Theory of a lease?
04-15-09, 12:59 PM
#1
Racer
Thread Starter
Theory of a lease?
GX owners/lessees,
I'm looking for a used GX and found that a 3-4yo GX with low miles sells for about $30-$35k. When comparing it to a new GX from Lexus, I learned that a 3 yr lease is about $36k ($950/mo over 36mo plus some other fees). Therefore, after 3yrs, the car has been paid down to about $20k (based upon a $56k new price). How can Lexus get away with such a high price for the lease AND/OR used prices sell for $10k over the amt of money remaining to payoff the car outright?
Does this logic make any sense? See additional notes below...
New car price: $56,000
Monthly Lease: $950/mo for 36mo
Total lease payments and fees after 36mo: $36,000
amt $ due to pay off Car's orig MSRP after 36mo: $20,000
Retail Sales price for low miles 3 year old GX: $32,000
Profit after lease: $12,000
How can the public be abused this bad by Lexus?
I'm looking for a used GX and found that a 3-4yo GX with low miles sells for about $30-$35k. When comparing it to a new GX from Lexus, I learned that a 3 yr lease is about $36k ($950/mo over 36mo plus some other fees). Therefore, after 3yrs, the car has been paid down to about $20k (based upon a $56k new price). How can Lexus get away with such a high price for the lease AND/OR used prices sell for $10k over the amt of money remaining to payoff the car outright?
Does this logic make any sense? See additional notes below...
New car price: $56,000
Monthly Lease: $950/mo for 36mo
Total lease payments and fees after 36mo: $36,000
amt $ due to pay off Car's orig MSRP after 36mo: $20,000
Retail Sales price for low miles 3 year old GX: $32,000
Profit after lease: $12,000
How can the public be abused this bad by Lexus?
Last edited by DDLexus; 04-16-09 at 07:41 AM. Reason: fixed the useage of residual term
04-15-09, 01:30 PM
#2
You kind of answered your own question. It makes sense if you are the dealer. This is why leases are more profitable for dealers/banks then selling a car, which is also why you should always negotiate a lease.
04-15-09, 01:38 PM
#3
Lead Lap
Your #s are off b/c you are forgetting the finance charges associated w/ leasing and with holding their $ during the term of the lease. For instance, would lend someone your car (say worth $30K now) plus $26K in cash for 36 months w/o charging them interest only to get the beat up car and $26K back after 3 years? If so, I'll be right over 
Essentially when you lease, you are paying for the depreciation, wear and tear and a 'rental/usage' fee for the vehicle for X period of time. Plus you are paying a finance charge for holding the residual value of the vehicle for that same time frame. To simplify it though for consumers, it's all rolled up into one #, the MF (money factor) plus the residual value.
In short though, unless you can write off the cost of leasing for business purposes, it really makes little financial sense to lease vehicles personally. Of course there are exceptions such as extremely high residual values or an exceptionally low MF, etc., but in a nutshell.....
Essentially when you lease, you are paying for the depreciation, wear and tear and a 'rental/usage' fee for the vehicle for X period of time. Plus you are paying a finance charge for holding the residual value of the vehicle for that same time frame. To simplify it though for consumers, it's all rolled up into one #, the MF (money factor) plus the residual value.
In short though, unless you can write off the cost of leasing for business purposes, it really makes little financial sense to lease vehicles personally. Of course there are exceptions such as extremely high residual values or an exceptionally low MF, etc., but in a nutshell.....
04-15-09, 02:10 PM
#4
Pole Position
Your #s are off b/c you are forgetting the finance charges associated w/ leasing and with holding their $ during the term of the lease. For instance, would lend someone your car (say worth $30K now) plus $26K in cash for 36 months w/o charging them interest only to get the beat up car and $26K back after 3 years? If so, I'll be right over
Essentially when you lease, you are paying for the depreciation, wear and tear and a 'rental/usage' fee for the vehicle for X period of time. Plus you are paying a finance charge for holding the residual value of the vehicle for that same time frame. To simplify it though for consumers, it's all rolled up into one #, the MF (money factor) plus the residual value.
In short though, unless you can write off the cost of leasing for business purposes, it really makes little financial sense to lease vehicles personally. Of course there are exceptions such as extremely high residual values or an exceptionally low MF, etc., but in a nutshell.....
