Skid Row Joe

I'll write off my Corvette bought new from my Federal Income tax return over 6 years. I'm rather particular about how my Corvette is equipped too. Not interested in buying used or lease either.

ojm

Corvette market has often been the older generation so ten years is bit of a stretch.

0bbbvettes.com

Agreed, and those were the days. The banks have mostly gotten away from doing this. They've lost their common sense. They will take it to the auction and take a larger loss 9 times out of 10, instead of keep money in their pocket and keep their customers happy.

Oh well.

You can still try to negotiate the residual, but don't get furious or take it personally when they say "no", they all seem to have stopped doing this negotiating about 3 years ago I've noticed.

RapidC84B

I've never leased. Someone educate me... I thought that if, at the end of your lease, the market value was more than the residual you got that money? Reading here it seems like you have to sell the car to get that equity? What if I want to turn in my lease and lease another car? Do I get the equity out of my first lease?

jcp911s

Yes, this would not work if you are using a third-party financial institution.... (with transportation detailing and commissions "wholesaling" a car can cost the lessor thousands)

However, this deal was done through BMWNA financial on both ends... this is a good reason to use the MFG's captive finance arm... more options... effectively the dealer and the lease company are playing for the same team.... Dealer calls lessor with a guaranteed buyer, at a determined price, and a new finance deal... all wrapped up...Dealer can flip the car overnight at wholesale++ and also get 3 more years of warranty work, and BMW can protect re-sale values. Win/win/win.

jcp911s

Well, I won't generalize, as you need to read the fine print,

However, the "typical" leases that I've done (BMW in this case), the lessor has the OPTION to either buy the car at the stated residual, or turn the car back (e.g. drop the keys).

Again, this is like a Put/Call option on a stock.

Now, the trick here is "Market Value"... the residual is stated in the agreement, so that is a known value... however "Market Value" is not... there's the catch...

For example... 2015 BMW 330I Sedan, 36,000 mi, clean Carfax... no excuse car.

"Wholesale"... this is auction price... is pretty firm based on auction history (per KBB, Carfax, NADA, etc). Say for this car its $22,000. This is also pretty much "Trade in" on a new car.

"Retail"... this is what a dealer would sell it for (this includes detailing, service, etc, etc) for a credible independent, say its $28,000, and $30,000 for a BMW Dealer CPO

"Private Sale"... this is you selling it yourself... call it $24,500 (but private sale on these cars is a PIA...).

So, your 2015 330I comes off lease with a residual of $23,000... do you buy it or not?

In this totally theoretical case, if you like the car, and given its known history, buying it is a better bet than buying another used 2015 BMW 330i, if not, probably walk, and leave the potential $1,400 "equity" on the table.

As has been stated, you can "shop the deal around"... you can sell your option to buy the car... but, based on the above numbers... your "option" ain't worth much.

RapidC84B

I get all that.... but if I go to turn in a lease at the end of term and wholesale trade-in is above residual, and I want to get another car, does the dealer give me that equity?

Corgidog1

At the end of the lease you have 2 choices- buy the car at the residual price or turn the car in. The residual price is used to figure out the depreciation in the lease price formula. The other factor in the lease price is the time factor of money.

you never get the equity back from the dealer. If you get a 12k a year mileage lease make sure you use the mileage as that is what the residual is based on.

jcp911s

Sorry...typo... LESSEE has the buy option...

jcp911s

Here's where the horse-trading comes in...

Dealers love the lease expiration, because they get you to the desk... this is a solid gold opportunity to sell a car to a stone-cold buyer with a history of buying the same marque...

Quite a few buyers lease, simply because thy want to drive a new car with a warranty... (serial buyers)... say you take your expiring BMW Finance lease on that 330I to your local BMW dealer, and want a new BMW... you have alot of leverage, because the BMW dealer can CPO this car, and sell it for a very nice profit, as well as get a new car sale, and BMW Finance can get the car off its books quick and cheap...... so this car is worth more to them than any other buyer, so in this specific case, you are in the driver's seat.

If you go cross town to the Mercedes shop, not so much... you'll probably get the same deal you'd get if you walked in off the street.... trade-in.... but, the dealer has every incentive to facilitate the paperwork... for a juicy fee... a "courtesy trade", or "concierge facilitation"...some-such nonsense... $750 or thereabouts, but yeah, money is money.

0bbbvettes.com

Your fear is warranted, technically, you do have to ask for it. The dealer is allowed to let you think they are just turning it back into the leasing bank and there is no equity. Then once you leave, the dealer can take advantage of the positive equity and retail the car, or wholesale it.

So you do need to be a bit proactive and figure out what is going on with your value.

What you can do is look up the values of your car on NADA etc, and if those values are higher than where your lease residual is set, then you can elect to buy the car out, and then resell it to the highest bidder. I would recommend putting it for sale BEFORE the end of your lease, and that way you can see if you can get more than your residual.

You can also bring that potential buyer with you to the dealer, and have him sign paperwork to buy your car before you ever turn it in, that way they have a guaranteed deal if they buy your car instead of turn it back into the leasing bank.

Also, if the dealer is willing to give you residual or close to residual, you can still come out ahead, as now there is a tax savings in 42 of the 50 states if the dealer buys the car, as it is then a trade-in toward a new car purchase, and on a 50g trade in, you just avoided paying sales tax on 50g of the new car you are about to buy.

