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ReprintsKia's rising residuals erase 'leaseproof' image
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Photo credit: BLOOMBERG |
AUSTIN, Texas -- Kia dealers are finding that leases are an easier sell because of improving residual values, the brand's U.S. sales chief says.
"For a long time, we were kind of leaseproof," Tom Loveless, sales vice president for Kia Motors America Inc., said in presentation here last week. "Because of the low residuals, we weren't able to offer a competitive monthly payment."
Higher residuals make for lower monthly payments because the lease customer in effect has to borrow the difference between the transaction price and the residual value.
Kia's lease penetration has increased from 6 percent in 2010 to 15 percent through September of this year. That's still below last month's industry average of 21 percent, according to AutoObserver.com.
Kia's strategy for growing market share is to attack the top 20 U.S. markets. That includes lease-heavy markets on both coasts, where the lack of competitive lease payments has been a handicap.
That's changing, Kia said at the presentation. From the 2009 model year to the recently introduced 2012 models, the brand's average residual value rose almost 50 percent as a percent of sticker price, Kia said. Specifically, that was from an average of 37 percent of sticker after 36 months, to 55 percent.
Loveless said higher residuals also make it more affordable for Kia to offer subvented leasing though its captive finance company, Kia Motors Finance.
Advertised specials on Kia.com include a $249 monthly lease payment on the 2012 Kia Sorento, or $169 leases on the 2012 Kia Soul.
"Leasing plays a bigger role," Loveless said, especially for the Sorento, Sportage and Optima.
Kia's higher lease penetration is also a higher percentage of a bigger number. U.S. sales in September were 35,609, up 18 percent from the year-ago month. Year to date, Kia sales were up 37 percent, to 367,405.
Captive finance company parent Hyundai Capital America, which handles both Hyundai and Kia, reported it had about $1.8 billion in Kia loans and leases outstanding as of June 30, an increase of 42.5 percent from a year earlier
In the same time frame, delinquent loans -- those 30 or more days past due -- fell to 2.4 percent from 3.2 percent.
That's still higher than Kia's sister brand, Hyundai, which had 1.6 percent delinquencies as of June 30.
Eric Lyman, director, residual solutions for ALG Inc., said that for the last couple of years, since Kia introduced the Soul in 2009, each new model has been a big improvement over its predecessor in terms of exterior and interior styling, refinement, and the level of standard equipment.
"They have done a phenomenal job making their vehicles competitive," Lyman said. "It all starts with product -- of course it does."
You can reach Jim Henry at autonews@crain.com.
