The 2014 Chevy Silverado's Biggest Edge Over Ford's F-150

The battle between the Chevy Silverado from General Motors (NYSE: GM  ) and the Ford (NYSE: F  ) F-150 has been heating up lately, with GM trying to challenge Ford's long dominance atop the best-selling vehicle list. But despite some concerns about the Silverado launch, GM recently got some good news that could help give it an edge against Ford and its other competitors.

Research company ALG made its forecast for projected residual values for full-sized pickup truck lines earlier this month, and its figures for GM's biggest truck lines were unexpectedly strong. ALG projects that 2014 Silverados will retain 55% of their value after 36 months, compared to just 47% for the 2013 model. That forecast also puts the Silverado ahead of its most important rivals in the segment, including the F-150. ALG found that only Toyota's (NYSE: TM  ) Tundra weighed in with slightly better residual values.

To understand why the boost in residual value represents an important edge, you need to understand the basics of vehicle leasing. In essence, higher residual values give GM a lot more flexibility in offering attractive deals for customers who want to take home a Silverado as inexpensively as possible.

2014 Chevy Silverado Texas Edition. Image (c) General Motors.

Vehicle leasing 101
From the customer's perspective, leasing rather than buying can be an attractive way to drive a new vehicle every few years. With a typical lease, you'll pay a fixed monthly payment as well as some upfront costs. After the lease term expires, you typically have the option either to purchase the leased vehicle or to return it in favor of buying or leasing a newer car or truck.

But from the automaker's perspective, the economics of the lease are much different. In deciding where to set monthly lease rates, automakers have to look at two things: the value of the brand-new car on the lot and the amount of money they'll be able to get for that car at the end of the lease term, when the dealer sells it as a used car. The greater the difference between full retail price and the residual value at the lease's end, the more an automaker has to charge on lease payments in order to recoup the loss in value and make a profit. Conversely, greater residual value boosts profit margins on leases, giving an automaker the latitude to offer more attractive lease terms.

Historically, GM hasn't had many customers interested in leases. Leases make up less than 10% of GM's sales of the Silverado and the GMC Sierra, according to a recent article in Automotive News. With the Sierra also having seen a big jump in residual value for its 2014 model year, though, the potential for greater use of leases could enable interested buyers to stretch their budgets and grab up better-equipped versions of the Silverado and Sierra.

Deciding on a lease
Of course, your own personal situation will determine whether it makes sense for you to lease a Silverado or other vehicle. In making your decision, you'll want to consider several things. Leases impose mileage limits, and if you expect to drive more than those limits cover, you'll end up paying quite a bit more in overage fees. Also, fees for excessive wear and tear can add quite a bit to your total cost, and hefty early termination fees are required if you change your mind about the vehicle and want to get out of your lease before it expires.

But for investors in GM, the good news is that more attractive lease options for its premier pickup lines could help drive more customers into showrooms, letting the stock continue its recent strong performance. As competition gets ever fiercer in the pickup market, having the advantage of strong resale value will give GM more flexibility in giving potential customers every chance possible to drive away in the Chevy Silverado they truly want.

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Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 29, 2013, at 9:27 AM, nomarthedog wrote:

    What happens in 3 years when people are turning those trucks in and GM is not making the residual back when they take those trucks to auction?

  • Report this Comment On June 29, 2013, at 9:50 AM, HighAZDesert wrote:

    Uhhh,, no. Leases are fine for those who only want a vehicle to be seen in on Friday and Saturday nights. Pickup drivers actually use their truck for work and chores and amass lots of miles and often a lot of dings in the bed. Try that on a leased vehicle and see what happens when you try to turn it in. Besides most pickup drivers do not trade them in every couple of years to get something newer and shinier, They drive them (mine is a '98 and headed for 250,000 miles) until they are worn out. So I don't think the lease "edge" means squat to 98% of pickup purchasers (note the word purchasers)

  • Report this Comment On June 29, 2013, at 10:20 AM, altonlee wrote:

    For looks chevy use to be best, but ford is now beating them. But working and long lasting chevy cannot hold a candle to ford.

    I use to be in the cattle business, and had a friend that loved chevy's he bought a new chevy pickup and I bought a ford they were equal in what that had on them. I pulled bigger loads with mine and usually when we went somewhere together we drove mine. He wore out three chevys and my ford was still going strong.

    But now I would not buy a chevy for no amount o savings that goes with dodge and jeep. And have been a jeep owner since 1980. Have had three since then. Still own the '80 cj5, and bought a new wrangler in '09. But when the gov took over these private companies with taxpayer dollars, they did away with my warranty, said the gov allowed them. So the three companies lost my and anyone I can talk out of buying one.

    No one cares that oblammer took over the companies and took the stock that a lot of retired people had bought for retirement and gave it to the unions that drove the company into problems.

  • Report this Comment On August 29, 2013, at 11:01 AM, Jason87467 wrote:

    Chevy trucks have always been tougher than the Fords and still remains so. Because of better marketing many think the opposite, but it's not so. Ford trucks have been over-rated and still are so.

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