Essentially when you lease, you are paying for the depreciation, wear and tear and a 'rental/usage' fee for the vehicle for X period of time. Plus you are paying a finance charge for holding the residual value of the vehicle for that same time frame. To simplify it though for consumers, it's all rolled up into one #, the MF (money factor) plus the residual value.
In short though, unless you can write off the cost of leasing for business purposes, it really makes little financial sense to lease vehicles personally. Of course there are exceptions such as extremely high residual values or an exceptionally low MF, etc., but in a nutshell.....
I agree. That, and the fact that you get a brand new vehicle every 2 to 3 years. Some people might like that 
Also helps you avoid the hassles of the long-term ownership: "babying" the car, stressing over the the maintenance schedule, etc...
04-15-09, 07:35 PM
#6
Lexus Test Driver
How many miles per year? What's the money factor on the lease? Is this through LFS or a different lender? What's the actual purchase price that you negotiated? Does the transaction involve a trade? How much $ down if any?
The quote looks high to me on the surface. I agree with the other post that the residual is very low if your looking at a 15k mile per year lease.
The quote looks high to me on the surface. I agree with the other post that the residual is very low if your looking at a 15k mile per year lease.
04-16-09, 06:29 AM
#7
Racer
Thread Starter
Sales Price - Total Lease Payments & Fees = "amt remaining to pay off car"
$56,000 - $36,000 = $20,000
Retail Sales Price of 3yo GX with 30k miles - "amt remaining to pay off car" = Dealer profit (lease vehicle)
$32,000 - $20,000 = $12,000
My logic should be clear however.
Just seems like the whole deal is shady!
$56,000 - $36,000 = $20,000
Retail Sales Price of 3yo GX with 30k miles - "amt remaining to pay off car" = Dealer profit (lease vehicle)
$32,000 - $20,000 = $12,000
My logic should be clear however.
Just seems like the whole deal is shady!
Last edited by DDLexus; 04-16-09 at 07:40 AM. Reason: fixed the residual useage
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04-16-09, 06:41 AM
#8
Lead Lap
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The $20K is wrong. That number should be much higher unless you are driving a ridiculous amount of miles.
Also, you can quit referring to it as "dealer profit", it doesn't work that way. The vehicle belongs to Lexus, not the dealer.
And again, that $20K is way off. We just bid a 2004 GX, no Nav, no Levinson, with almost 65K miles for either $20K or $21K.
Even KBB pegs a 3 year old $56K GX with 45,000 miles as $26,500, which is about right.
Also, you can quit referring to it as "dealer profit", it doesn't work that way. The vehicle belongs to Lexus, not the dealer.
And again, that $20K is way off. We just bid a 2004 GX, no Nav, no Levinson, with almost 65K miles for either $20K or $21K.
Even KBB pegs a 3 year old $56K GX with 45,000 miles as $26,500, which is about right.
04-16-09, 07:06 AM
#9
Racer
Thread Starter
I guess you didn't see the statement about the car being 3 YEARS OLD selling for $32k. I'm not taking about a 5 year old 2004 GX. These are 3 year old 30-40k mile lease returns loaded with NAV and DVD (orig new price of $56k). If you find a 2006 with 30-40k miles for $26,500, that would be amazing!!! You can't even find 2005 for that price.
04-16-09, 07:27 AM
#10
Racer
Thread Starter
BTW, I went to Mercedes Financial site and estimated the same terms on a similarly priced E350 sedan ($55,000) and learned that the 3yr lease was $80/month less.
Lexus=$946
MB=$870
Which has the higher resale? The Lexus GX does... so, why are the lease payments higher? Greed?
Lexus=$946
MB=$870
Which has the higher resale? The Lexus GX does... so, why are the lease payments higher? Greed?
04-16-09, 07:34 AM
#12
Not sure about your assumptions, but the lease process and vehicle turn around usually works the same across the board - in a nut-shell it ends up being very profitable for a dealer much more so than a cash transaction. That said, the profit a dealer receives all depends on the lease terms and arrangement with the bank.
The dealer profits on leases in several ways, 1) on the capitalization cost (lease cost) of the vehicle, 2) on the interest rate spread or more simply put the dealer who originates the loan sells it to the bank often times at a lower interest rate whereby the dealer makes an additional profit based on the interest rate differance over the course of the loan, 3) if the dealer buys the car from the bank at the end of the lease they will re-sell it for a profit (which equates to the differance between the purchase price, carrying costs, dealer prep costs, commission etc) - same holds true for cars bought at auction, but often auction bought vehicles can yield an even greater profit for a dealer.
