SANTA MONICA, Calif. — Providing an update on Perceived Quality Scores in its most recent Residual Value Report, ALG said the two brands showing the most improvement from the fall are Ford and Kia, respectively, while Toyota, had the heaviest drop-off by far.

So, how does this affect residual values?

"ALG's residual values for the May-June 2010 edition have been updated to incorporate the latest changes in perceived quality," officials explained. "Brands that improved significantly will see a slight boost in residual values and those demonstrating declines in PQS result in a weakening in residuals."

They added: "The drastic decline in PQS for Toyota has resulted in an adjustment in residual values, with a decline of (roughly) 1.9 percent (or approximately 0.9 percentage points of typically equipped MSRP in 36 month residual value forecast)."

Specifically, Ford Cars have improved 4.7 points in PQS from the fall and Ford trucks, which ranked third on the list behind Ford Cars and Kia, climbed 3.3 points.

As far as Kia, the automaker is still among the lower-rated brands as far as perceived quality, according to ALG, but its PQS jumped 4.4 points from fall of 2009 to spring 2010. Moreover, compared to a year ago, Kia's PQS is up 7.1 points.

On the opposite end of the spectrum, Toyota's PQS has dropped 16.5 points since the fall as the automaker has been embroiled in a series of recalls and a "flood of damaging publicity to their brand."

"Consumers continue to remain wary of Toyota's quality since the recalls, resulting in a drop in PQS ranking among mainstream brands from first place in fall '09 to sixth place in spring '10," ALG noted.

Following Toyota in terms of largest PQS declines since the fall — though certainly not as drastically down — were GMC (down 1.5 points) and Saturn (down 1.4 points).

Economic Indicators

Looking at some overall economic factors impacting residuals, ALG said underlying forecasts regarding wages, gas prices and used supply have been adjusted.

"ALG's current wage forecast is slightly more positive than previously reported," officials noted. "ALG's gas price and housing market forecasts also suggest more positive expectations for both markets in the short term (less in the long term).

"ALG's used supply forecast, based on the most current sales forecasts, projects smaller declines in used supply through 2015," they added.

When these positive factors are combined, the 24-month and 36-month residual value outlooks each have been lifted approximately 1 percentage point, officials noted. ALG said there has been "minimal impact" on the 48-month outlook, while the 60-month term has been negatively affected.

Continuing on, ALG noted that segments whose wholesale values are tied more heavily to fuel costs — like full-size pickups, for instance — are more prone to be impacted than the overall industry.

"The premium convertible segment outlook is +1.9 percent (in 36 months) above the industry average versus entry compact and mid compact segments, impacted by (approximately) 1.5 to 2 percent (in 36 months) below the average," officials explained.

"The change in the used-supply forecast touched two other segments in particular; the CUV segment was affected negatively by 2.1 percent more than the industry average (0.9 percent in 36 months), while the sporty/convertible segment was positively impacted by 1.1 percent above the industry average," they added.

Comparing Segment Residuals

Next, ALG offered a chart summarizing year-over-year changes in the 36-month residual values of various segments. Showing the heaviest increase in residuals from model-year 2009 to model-year 2010 were full-size SUVs, which were up 8.4 percentage points of MSRP.

Premium midsize SUVs were next (up 2.5 percentage points), followed by premium luxury vehicles (up 0.7 percentage points) and premium full-size SUVs (0.1 percentage points).

Interestingly enough, premium luxury vehicles (up 31 percent) and several SUV segments strongest year-to-date growth in sales. For instance, premium full-size SUV sales so far in 2010 have climbed 28.2 percent, premium CUVs are up 27. 8 percent and full-size SUV sales have jumped 26.2 percent.

"The biggest winners are the hard hit premium and gas guzzling segments," officials noted. "This has carried over to residuals, with the full-size SUV segment showing the largest YOY 36-month residual movement of +8.4 percentage points of MSRP, ahead of the next-best performers premium midsize SUV (+2.5 percentage points) and Premium Luxury (+.07 percentage points)."

In its conclusion, officials noted that: "ALG believes that full-size pickups and SUVs have stabilized their demand. The caveat is that ALG forecasts fuel prices will be, on average, $4 or more per gallon in three years' time. Fuel prices at that level will have a direct and negative impact on both full-size pickups and SUVs.

"There is a significant possibility that the auction trends seen last year may reoccur," ALG added. "If this proves true, ALG believes the lower supply of these vehicles will help mitigate any decline in demand."