Higher residual values and lease penetration are driving Kia’s US growth

Article by Anita Panait, on February 11, 2013

Kia has identified higher residual values and higher lease penetration as major factors to its growth in the United States. For the past three years, Kia’s annual sales in the US grew an average of 23 percent, more than double the industry rate. However, Tom Loveless, executive vice president of sales for Kia Motors America, remarked that they have used lease as a growth strategy in the US.

He noted that Kia’s lease penetration in the US has grown from "low single digits" to the "mid-to-high teens," placing it below the industry average of 24 percent, according to Experian Automotive data. Loveless said during an interview that lease penetration is affected by three factors -- residual values, segments where the company competes in, and the carmaker’s longer-term strategy.

Loveless quipped that in comparing 36-month values for Kia's 2013 models with those of 2009 models, the brand's residual values jumped to an average of 52 percent of sticker price from 38 percent. He noted that the industry average improved to 50 percent from 45 percent, citing residual values from ALG, an industry benchmark for predicted residual values. A higher residual value means a customer only has to borrow less, since the customer pays for the difference between the upfront cost and the residual value.

Loveless added that in more or less the same time frame, Kia's lease penetration jumped from zero to the "mid-to-high teens" today. According to Experian Automotive, leasing accounted for 24.4 percent of the auto industry's retail volume in the third quarter of 2012. Loveless remarked that Kia's lease penetration is relatively in line with the segments where Kia competes in such as in small cars, where leasing is low on average compared with high-lease segments like luxury cars.

Topics: kia, united states

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