By cutting customer lease payments on the redesigned 2014 Toyota Corolla, the automaker hopes for its market share in the compact segment to recover. Toyota accomplishes this by placing residual values significantly higher than before, says dealers and lease trackers. Toyota and its finance captive are expecting lease-end values to be a lot higher than those of rival cars that have gotten stronger residuals than the Corolla.
Toyota is able to decrease the monthly payments by increasing the residual forecast and lowering the principal carried on the lease. This is considered to be a major factor as Toyota aims to be at the top once again in the very price-sensitive compact sedan segment. Before Honda Civic took the No. 1 spot in 2012, the Corolla held the top position for nine straight years.
Critics didn’t like the 2012 Civic but sales grew because Honda boosted the incentives. The incentives offered for the Civic this year are nearly zero. Nevertheless, the Civic (191,120 units) still sold more than the Corolla (183,435 units) for this year through July.
Toyota isn’t holding back with its lease incentives during the launch of the Corolla this month. A residual value of 63% will be given to three-year leases from Toyota Financial Services on nearly all trim levels for a 15,000-miles-per-year lease. A residual value of 65% is assigned to the Corolla S. Toyota will put in an extra 2 percentage points throughout the trim levels for an annual lease of 12,000 miles.
According to ALG (a research firm that examines and estimates vehicle values), Toyota is at least 3 percentage points too positive even when it has everything good going for it. It also thinks that Toyota Financial Services may be incurring huge losses three years in the future if Toyota fails to hit the mark and residuals are left at their historic rates.
Spokesman for Toyota Financial Services, Vince Bray, said the captive isn't taking excessive risks. He believes that boosting the residuals is less expensive than dropping the overall price and is also better at maintaining the brand’s value.