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Chrysler works to raise resale values

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Chrysler works to raise resale values

Better quality adds to the residual value at the end of a lease

Tim Higgins / Bloomberg News

Chrysler Group LLC is working to raise the resale value of its vehicles, seeking to replicate its effort with the redesigned Jeep Grand Cherokee, to increase revenue from leases and improve the company's image.

Changes from the previous model and Chrysler's volume and pricing strategy boosted the residual value of the Grand Cherokee's four-wheel-drive version to 45 percent in the third quarter from 35 percent a year earlier, according to researcher ALG Inc. Residual values are projected resale values that determine buyers' monthly lease payments.

Chrysler used testing that simulated three years of use while developing the Grand Cherokee to make it more reliable, and the vehicle's third-quarter deliveries rose 35 percent, with a higher percentage coming from leases. The automaker is working to repeat that success with 15 other new or refreshed models.

"Beyond any shadow of a doubt, the leasing factor on the Grand Cherokee is the reason it's having an outstanding sales rate," said Dan Frost, a Chrysler dealer in suburban Detroit.

The Grand Cherokee's percentage of sales from leases climbed to 25 percent in September from 2 percent in the same month last year, according to Edmunds.com.

Chrysler's third quarter earnings were its best since emerging from bankruptcy. The third-quarter net loss narrowed to $84 million, and net revenue rose 5.2 percent from the second quarter to $11 billion, driven by Grand Cherokee sales.

The percentage of sales from leases on Chrysler's four brands this year increased to 11 percent from 2.6 percent in 2009, while still trailing the industry's 21 percent, according to Edmunds. Chrysler's overall residual values rose to 50 percent in September from 36 percent a year ago, according to CNW Research. The industry average in September was 76 percent.

"The residual values on our vehicles are improving, especially as we improve, as we introduce the new products," Palmer said. "So we expect that to grow."

The U.S. automaker spent extra time in the past year trying to improve the Grand Cherokee's resale value, believing it would help drive sales through better leasing.

The company had 72 Jeeps driven nonstop for 36,000 miles, which represents about three years of use, said Philip Jansen, chief engineer on the Grand Cherokee.

From The Detroit News: http://detnews.com/article/20101209/AUTO01/12090355/Chrysler-works-to-raise-resale-values#ixzz17ckaMVOE

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