Liberty's success rides on pricing, experts say

3/22/2001

The 2002 Jeep Liberty will battle more than just competitors when it hits dealership lots this summer: Toledo's newest Jeep is entering the market as a sport-utility vehicle glut has lowered values for used vehicles, causing higher lease payments for new ones.

As an all-new vehicle, however, the Liberty will be spared from the market's resale-value trauma for up to 11/2 years as customers form opinions and start setting the pattern for sales and pricing, industry experts said.

If used Liberty values stay high relative to competitors after two to three years, then it will be a success, said Jim Mateyka, vice president in the global automotive consulting business of A.T. Kearney, Inc., of Southfield, Mich.

“The first thing you look at is the resale market,” he said. “In 18 months, if the vehicle is hot ... then the new-car prices will hold up.”

Workers at the new $750 million Toledo North Assembly Plant are in the final stages of getting ready to make sellable versions of the Liberty. DaimlerChrysler AG's U.S. group expects to announce Liberty prices this month.

Favorable pricing will be crucial, industry experts have said, as the Liberty goes up against such competitors as the Ford Escape, Toyota RAV4, and Honda CR-V.

The Liberty, which is replacing the long-lived Cherokee as Jeep's compact SUV offering, is expected to be priced in the low to mid-$20,000s.

It's too early to tell how the Liberty's residual values will fare, although the Chrysler unit is confident its on-road and off-road capabilities will mean a lot to consumers, spokeswoman Heather May said. The Liberty has an array of new features, including an independent front suspension, rack-and-pinion steering, and a 3.7-liter V-6 engine.

“We're really in a good place in the marketplace, and also the Jeep name means a lot,” she said.

Compact SUVs' residual values - the amount of money they will bring after being leased - have fallen an average of 14 percent since 1997 in the Automotive Lease Guide. The guide is widely used by the auto industry to set lease terms for new vehicles.

Falling residuals are of little concern to Toledo Jeep Assembly's other SUV, the Wrangler, because less than 20 percent are leased, Ms. May said. The automaker expects the Liberty's leasing percentage will be between the Wrangler and the Detroit-made Jeep Grand Cherokee, more than half of which are leased, she said.

The volume of leased SUVs has increased dramatically in five years, one analyst said.

And more people are turning them in instead of buying out the contract at its end, resulting in a large supply, said Brett Hoselton of McDonald Investments in Cleveland.

“It's a simple supply-and-demand curve causing the prices to decline,” he said.

High lease payments could drive SUV customers to cars, Mr. Hoselton said. And volatile gas prices haven't helped matters.

New vehicles such as the Liberty, though, will command a premium for at least six months, Mr. Hoselton said.

SUV buyers aren't going to be concerned about the Liberty's residual value, said Ron Szegedi, a Jeep salesman at Ed Schmidt Auto Group in Perrysburg.

“People are going to buy the Liberty because of what it is instead of what it's going to be worth,” he said.