Bad economy sinking luxury-car values, buy your lease car and possibly turn a $?
05-19-08, 02:49 AM
#1
G35x - RWD/AWD goodness
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Bad economy sinking luxury-car values, buy your lease car and possibly turn a $?
Terry Jackson
Suppose you're nearing the end of the lease on your luxury sedan, and you're pondering your options.
You can simply turn the vehicle back in and walk away or get into a new lease.
Or, you could buy the vehicle and possibly turn a profit.
Until recently, people leasing some luxury cars often found that their vehicles were worth more than the lease contract's residual -- the amount the car can be bought for at the end of the lease. This was particularly true if they had fewer miles on the odometer than allowed by the end of the lease.
But the tumbling economy has taken its toll on values for luxury cars, and many vehicles now coming off lease are worth less than the residual value.
According to the Black Book -- the industry guide used to set residual values -- the average 3-year-old Mercedes-Benz now coming off a lease is worth less than $30,000, while the value that was calculated when the lease began was more than $34,000.
BMWs, using the same calculations, are worth about $3,000 less than was calculated when the cars were new.
Values also are down for vehicles from Detroit manufacturers (due to the cloud of pessimism hovering over domestic car companies) and some Japanese carmakers (which generally have tighter sales margins).
But the drop for these cars averages less than $500, making it much less pronounced than the loss for European luxury vehicles.
This shift in used-car values can affect shoppers and people thinking about what to do when their leases run out.
If you're shopping for a European luxury sedan, it's turning into a buyer's market -- though shoppers shouldn't expect dealers to give away pristine late-model vehicles.
But buyers should expect that dealers will be flexible not only on initial pricing, but on terms for extended service contracts and cut-rate financing.
If you're bailing out of a lease and thinking about buying the vehicle, contact the leasing company a month or so before the lease is up and propose paying a lower residual value.
To determine what that value should be, check your vehicle's trade-in value on sites like KBB.com or Edmunds.com. That should be a starting point for negotiations, but don't be surprised if the agreed value is not rock-bottom. The leasing company or bank will only be willing to go so far before they will take their chances at auction.
One last thing to consider: When buying out your lease, avoid taking out a long-term loan to cover the cost. In the end, you'll wind up paying for the vehicle for seven years or more -- a bad deal when taking into account possibly costly repairs.
The shift in residual values also will affect people shopping for new vehicles.
Burned by falling values on cars now coming off lease, manufacturers are going to be far less liberal with setting residuals on 2008 and 2009 vehicles. That will likely translate into higher monthly lease payments.
Suppose you're nearing the end of the lease on your luxury sedan, and you're pondering your options.
You can simply turn the vehicle back in and walk away or get into a new lease.
Or, you could buy the vehicle and possibly turn a profit.
Until recently, people leasing some luxury cars often found that their vehicles were worth more than the lease contract's residual -- the amount the car can be bought for at the end of the lease. This was particularly true if they had fewer miles on the odometer than allowed by the end of the lease.
But the tumbling economy has taken its toll on values for luxury cars, and many vehicles now coming off lease are worth less than the residual value.
According to the Black Book -- the industry guide used to set residual values -- the average 3-year-old Mercedes-Benz now coming off a lease is worth less than $30,000, while the value that was calculated when the lease began was more than $34,000.
BMWs, using the same calculations, are worth about $3,000 less than was calculated when the cars were new.
Values also are down for vehicles from Detroit manufacturers (due to the cloud of pessimism hovering over domestic car companies) and some Japanese carmakers (which generally have tighter sales margins).
But the drop for these cars averages less than $500, making it much less pronounced than the loss for European luxury vehicles.
This shift in used-car values can affect shoppers and people thinking about what to do when their leases run out.
If you're shopping for a European luxury sedan, it's turning into a buyer's market -- though shoppers shouldn't expect dealers to give away pristine late-model vehicles.
But buyers should expect that dealers will be flexible not only on initial pricing, but on terms for extended service contracts and cut-rate financing.
If you're bailing out of a lease and thinking about buying the vehicle, contact the leasing company a month or so before the lease is up and propose paying a lower residual value.
To determine what that value should be, check your vehicle's trade-in value on sites like KBB.com or Edmunds.com. That should be a starting point for negotiations, but don't be surprised if the agreed value is not rock-bottom. The leasing company or bank will only be willing to go so far before they will take their chances at auction.
