The ubiquitous presence of technology now required to meet rising customer expectations for vehicle build quality and performance is reshaping the new-car landscape.
According to the latest vehicle configuration tracking data from J.D. Power, the lines between mass-market and premium segments have blurred. Beyond MSRP, little in the way of features is distinguishing, for example, Hondas from Acuras or Chevys from Cadillacs.
As a result, vehicle buyers are re-evaluating what they deem to be essential attributes for their next purchase. It is a decision-making process that has taken on more urgency as consumers face an uncertain economy while new-and used-vehicle prices continue transacting near historic highs.
Shoppers consequently are being more careful with their financial resources. If a mass-market vehicle has most – if not all – of the bells and whistles found on a premium model, they are taking a hard look at whether the price difference is worth it. Just how much is brand cachet worth?
Many shoppers also are looking down the line to when they return current purchases to the aftermarket. Consequently, residual vehicle valuations are becoming more critical than ever.
Beyond potential car buyers, OEMs and dealers need to understand value retention factors to carefully determine the feature sets that should be included in mass-market and premium assets. It is the only way they can anticipate how new vehicles sold today will perform when they return for resale.
Under the Hood of Residual Values
Automotive residual values are determined through a rigorous analysis of key future market expectations along with individual vehicle features and attributes as they relate to their competitive sets:
- Market Outlook – Assessing forecasted retail sales performance expectations.
- Competitive Outlook – Examining how vehicles are expected to perform in their competitive sets as it relates to retail sales and incentive spending.
- Historic Performance – Studying how vehicles have performed over time in terms of retail sales, leasing performance, incentive spending and used pricing performance.
- New Vehicle Changes – Looing at the impact of features and attributes of new models along with retail sales and future incentive expectations.
- ALG Demand Analysis – Examining data for brands and models used to determine overall competitiveness, details of the studied model including content and performance, and analysis to determine future competitiveness.
Mass-market brand vehicles are no longer the unglamorous, vanilla workhorses of the industry. The entry of new mass-market players during the past few decades has introduced new competition and upped the ante for automakers seeking continued relevance in today's revitalized market.
Companies such as Hyundai and Kia have disrupted the mass market, over-achieving expectations of customers and largely displacing former residual-value leaders such as Honda and Toyota. These newer players have made a habit of rolling out the latest technologies and features with every vehicle refresh, setting new precedents that have elevated the requirements of the entire mass-market category. In doing so, vehicles like these are closing the gap with premium brands. Hyundai and Kia, which are linked by related ownership in South Korea have also excelled with their telematics systems, in contrast to more established brands like Ford, Chevy and Honda, which have under-achieved and under-performed, compared with the Korean brands, in telematics.
For mass-market brands, the opportunity is clear. The more they can make shoppers – as well as dealerships and leasing companies – question the ROI of vehicles with higher sticker price, the better their chances are of gaining market share. This dynamic could be the ticket to topline growth in today's low-volume, high-priced market.
This can only be seen as a shot across the bow of premium vehicle manufacturers. Leaders in this segment must consider rededicating their efforts to bolster their brand image and re-establish differentiation from mass-market competition.
David Paris (pictured, above left) is director of Market Insights and Valuation Services at J.D. Power.