Problem with inflated residuals - how to know?

Ask the Hackrs
1

I was reading somewhere on this awesome site about how Mercedes and BMW inflate their residuals to make their cars more affordable with leasing…

Is there a way to double check to see if a residual value is indeed inflated?

2

There is a problem with your title. It should say:
Great news: Inflated Residuals. No need to know why, Lease now!

Since when is inflated residual a problem? Inflated residual makes lease cheaper :slight_smile: Unless you are the banker :slight_smile:

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3

I appreciate the humor…

I lease cars for 30 months. And I drive WAY over the allotted mileage.

But that is okay, because I sell my back to CarMax/"stealer"ship and bank the extra money.

But of course this only works if the residual value is real, not inflated. If it is inflated, I lose.

I learned this from a Toyota salesman in Canada. That guy changed my entire mindset on driving a car. He proved to me that traditional leasing is a whopper of a scam. Instead, I just sell it back and avoid paying all the lease-end B.S.

4

Not sure what you mean:

  1. If you sell your car, do you pay sales tax on transfer? Or does CarMax take direct possession? If you get taxed, then that is much worse than lease end BS. But of course, getting someone to pay cash for your car (even break even) is always better…avoid termination fees and any excess wear and tear.

  2. If residual is lower (not inflated), then you’ll just ended paying more every month…thereby negating any “profit” you might gain on sale of car. Leases aren’t magic…if you have a lower residual, then the payment MUST be higher.

  3. Best leases are those with low interest rates, deep discount off MSRP, high residual and off course any type of “customer cash” used to offset drive offs/fees.

But maybe things are different in Canada!!!

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5

Read about it here…

6

I’m not going to read 113 pages which is mostly about leasing vs buying.

My question to you is why do you think inflated residuals are bad? If you are planning on taking possession of the car sometime during the lease, then it is irrelevant…one way or another, you will pay. If you can show me an example that would work out otherwise, please do so…I’m curious and more than open to changing my mind.

And, at least here in the USA, the only ways to make money at lease end are if the car somehow becomes more valuable over time, or if you got an incredible discount on the car (that happened to me once…2010? Mercedes E350…last year of model…they were discounting the car 20K, from 55 to 35K, but two years later the car was still worth about 33K!)

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7

Now you are the funny one :slight_smile:

8

I understand.

I am not looking to get into a big debate.

I was just hoping someone could give me advice on how to know if residuals are inflated - that’s all.

9

Lol check the price of the used 3 year old off lease car at the dealership and see how it compares to residuals

10

I wish I could do that…

But that includes the "stealer"ship’s profit.

I want to find out what I can sell back my leased car to a "stealer"ship so they can turn it around and sell on their lot at a fair profit. Everyone wins.

11

Since the MSRP includes the stealership and manufacburglar profit as well, then the listed price of a used car at the stealership is a good indication of the residual %

For example, you do know that people don’t lease at MSRP right?

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12

Of course. I regularly get 18 to 20% off of MSRP on my leases.

By the way, did you know a computer hacker busted into the “manufacburglar” (thank you for that… I am stealing it)'s pricing system…

And they discovered that "stealer"ships buy cars at 50% off MSRP!!!

Of course, the car industry VEHEMENTLY denies this - gotta convince the sheep that invoice is the lowest price, right?

13

So you get 20% off your leases, drive WAY MORE than the mileage alloted and then sell the cars for a PROFIT over the residual. Wow must be good to be you.

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14

This is feeling like a troll thread…lease car, drive over miles, sell (not private, but to a dealer) before lease end and then make a profit???

Like I said in my earlier post, it can happen under very rare circumstances, but that’s about it.

If the OP would like to share details of instances where this was done, then I’m all ears.

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15

I think the lease broker is trying to tell us it is better to lease his car than lease it from the manufacturer.

16

How many leases per year is regularly?

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17

There is really no way to say if a residual is inflated or not – how can you predict 3 years into the future? At best, it is a guess & the rationale behind setting it higher or lower is part of the company strategy set by management (perhaps to hit sales goals). Most people prefer to have a higher residual so that their rent cost is less.

There is a guy here @RVguy that sets RVs for his credit union, maybe he knows the math behind it

18

Hit the nail on the head. (Although you do appear to have written ‘rent’ in place of depreciation, must be a slip)

Somebody pass the crystal ball to the OP

19

Hi @max_g, I started seeing “depreciation” and “rent cost” used interchangeably … should just follow the words used in the “how to calculate lease by hand” (depreciation)

20

They are two very distinct things. I’m surprised anyone is using them interchangeably.