ALG Is Trimming Residuals for SUVs and Pickups

Anticipating higher gasoline prices in the future, ALG Inc. is trimming residual values for less fuel efficient vehicle segments such as full-sized SUVs and pickups. ALG assumes that three years from now gasoline prices will only be slightly higher than they are now. Also, the net effect at dealerships of the lower residuals could be to make leasing a little less attractive for most SUVs and bigger trucks.

A lower residual value means either lease customers have to finance a bigger amount or auto lenders have to spend that much more on incentives to keep monthly payments low. Furthermore large used pickups and SUVs are relatively scarce right now compared with historical volumes.

ALG’s latest analysis revealed that for every $1 that gasoline price increase, residual values for full-sized pickups and SUVs should drop 10%.

At the same time, residuals for compact cars should rise about 10%. That’s isolating gas prices as a single factor, without taking relative scarcity or abundance of  different vehicle segments into account.

ALG predicts that three years from now, gasoline will cost around $4 a gallon. On average that's not much higher than today's prices, and many areas are already paying $4 or more. According to the AAA Fuel Gauge Report, the national average for regular unleaded was about $3.68 on Tuesday, July 19. That's 96 cents higher than a year ago, but down from a recent peak of about $3.95 in May, Autonews reports.