Can a dealer artificially deflate residual?

Are dealers allowed to lie about the residual or are they bound to the residual set by the lease company? For example, can a dealer decrease residual to increase their profits?

No. The dealer cannot do that.

I fail to see how that would go into the dealers pocket (would actually go to the bank).

Dealer profit is based on (AFAIK):

  1. Profit on sales of cars and volume bonuses
  2. markups on MF
  3. Accessories and dealer installed items
  4. F&I products

That’s what I was trying to ask as well - if a dealer did lie about residual, would the extra amount on the lease payments go to the dealer? You answered my question.

Question: What is F&I?

“Finance and insurance” i.e. All the extra warranties, service plans and wheel/tire/dent etc protection

Let me weigh in on this one because I know the answer. The short answer is yes, dealers can lower the residual (just not increase it). The long answer is that it depends on the lender (captive or otherwise) but banks do allow residuals to be lowered. The extra payment does not go to the dealer as the lower residual just results in a higher depreciation amount. Yes, the benefit can go to the bank assuming you sign at a lower residual and then just give the car back at the end of the lease.

The reason someone might do this (sign at a lower residual - i.e. a higher payment) is because they want the end buyout to be lower because the residual is also called the “purchase option” on the contract. You may want a higher payment upfront if you get to write off the lease payment (and get a tax benefit) and then buy it for a lower price in the end. People who have businesses may do this. Hope my long winded answer satisfies your curiosity.

1 Like

Great response. Thanks!

Thanks for chiming in, @Irongunner. Always good to get some industry perspective

A relevant thread for a situation now at the beginning of March when the RV suddenly went up by 6% overnight. Per Edmunds source

2017 C-Class residuals have gone up by 6% for the 36 month term…

As I signed a lease on 3/1 last evening which is dated 3/1 but has a depreciation corresponding to February, do I have any leverage to request the numbers per the the March RV

I think this needs to be answered/confirmed by a salesperson. From what I hear though, some dealers don’t get updated RV/MF right away and the captive will allow dealers to use the last month numbers during the first few days of the month.