One last thing to consider: When buying out your lease, avoid taking out a long-term loan to cover the cost. In the end, you'll wind up paying for the vehicle for seven years or more -- a bad deal when taking into account possibly costly repairs.
The shift in residual values also will affect people shopping for new vehicles.
Burned by falling values on cars now coming off lease, manufacturers are going to be far less liberal with setting residuals on 2008 and 2009 vehicles. That will likely translate into higher monthly lease payments.
05-19-08, 04:44 AM
#2
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Bad economy sinking luxury-car values, buy your lease car and possibly turn a $?
05-19-08, 05:17 AM
#4
Lexus Champion
.....but I think he's saying they will negotiate on the residual purchase price.
05-19-08, 05:38 AM
#5
I think its the greatest thing happening. I'm looking for an 06+ SC430, but my budget is not to exceed 35K, so realistically I'm probably going to wait another year until I'm able to buy it at that price. However, recently I was bidding on this particular one on ebay, its an 06 with only like 11K miles. The seller was looking for 45K, but his reserve was never met. He keeps relisting the car, and I bid on it like four times, and I was the highest bidder I think three out of four times at 33K. The seller isn't willing to let the car go for 33K, but ebay if full of SC430's and noone is willing to pay the reserved prices. Soon enough the prices should tank, and thats just what I'm waiting for! 
05-19-08, 05:43 AM
#6
Lexus Champion
I think its the greatest thing happening. I'm looking for an 06+ SC430, but my budget is not to exceed 35K, so realistically I'm probably going to wait another year until I'm able to buy it at that price. However, recently I was bidding on this particular one on ebay, its an 06 with only like 11K miles. The seller was looking for 45K, but his reserve was never met. He keeps relisting the car, and I bid on it like four times, and I was the highest bidder I think three out of four times at 33K. The seller isn't willing to let the car go for 33K, but ebay if full of SC430's and noone is willing to pay the reserved prices. Soon enough the prices should tank, and thats just what I'm waiting for!
http://www.autotrader.com/fyc/vdp.js...0&cardist=1619
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05-19-08, 07:59 AM
#8
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My brother is trying to figure out what to do with his IS300. He has a new job and company car. However, he still owes $13,000 on his IS and he put a ton of miles on it so its at 100k miles. What to do. What to do.
05-19-08, 10:40 AM
#9
Lexus Fanatic
A couple of things here. Since lease rates are primarily determined on the car's projected residual value, if you have a luxury car that has depreciated more during the lease term than the manufacturer thought it would, you've already come out ahead at the end of the lease term, no matter what you do, just by taking it back to the dealer and turning in the keys. You've got the extra money in your pocket that you would have spent on the lease if the car had been projected to depreciate more.
So the question not becomes.....what to do with that money? You could renegotiate another lease on a new luxury car, of course....and with those extra $$$ in your pocket, maybe get a more expensive car than you could of otherwise. Or, a more sensible approach, IMO, would be to use to extra $$$ to get a cheaper or more economical car to operate.......gas is expensive today no matter what kind of car you buy, and you can figure it is going to cost good money to operate it regardless of what you pay out in monthly lease payments. So, for instance, if you are taking back an Audi A4 or A6 at the end of its lease, consider a VW Passat diesel instead of another Audi. If you are taking back a Lexus ES, GS, etc....., consider a Camry Hybrid instead (if you can live with the Camry's super-cheap dash materials). If you are taking back an Acura TL, RL, TSX, etc...., then consider a Accord four-cylinder for gas mileage....or maybe a new TSX four-cylinder at most, though the new TSX interior, like the Camry's, is a disappointment compared to previous versions.
So the question not becomes.....what to do with that money? You could renegotiate another lease on a new luxury car, of course....and with those extra $$$ in your pocket, maybe get a more expensive car than you could of otherwise. Or, a more sensible approach, IMO, would be to use to extra $$$ to get a cheaper or more economical car to operate.......gas is expensive today no matter what kind of car you buy, and you can figure it is going to cost good money to operate it regardless of what you pay out in monthly lease payments. So, for instance, if you are taking back an Audi A4 or A6 at the end of its lease, consider a VW Passat diesel instead of another Audi. If you are taking back a Lexus ES, GS, etc....., consider a Camry Hybrid instead (if you can live with the Camry's super-cheap dash materials). If you are taking back an Acura TL, RL, TSX, etc...., then consider a Accord four-cylinder for gas mileage....or maybe a new TSX four-cylinder at most, though the new TSX interior, like the Camry's, is a disappointment compared to previous versions.
