General Motors Company (GM), Ford Motor Company (F): Why Fast Cars Are Big Business

But neither automaker sells very many of those hot high-performance versions, just as Ford Motor Company (NYSE:F) sells only a few of the super-fast Shelby GT500 versions of its iconic Mustang. The small sales numbers mean that these cars will never add much to their makers’ bottom lines by themselves. But there’s at least one more reason why these cars continue to be an important business for automakers.

The “halo car” effect and residual values
These cars carry a weight in the court of public opinion that goes far beyond their sales numbers. When that CTS-V came out in late 2008, reviewers – some of whom had been very hard on General Motors Company (NYSE:GM) for a long time – hailed it as perhaps the company’s best car ever.

That glowing press probably didn’t sell a whole lot of CTS-Vs (though it sold some), but it did increase the credibility of the mainstream CTS model in the minds of buyers who might otherwise have chosen a German car. It also increased its desirability, and – and this is important, pay attention here – probably increased its resale value.

That’s a big deal to automakers, especially with luxury cars. Why? Because a lot of luxury cars (more than half, with some brands) aren’t actually sold, they’re leased. Automakers’ financing arms lease the cars, and then when the lease ends, they sell the used cars.

The higher the value of those used cars (called the cars’ “residual values”), the lower the overall cost of the lease. Or put another way, when an automaker’s residual values go up, it can offer better lease deals. That attracts more buyers and sells more cars.

That’s why these cars exist, and it’s why they’re in no danger of disappearing any time soon.

The article Why Fast Cars Are Big Business originally appeared on and is written by John Rosevear.

Motley Fool contributor and CTS-V owner John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool recommends BMW, Ford, and General Motors. The Motley Fool owns shares of Ford.

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