I am returning a 328Xdrive, my buyout is $29K but the KBB value for my car, if CPO is $25K. If the car goes to auction it would probably go for under $20K. The MSRP on my vehicle in 2015 was $48K, my total payments are only $15,300
Do manufacturers inflate the MSRP and residuals so much so they don’t take a loss when lease returns go to auction? It doesn’t make sense to me.
My experience is that, in many cases, they simply DON’T make money on a lease return. Particularly when they set the residual value for the vehicle at a price that is now actually higher than market value today.
Example: 3 years ago, my wife leased a 2015 GMC Terrain. Loaded, leather, moonroof, navigation, chrome wheels and grill package…etc. Nice vehicle. 12,000 miles per year lease. MSRP 33,905. Residual 19,325. Now it’s time to turn it in and my wife only has 19,000 miles on this vehicle. And she still loves it. So, I thought about just buying it. But, when I look on used dealer lots around town, I can find the exact same vehicle similarly equipped, same or less miles, listed for sale for between 17K and 18K.
So, I am not thrilled about buying a vehicle for 19.3 when I can go and get the same vehicle for 18K. But I’d rather buy the one that I know where it’s been since day one, rather than the used ones on the lots. But the dealer doesn’t own the vehicle at this point. GM Financial does and they are not car dealers…they are basically a bank. And they do not seem to have any business acumen whatsoever and they have no interest in negotiating the buyout, which would put more money in their pocket. I have made numerous calls. Nobody over there seems to care that they are going to take a bath on this car if I turn it back to them at lease end. They have 2 options:
My offer pays them $6,000 in additional dollars in their pocket at lease-end and they want nothing to do with my offer. I have never talked to a group of bigger idiots in my life. Why would they take that stance? Does nobody at GM Financial have any business sense whatsoever?
I can only conclude that the finance company that holds the lease has no interest in trying to make any money (or minimize their losses) at the end of a lease. They simply don’t care. Cost of doing business. Write off. Whatever. But no interest in trying to maximize their return.
They make their money on the interest during the lease, as well as the acquisition and disposition fees, not at the end.
They artificially inflate the residuals so they can get people into attractive leases. The flipside being, they usually lose out at auction time. I suspect they may have some sort of insurance to cover at least some losses though.
The auto industry, and GM in particular, has huge fixed costs and needs to keep their massive plants humming to break even or generate any profit. They have no interest in keeping you in your current leased car and all their motivation is to get you into a new car…
That’s certainly true. They want to move the new cars and not sell the old ones. I get that. But i guess my point is that, if you look strictly at the dollars, they would make more money if I gave them 18K cash right now for this car which they are about to get 10 or 12K for at an auction, than they will make over the course of the next three years if I go and lease a new car from them right now.
I have wondered about this same question as well. My guess is the same as @mp11477, insurance.
Do you think every joe schmoe who leases got a leasehackr brain? Start reading the worst lease and those deals happen more iften than you think. Besides, manufacturers are so happy charging “other” naive buyers an arm and a leg with their high profit margin suvs and crossover. The reason why ford will stop manufacturing cars in the good ol usa. And dont forget those inflated parts and service.
It is like buying a $20 printer and then you found out the replacement ink cost $30-40 which probably cost $1 to manufacture in china.
How do manufacturers are charging naive buyers, again?
Should be “dealers” not manufacturers.
Obviously, but wanted to clarify with Force since he went into profit margins on SUVs.
In most cases manufactures want the customer to buy a new car, but buying out their lease at least from a dealership perspective is just as good if not better. We would rather make a nickle on the day of lease return on a lease buy out rather than wait 6 months and make a dime on the same car. The market is so saturated with used cars, and cars sitting on the lot that’s why there are so many APR adverts.
This is what happens when we have $200 3 series from 2013/2014 and $300 scatpack chargers it ruins the market as a whole, basically manufacturer greed that bites in them every 3 years.
Some fund providers, particularly banks, carry residual value insurance. It insurances against residuals that exceed the actual market value. Many of the captives, however, self insure their residuals probably because residual insurance carriers won’t insure them as they know that captives often inflate residuals. Banks are usually much more conservative. I’m almost certain that these insurance carriers have residual guidelines or underwriting criteria that insureds must follow.
Yep, and in the end it is all just part of the monopoly money game.
They make a few bucks on fees.
Make a few more on uneducated buyers.
Hedge against the inflated RV with insurance.
Own the bank, and capture the rent fee as well.
I don’t think insurance is the simple, and only answer, but I am going guess it is one tool they use to get accounting books to show a profit at year end.
It was always my understanding that most dealerships make a bulk of there profit from selling used cars but if the market is saturated from lease returns maybe cars are sitting on the lot for way to long to make much profit. I do understand your thoughts about the $200 bmw and $300 scat pack but those deals aren’t nearly as attainable in my searches so it shouldn’t be bothering the market after the initial 3 years. I had a Toyota Corolla that I wanted to buy out at the end of my lease (SEFT, I know they suck) and the FL dealer wanted me to pay $800 doc fee to buy it from there dealer even though the check was to be sent out to SEFT for the purchase. I told them to keep it and send it to auction which I have a buddy to tracked the vin through and it sold at auction for $9200 and I was ready to pay $15k cash for it. Couldn’t believe that they ruined and lost a sale based on what I consider to be scam charging people $800 to push a couple buttons a computer. And no they weren’t going to prep the car or anything at the dealer so yes $800 to push paper or some buttons, absolutely not.
To negatiate it would require them to have a department and staff it to deal with it. Might be easier to just take a loss and write it off.
Don’t feel special, they charge everyone the same.
I don’t feel special and they didn’t charge me I bought elsewhere.
And what doc fee did you pay at the other place ?
Nothing bought private sale. Any other greats questions???
so the moral of the story is even if you want to keep the car - chuck it back at the end of the lease, track the VIN, make best buds with someone who can get it at auction and grab a bargain…maybe.