05-19-08, 10:48 AM
#10
on the flip side of this report, it reminds me of all the people who whine left and right about the "poor" residual values on lexus cars. i have always said it's not lexus have poor residuals, it's euro companies putting UNREALISTICALLY high residual numbers to manipulate the lease payments.
no one listened. now we see who's right
no one listened. now we see who's right
05-19-08, 10:58 AM
#11
Lexus Fanatic
on the flip side of this report, it reminds me of all the people who whine left and right about the "poor" residual values on lexus cars. i have always said it's not lexus have poor residuals, it's euro companies putting UNREALISTICALLY high residual numbers to manipulate the lease payments.
no one listened. now we see who's right
no one listened. now we see who's right
And, of course, if the dealership attempts to recover the lost money by raising the price on the car if you decide to buy it, you, of course, don't have to accept the offer....you can simply say no and go look at something else.
Last edited by mmarshall; 05-19-08 at 11:04 AM.
05-19-08, 11:25 AM
#12
Guest
Posts: n/a
on the flip side of this report, it reminds me of all the people who whine left and right about the "poor" residual values on lexus cars. i have always said it's not lexus have poor residuals, it's euro companies putting UNREALISTICALLY high residual numbers to manipulate the lease payments.
no one listened. now we see who's right
no one listened. now we see who's right
05-19-08, 11:35 AM
#13
But, Henry, it's those "unrealistically high" residual numbers, particularly on BMWs, that has made recent lease rates on them comparitavely good deals for the car shopper. He or she has had lower monthly payments on them than if they had been priced according to their true deperciation and residual value. If you, as a car buyer, take the car back to the dealership at the end of the lease term and have no added-on charges due to excessive mileage or the wear-and-tear clause, your only obligations are to take your things out of the car, turn in the keys, and walk away (or pick out another car). If the dealership or the manufacturer has lost money on the deal by under-pricing the lease, that is not your problem...it is theirs. A contract is a contract.
And, of course, if the dealership attempts to recover the lost money by raising the price on the car if you decide to buy it, you, of course, don't have to accept the offer....you can simply say no and go look at something else.
And, of course, if the dealership attempts to recover the lost money by raising the price on the car if you decide to buy it, you, of course, don't have to accept the offer....you can simply say no and go look at something else.
my point was against those who said lexus depreciation sux. their cars drop on values too fast. bmw and mb has "much better" depreciation. those are all false statements. lexus residual are much more realistic, that's the real case
in fact, i know sales at bmw dealership, and they say it's painful to see lease return, coz' for them to turn the car around, they "lose" money
05-19-08, 11:39 AM
#14
they are looking at short term and make people lease cars. 3 yrs later, people return their cars (of course most of them don't buy out the cars) and want to lease again. bmw and mb cannot lower the residual or raise MF coz' people would scream saying the cars are a lot more "expensive" now.
that pushes bmw and mb to continue off higher residuals as well as lowering MF to keep people leasing.
yes, on paper it's good coz' bmw and mb customers go in and out with new cars, etc... but on the company? that's bad move
05-19-08, 12:06 PM
#15
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Great points and we have stated them in the monthly sales thread. It seems not just the housing market but the car lending market was basically letting anyone/everyone get cars and people were buying a lot more than they should. There are no ethics, just a lot of companies chasing sales numbers the wrong way. Any executive knows eventually, this kind of selling will come and bite you on the ***.
BMW Germany already stated their concerns with selling practices here.
Lexus has ALWAYS stated they are not after being #1 in sales. If they are #1 in sales that is great but they simply want to build what they feel is the best product.
There is a nationwide lease deal for the new G35, $349 a month with 3k or so down. WTF? That note is less than buying a new Sentra or Altima.
It simply does not add up long term. Short term, it spurs sales. Long term it hurts your cars value and the prestige factor.
BMW Germany already stated their concerns with selling practices here.
Lexus has ALWAYS stated they are not after being #1 in sales. If they are #1 in sales that is great but they simply want to build what they feel is the best product.
There is a nationwide lease deal for the new G35, $349 a month with 3k or so down. WTF? That note is less than buying a new Sentra or Altima.
It simply does not add up long term. Short term, it spurs sales. Long term it hurts your cars value and the prestige factor.
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