Been checking around with a few dealers over the last several weeks and also have been checking Edmunds for RV numbers.
I was surprised to find that most of the upper trim models of many car lines usually have a lower RV value! The Highlander XLE AWD (68%) is 3 percent more than the Limited AWD (65%). The Honda CR-V EX-L AWD with Navigation (65%) is 5 percent more than the Touring AWD (60%). I have found other brands that also have similar differences between the lesser trims and the upper trims.
I have also found that many times an AWD has a higher RV than a FWD. Both of these numbers really surprised me, as I thought a fully loaded top of the line model would have been valued higher at the end of the lease.
I also thought a FWD which is usually $1200-$1800 less to purchase would be valued higher at the end because of less maintenance, better fuel milage, and a limited market in many areas of the country for an AWD. I initially was pricing FWD Highlanders and found the AWD was a better lease even considering the extra cost to begin with for the AWD.
Just thought I would mention what I have found and wonder if anyone has any ideas why higher trim models don’t have a better RV in many cases.
Because the options are overpriced to begin with and lose value over the term of the lease. $500-$1,000 for nav when a $100 Garmin does more and performs better? Also, these options are costly to repair/replace if they fail later in vehicle’s life, so they are sometimes more of a liability than an asset after 3 years and thus a used buyer may not want expensive 22 inch rims and tires and a big glass roof that may leak one day, plus all the extra electronics that can fail.
RVs are forecasts of future resale values and are based largely on today’s auction prices and expected changes in market conditions between today and some point out in the future. For example, if the 2014MY auction prices on the Highlander XLE and Limited today are separated by $1500 and there is a similar content walk on the 17MY Highlander XLE and Limited, then the RVs on the 17s will be set to reflect today’s $ premium at auction.
Car manufacturers price content for new cars based on what other car manufacturers are currently charging. Comparably Equipped Pricing (CEP) values are tabulated and used by nearly every car manufacturer so in essence they are all chasing each other’s tails regarding pricing. Content is bundled and priced with specific values to make up a grade walk within a model lineup that corresponds to what new car buyers are willing to spend for certain content groups.
Used buyers tend to be more frugal with the value they put on the same content. Content that adds indefinite utility and functionality that is not easily outdated (leather, moonroof, power lift gate, etc.) will have higher used values than technology features that will be easily outdated when the car is 3 years old.
Take any model on the market today and as you go up the grade walk, you are adding more and more content which may appeal to new buyers but the pricing does not scale 1:1 with the value that used buyers will be willing to pay for that content. So on a % basis, the RV will almost always decrease as you go up the grade walk.
AWD is a different type of feature and the value used buyers will pay for it depends on the segment. AWD variants on luxury sedans are not currently holding high values at auction (over the fwd and rwd variants). AWD sedans tend to be slightly slower/heavier and are usually worse on MPG. But on utility vehicles and trucks, AWD and 4wd commands large premiums at auction. Certain regions have much higher AWD premiums than others and there is a seasonal pattern as well but since RVs are set nationally they need to reflect the overall national average premium. This is why you will see the RVs in most cases slightly higher on the AWD versions.
Thank you! Never thought too much about the used car market and auction prices. It makes sense after reading the replies but I wish it was the other way around!
Oh well, still trying to put a deal together on the Honda or the Toyota. Just have to decide what trims are worth the price to me. Looking more and more like the trims a step down from the top.
I’m confused. I thought the higher the Residual Value in % the better. For example if I have a 100,000$ car and the residual value is 70% after 3 years then after three years the car is worth 70k.
@PrettyBoyAJ I’m not sure if I can clear this up but I will try.
The RV$ amount is the RV% x MSRP for a specific VIN and this is the future price a lender is putting on that vehicle at the end of the term. What the car is actually worth 3 years from lease inception is determined by the market, not the RV%.
Competition for new car sales volume is so fierce that lenders will often set an RV% above where they think the real market price will be (in a loss position) to allow for attractive monthly payments. The RV% is one of several levers a lender can pull to manipulate the monthly payment and stay competitive in the market. The MF and other types of incentives are the other levers.
The key thing to understand is the difference between MSRPs and actual transaction prices (the actual selling price after all rebates and other incentives). This forum prides itself on figuring out how to minimizing the ratio of monthly payment to MSRP. 1% of MSRP has become a common yard stick to determine if a lease deal is good/bad.
After a car manufacturer produces a set volume of units on a model and if actual demand isn’t as strong as they hoped, the incentive spending will increase and you’ll see large gaps between MSRPs and actual transaction prices. This sends a message to the market that their brand is distressed. Look no further than any car from Infiniti, BMW and a handful of luxury brands in this boat right now. Same goes with domestic trucks now as well but their profitability has been increasing over time so they were prices with large incentives planned out. New car incentives put downward pressure on used prices with a very short time lag so RV%s will drop over time.
Some car manufacturers are more disciplined with their new car pricing and production targets so they will price their vehicles closer to transaction prices and are careful to not overproduce. This will reduce their dependence on high incentives. Toyota (on everything except high volume cars), Subaru and Honda are in this camp.
Incentives only go up as a model progresses through its lifecycle. Redesigns and minor refreshes will act as an incentive reset button unless their pricing increases beyond what the redesign is expected to add to the auction prices when the car is 3 years old.
The interesting thing about the hall of fame lease deals discussed on this site are that they are often times caused by an accidental RV/MF/incentive combo on top of the dealer’s willingness to move each unit at whatever cost. For example, GM Financial didn’t set their 24mo Cruze RVs knowing that there would be the heavy red tag bonus discounts on specific VINs. The same phenomenon applied to the Ghibli deals or anything else seen here that are almost too good to be true.
The way I see it, upper trims depreciate more because values begin to converge as cars get older.
E.g., a $50K base model might be expected to be worth $30K in 3 years, i.e. RV 60%. A highly optioned version of the same car might have MSRP $60K but might be expected to be worth $34,200 in 3 years, i.e. RV 57%.
I would also guess OEMs know/think shoppers of the higher trims might be less price-sensitive. Most people don’t think like hackrs do. We don’t fixate on monthly payments. But a typical shopper might think, “I really want XYZ options and it’s only $80 per month more.” I think marketers figured out long ago that they could get people to spend more if the consumer thought about the extra monthly $ instead of the extra total $.
Like @RVguy said - technology gets old fast, that’s why (but not just because of this) higher trims have lower RVs. So brands set their lease RVs accordingly. In 3 years difference between base and top levels will be less % than when new.
Yes, all 3 of you are correct. The real interesting lease deals are where the cost to move up to a certain grade level is much cheaper on a lease than on a finance contract.
The most extreme example I can think of is the Wrangler 2dr vs 4dr. The RVs for the 4dr Sport are so much higher than the 2dr Sport so you can lease a 4dr Sport for around $75-150/mo less than the 2dr. But if you were to finance either of those models, your payment scales with the MSRP difference.
