This post expands on some principles examined in previous posts, including hard adds versus soft adds and the residual percentage calculation. If you haven’t read those, it may be helpful to review them first.
As we explored previously, soft add calculations are an integral part of our residual forecast. They help inflate the denominator of the residual calculation to account for equipment that’s not already baked in–”non-typical” equipment with a take rate under 50%. If a buyer selects a whole array of equipment that inflates the MSRP but is not expected to retain much in the used market, this factor helps to control for the fact that the residual percentage will still be applied to the inflated MSRP.
An article in yesterday’s New York Times discusses the discount game among institutions of higher education, citing the fact that the average private college student paid a bit more than half of the retail price of their college tuition last year. The pricing question is a difficult one in any industry, and the automotive sector has struggled with it for years. Is it better to set price high and give hefty discounts to convince customers they’re getting a great deal, or should you set price low to be able to advertise an attractive entry point and avoid the difficult downward spiral that can occur with discount competition.
Discounting is an entrenched practice in businesses around the world because it helps to achieve price discrimination. Contrary to pop economics, price discrimination is de facto legal, with every industry taking part. Perhaps the best-known example is airlines, which practice it in many different ways, with different pricing based on factors ranging from timing of purchase to ticket class to loyalty programs. But any industry that offers different pricing based on someone’s location along the demand curve benefits from price discrimination. The problem is the unintended consequences of getting buyers used to “the deal”. (more…)
At the 2013 Los Angeles Auto Show, Land Rover announced a long-wheelbase variant of its iconic full-size luxury off-roader. An additional 7.3” of wheelbase will demand another $5,200 from buyers’ wallets, so we wondered, would the added length hold significant value at the end of a lease?
Whereas other long-wheelbase SUVs add space for families in the 3rd row or cargo area, a 3rd row remains unavailable on the Range Rover. Today’s LWB, like the County LWB variant of the original, first-generation Range Rover, exclusively focuses its space surplus on delivering a satisfying 2nd row seating experience. (more…)
Historically, the Porsche brand has catered to an exclusive niche market, positioned at the very top of the luxury sector, closely straddling the line between luxury brands and exotics. Porsche built its reputation on selling speedy sports cars; its flagship 911 has had the second longest continuous production run among sports cars. (more…)
ALG recently gave the Toyota Land Cruiser the Residual Value Award in the Premium Fullsize Utility segment. It’s a vehicle that doesn’t sell in big volumes, but the Land Cruiser nameplate goes a long way to explaining why Toyota won seven other segment awards for the 2014 model year, particularly in truck and utility segments.
I recently went on safari in Kenya and Tanzania. While I saw a few Land Rover Defenders that had been converted into Serengeti roamers, and the occasional Nissan Patrol, the safari industry is the unquestioned domain of the Toyota Land Cruiser, comprising probably around 95% of the vehicles that haul around the thousands of tourists that visit these countries each year.