Lower Resale Values An Issue For 'Green' Cars

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SANTA BARBARA, Calif.-Credit Unions making loans for the new electric vehicles that will soon be hitting the market should pay close attention to the cars' resale value.

According to ALG, which recently completed an analysis of the residual value of electric cars, next year's new models will not hold their price as well as gas engine counterparts.

"From a percentage retention standpoint, these pure electrics and plug-in hybrids will not retain as much of their value as their internal combustion counterparts," ALG client partner Eric Lyman said. Lyman explained that ALG's study indicates that in 36 months a pure electric vehicle will command a $4,000 premium on the auction market over a gas-engine counterpart that performs the same and is similarly equipped. Lyman pointed out the $4,000 premium won't cover the significant difference in price, even with rebates, the electric cars will cost in 2011 over a comparable internal combustion engine vehicle. For example, a new gas-powered Ford Focus is expected to retail for $16,000 to $20,000, while the Ford Focus EV is pricing at $33,000 to $40,000, not including the $7,500 government rebate.

As the new electric cars are improved, Lyman said the ability of the second-generation electric vehicles to hold their value should improve. But as that happens, the resale value of next year's electric models may take a hit. "We see the cars' functionality increasing and the price dropping, which will make the first generation electrics that much more undesirable when they emerge in the secondary market," Lyman assessed.

NADA shared a similar observation, predicting consumers may be willing at first to accept the potential inconvenience with charging the early models (sometimes as long as 16 hours). But as new technology enters the market, acceptance for the early models will diminsh, according to Larry Dixon, manager of data services at NADA.

And widespread consumer acceptance of the electric cars may be an issue, as well. "From our perspective, the biggest difficulty is just communicating that these vehicles are viable alternatives for the majority of drivers out there," said Lyman. "The other issue is accessibility. The fact you have to provide a charging station at your residence is a huge challenge. For example, what do you do if you are a renter? You are not going to spend $2,000 on a charging station. You may not even have a garage." Lyman is concerned about other barriers, as well, particularly price. "We have conducted research that indicates consumers are somewhat hesitant to pay extra for the electric cars."

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