Auto-bitrage- Connecting Buyers and Sellers

So I had an idea while reading a post where someone was trying to buy a used corvette from a dealer and used the residual value of a 3 year old corvette as a starting point. The conversation from my understand went something like this “Well the market value for a 2015 corvette with XXX miles is $50000, however the leased corvettes have a residual of $41000. So I want to buy a 2015 Corvette for what it cost you to buy it out from a lessee.”

For the most part every lease has an option to purchase the vehicle at lease end for a predetermined price i.e the residual value. This is essentially the banks guess as to what the vehicle will be worth in 3 years. Now generally speaking there are a lot of bad leases out there due to High MSRP and low residual value (Corvettes, Luxury, Performance).

I propose an app or digital marketplace which will connect people who lease these cars and people who would like to buy these cars preowned. The system is predicated on the bad leases people sign on these cars which in turns makes them over pay for the vehicle, but then leaves equity at lease end if the market value surpasses the purchase option. Without having to purchase the vehicle and sell, you basically sell your right to buy the vehicle at a premium (basically like a stock option).

Here’s an example of how the system will work:

John leases a 2018 Corvette for 36 months, 10k miles, MSRP $71000, RV 56%. That means John will have an option to purchase the Corvette for $39750 at lease end. Fast forward 3 years, Sam wants to be a preowned Corvette to fulfill his midlife crisis, he goes to his local dealer who is offering 3 year old 2018’s for $48000. They both use the app to match and make a deal, the car on the app sells for $43000. John makes $2000, the app takes a percentage and Sam scored his dream car for $5000 under market.

I would appreciate your thoughts and concerns on the idea, as well as any insight you may have in any snags that might occur.

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Good idea. But usually the cars are worth less than what the set RV is. So Sam can buy it for cheaper from a private party seller than both the dealer and Johns model. I still believe that the help might help on some models because techincally carvana and vroom are using a similar model and flipping those cars with less profitability than regular dealers.

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Agree with Mani, almost all cars have no equity at lease end compared to payoff amount.

Captive finance companies often owned by the manufacturer fluff up the residual to lower lease payments and sell more cars. They eat the loss in the end due to them artificially propping up the values with hopes many people will buy at lease end term.

Many times if you have a car to return, you can return it to a dealer, the dealer then turns around and sells it to you for less than your original residual value. That is because the captive finance company gives it to the dealer for less, the difference + dealer fees are what the dealer can make.

Above is based on opinion and speculation and has not been independently verified.

Thanks for the input guys! It would be terrific is anybody can check their expiring lease contracts and see what their purchase option is and compare it to the market value. I believe it would only have arbitrage if the lease was “bad” low residual and high payments.

For our GLC vroom and caravan are willing to purchase it for about 400 below our current buyout so it should fetch more in a private sale. But how would the transfer go? When buying out the lease can it automatically be transferred to the new owner? Or would we buy it out in our name then sell it to the new owner. Double taxation?

Thats a good point. Is that even possible without incurring tax?

I can tell you on my Regal I turned in at the beginning of this year, the residual was around 19k, and that was a few thousand more than kbb said it was worth