RapidC84B

Yes my scenario would be if one were to lease a C8 and then in 3 years exchange for another C8 Z06 or GS etc. In that scenario, you, the lessee, are always good right? If the residual is less than forecasted, you aren't responsible for that low market value. If the market value is higher, then you get the benefit of that market value toward your next car right? Win win? What am I missing... that has to be too easy.

0bbbvettes.com

I agree with you its a win win win, and I'm telling you the manufacturers banks stopped doing this about 3 years ago, from VW, to BMW to GM Financial, they won't do it (or for sake of not being an ignorant absolutist, I will say they have stopped doing it so much that I have not observed them do this in the past 3 years, and we own a lot of dealerships)

You can still by out your lease at the pre-contracted value, and so can the dealer....

but negotiating it down, does not really happen anymore.

The ONLY situation I can think of where a customer has leverage to do this is when their credit is so bad, they can't get into the next car because they can't carry their negative equity (they were over on miles etc and have a bill) and the customer has the attitude that they will let their credit get worse and never pay their bill to BMW financial for the overaged miles. This is about the ONLY situation I have seen exemptions made lately, but the exemption is to LOAN/LEASE the customer more money than what they were willing to, that way the negative gets carried onto the next car loan, without the customer needing a large enough down payment to cover what the bank originally requested on the new car to cover the negative equity.

0bbbvettes.com

No, you have it right... but what can get tricky is that leases have a buyout fee, and can only be bought out at dealers, and in places like south florida, they charge you the dealer fee AGAIN... and you also have to pay tax on the buyout amount. But the tax on the buyout amount is not an AGAIN fee, as when you lease, you only pay tax on each payment paid, so its tax that you avoided paying thus far.

The other thing that is tricky is the dealers can hide money with leases, and charge you more.

So what you want to do is take your total lease payments, plus the residual, and look at that total number.

If that total number is far beyond MSRP, then they are getting you.

Keep in mind, interest is going to be on the first half of the money, and dealer fee and all reg fees etc have to be in those lease payments as well...

But you are a sharp guy, so you can calculate what the interest rate is on the loan/lease when you take the number they are above MSRP.

You can get better rates on a straight purchase through a credit union VS what dealers offer on the first year lease rates usually.

The lease rate is going to be what is not pretty.

0bbbvettes.com

you want to get the wear and tear insurance... it covers tires, wheels, paint, everything... its a no brainer. You can then bring the car back with it needing new tires, and you are covered, so as long as the wear and tear insurance is less than the cost of 4 tires, you are stupid not to buy it, and put it into the lease.

Also, lets say you get into a wreck and the car has a bad carfax, the lease protects you, as you just turn the car back in, and the bad carfax is not your concern.

Leasing has its advantages.

It also has built in gap insurance.

This means you want to put 0 money down.

If the car gets totaled or stolen, you are clear... you only have invested the lease payments up until that point, with zero money down. Its the least money out of your pocket possible.

jimmyb

No. You don't own the car, the financial institution does. The financial institution will NOT pay you the difference between residual and wholesale. Why would they? If they calculated wrong at the lease inception, and the residual is MORE than wholesale market value, they (the leasing company) does not get to charge you for that shortage. The only way to walk away with cash: Assuming the residual is less than wholesale market value. You would have to BUY the car for the residual FROM the owner (the financial institution), and then re-sell it for (hopefully) the higher wholesale price.

sly1

No but if the car is worth less than the residual, you don't owe the bank any money. When Infinitis were first sold, they offered leases which had a very optimistic residual. So lessees got a great deal on those cars, not so much for Infiniti.

RapidC84B

But what if I want to trade the leased car or "apply" it to another Corvette. Won't the dealer make it work to where I at least get wholesale trade-in even if residual is lower?

For the record my personal plan is to put $30K down and finance the rest through a credit union I always use. Never had a rate higher than 2.25% on any used car (never bought a new car) so I'm assuming rates on a new car will be even better. Hopefully the Fed takes a cut later this year to get rats back down really low.

jimmyb

Exactly.
And Tool, it's not YOUR equity because it's not YOUR car. You were renting the car for lack of a better way to put it.

jimmyb

No. You have ZERO ownership in the leased car you are turning in. You are not entitled to any money over the residual, nor do you OWE any money if the residual is higher than the car's value. The mileage is the same. If you leased the car at 12,000 miles/year and only drove 8,000, well, that's tough luck on your part.
Now, one thing to keep in mind is NEVER put money down on a lease. NEVER. All you're doing is paying down your monthly payment, which is spread out over years, but your $30K could have been doing something for YOU from day one. BTW, leasing companies LOVE big down payments....
Think about it. You lease a $75K C8 and give the leasing company $30K down. Well, your payment will be low, but your $30K is GONE. It built nothing, there's no equity to build because you're RENTING the car.
IMO, with cheap money out there, putting an excessive amount of money down on a buy (not lease) is just crazy. Always remember: Do your homework on the frontend, before sitting down in the finance office. Talk to your bank, your credit union, etc. The dealer WILL get you a payment....and usually that "payment shopping" results in the customer being BURIED ALIVE in the car for years.