It's an enticing offer: Lease a well-equipped Toyota Corolla for just $189 a month for three years.
For Toyota, the deal could be a financial disaster. To keep customers coming to its showrooms amid a series of embarrassing recalls, Toyota has been offering some of its best leasing terms in years.
But the generous come-on could "haunt them three years from now," depending on how the market turns, said B. Craig Hutson, an analyst with research firm Gimme Credit.
By offering such low monthly payments, Hutson said, Toyota is essentially betting that the vehicles will have superior resale value when they are returned after their leases end. If their value is less than expected, it could cost the Japanese automaker's finance arm hundreds of millions of dollars.
To make the numbers work, Toyota has been setting a vehicle's so-called residual value at about 60% of its sale price new. That can be up to several thousand dollars higher than the estimates of independent analysts, depending on the model.
Although it's hard to project what the market will look like in three years, current data show that prices for used Toyotas aren't holding up as well as the prices of other makes.
According to auto-pricing data company Edmunds.com, the average transaction price of a used Toyota fell 1% in June to $15,073 compared with an industry average gain of 9%.
Toyota is one of the more aggressive companies in setting residuals for its vehicles, but the strategy was less important in previous years, when leases accounted for only 21% of its new car sales and the brand had strong resale value.
But leases now account for 30% of Toyota's business, the automaker said. The numbers don't include the automaker's Lexus and Scion brands.
And now it's offering leases to customers who are greater credit risks. CNW Research noted in a report that one Toyota program requires a credit score of "only 660 to qualify." That's seen as the dividing line between good and poor credit.
