Strong Residual Values Prove Budget Car Brands Are Here To Stay1 March 2005
Rapid depreciation has long been presented as one of the most compelling reasons for not buying a new car from a budget brand such as Hyundai and Kia. Today, this argument no longer stands up to scrutiny. According to Glass’s, budget manufacturers have made significant strides in improving the residual value performance of their cars, such that they often rival, or outperform, volume brands including Ford, Volkswagen and Renault.
Glass’s says that budget marques have succeeded in cutting rates of depreciation on their cars in four ways - by targeting niche markets (such as coupe and SUV); increasing awareness of their value-for-money proposition amongst prospective buyers; adopting European styling with greater attention paid to fit, finish and quality of materials used; and by avoiding an over-supply of their vehicles within the used car market.
Examples of budget brands boasting strong residual values are becoming increasingly commonplace:
- The Hyundai Coupe has built up a loyal following, which is now reflected in 54 per cent retained value after three years, compared with the Ford Puma at 48 per cent.
- In the recreational 4x4 market, the Hyundai Santa Fe holds on to 56 per cent of its original list price after three years, now level-pegging with the Land Rover Freelander. Kia and Hyundai are making a concerted assault on this market - Kia with its Sorento and the new Sportage; Hyundai with the Terracan, Tucson and Santa Fe. The indications are that limited volumes combined with the inherent strength of 4x4 residual values will endow these new models with impressively low levels of depreciation.
- In the large MPV sector, the Kia Sedona now enjoys a residual value of 59 per cent after three years, while the Volkswagen Sharan is at 52 per cent and the Renault Espace is at 43 per cent. What started as a budget offering in the sector is quickly becoming the class leader.
"The real challenge for the budget manufacturers is to break through into the big-selling small and lower-medium sectors, where volume players like Ford and Vauxhall dominate," comments Chris Smith, Car Editor at Glass’s. "Whether significant numbers of UK buyers will be willing to gamble on budget vehicles in these sectors remains to be seen, but no-one should doubt that the likes of Kia and Hyundai have the resources and commitment to threaten the established volume players."
It is the growth of the Korean brands including Kia and Hyundai that should cause most concern for mass-market manufacturers. In the last ten years, the budget brands have grown their market share from under two per cent to almost five, and this growth is set to continue, by volume, over the coming years.
"With the prestige and budget brands simultaneously increasing their market share in the UK, life is going to get a lot tougher for the volume marques," concludes Smith.