease pay-ments for such vehicles, Burnham Securities Analyst David Healy said. “It's not surprising, given the large numbers of these vehicles coming off lease currently,” he said Tuesday. As those vehicles hit the used-car market, they lessen demand for new SUV leases. In its latest pricing schedule, the California-based ALG set the Explorer's projected residual value -- the amount it's expected to fetch after being leased -- down 6 percent from last year, trimming $1,850 off the price when an Explorer comes off lease. The downgrade continues a general downward trend. Since 1997, the ALG said, residual values have dropped about 15 percent on full-size SUVs, 14 on compact SUVs that include the Explorer. The ALG attributed one-third of the downgrade to the Firestone tire recall and the remaining 4 percent to market saturation. Still, ALG vice president Raj Sundaram said the Explorer's residual value still “compares quite favorably” to the segment average, which dropped 6.5 percent over the past year. Sundaram said at issue is whether Firestone's recall of 6.5 million tires -- most of them sold as standard equipment on Explorers -- could make consumers rethink getting the SUV. “The tire (recall) itself is not the issue. The issue is the perception the public has - should I buy an Explorer in the future?” he said. “All we're saying is there's a probability there may be less value for the Explorer. “Time will tell whether this is accurate or not.'' Meanwhile, Ford said it is delaying 2002 Explorer production at its St. Louis-area assembly plant for three weeks because of lost production time when tires meant for new vehicles there were diverted to be used as replacements in the recall. The Louisville, KY., plant -- the first to build the next-edition Explorer -- will be unaffected and start production late this year, with the SUV still expected to hit showrooms in the first quarter of 2001. The shutdown of plants in Hazelwood, St. Paul, MN., and Edison, NJ, diverted about 100,000 tires to the recall, Ford has said. During the shutdown, Ford lost production of 15,000 Ford Explorers/Mercury Mountaineers and 23,500 Ford Ranger pickups. The National Highway Traffic Safety Administration has said it is investigating 101 deaths and more than 400 injuries over the past decade involving Firestone tires.

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