That said, dealers usually don't buy the car directly from the bank at the end of a customer's lease. More often than not banks send most lease return vehicles to auction which is where dealers obtain most of their used car inventory. This allows dealers greater flexibility in terms of inventory control. Often times these cars can be had at a discount to the lease end residual value which also explains why dealers often don't buy from the bank directly at lease trade-in.
All that aside, as you have deduced, the profit margin on a used vehicle can be significant.
The dealer profits on leases in several ways, 1) on the capitalization cost (lease cost) of the vehicle, 2) on the interest rate spread or more simply put the dealer who originates the loan sells it to the bank often times at a lower interest rate whereby the dealer makes an additional profit based on the interest rate differance over the course of the loan, 3) if the dealer buys the car from the bank at the end of the lease they will re-sell it for a profit (which equates to the differance between the purchase price, carrying costs, dealer prep costs, commission etc) - same holds true for cars bought at auction, but often auction bought vehicles can yield an even greater profit for a dealer.
That said, dealers usually don't buy the car directly from the bank at the end of a customer's lease. More often than not banks send most lease return vehicles to auction which is where dealers obtain most of their used car inventory. This allows dealers greater flexibility in terms of inventory control. Often times these cars can be had at a discount to the lease end residual value which also explains why dealers often don't buy from the bank directly at lease trade-in.
All that aside, as you have deduced, the profit margin on a used vehicle can be significant.
04-16-09, 07:43 AM
#14
Racer
Thread Starter
Not sure about your assumptions, but the lease process and vehicle turn around usually works the same across the board - in a nut-shell it ends up being very profitable for a dealer much more so than a cash transaction. That said, the profit a dealer receives all depends on the lease terms and arrangement with the bank.
The dealer profits on leases in several ways, 1) on the capitalization cost (lease cost) of the vehicle, 2) on the interest rate spread or more simply put the dealer who originates the loan sells it to the bank often times at a lower interest rate whereby the dealer makes an additional profit based on the interest rate differance over the course of the loan, 3) if the dealer buys the car from the bank at the end of the lease they will re-sell it for a profit (which equates to the differance between the purchase price, carrying costs, dealer prep costs, commission etc) - same holds true for cars bought at auction, but often auction bought vehicles can yield an even greater profit for a dealer.
That said, dealers usually don't buy the car directly from the bank at the end of a customer's lease. More often than not banks send most lease return vehicles to auction which is where dealers obtain most of their used car inventory. This allows dealers greater flexibility in terms of inventory control. Often times these cars can be had at a discount to the lease end residual value which also explains why dealers often don't buy from the bank directly at lease trade-in.
All that aside, as you have deduced, the profit margin on a used vehicle can be significant.
The dealer profits on leases in several ways, 1) on the capitalization cost (lease cost) of the vehicle, 2) on the interest rate spread or more simply put the dealer who originates the loan sells it to the bank often times at a lower interest rate whereby the dealer makes an additional profit based on the interest rate differance over the course of the loan, 3) if the dealer buys the car from the bank at the end of the lease they will re-sell it for a profit (which equates to the differance between the purchase price, carrying costs, dealer prep costs, commission etc) - same holds true for cars bought at auction, but often auction bought vehicles can yield an even greater profit for a dealer.
That said, dealers usually don't buy the car directly from the bank at the end of a customer's lease. More often than not banks send most lease return vehicles to auction which is where dealers obtain most of their used car inventory. This allows dealers greater flexibility in terms of inventory control. Often times these cars can be had at a discount to the lease end residual value which also explains why dealers often don't buy from the bank directly at lease trade-in.
All that aside, as you have deduced, the profit margin on a used vehicle can be significant.
04-16-09, 07:52 AM
#15
BTW, I went to Mercedes Financial site and estimated the same terms on a similarly priced E350 sedan ($55,000) and learned that the 3yr lease was $80/month less.
Lexus=$946
MB=$870
Which has the higher resale? The Lexus GX does... so, why are the lease payments higher? Greed?
Lexus=$946
MB=$870
Which has the higher resale? The Lexus GX does... so, why are the lease payments higher? Greed?
The other contributing factor which I eluded to above, is the interest rate on the loan/lease. One cannot see that from looking at a model on a dealer website.
One last tid-bit, never lease a vehicle based on the MSRP negotiate the price of the vehicle as if you were buying it.
Last edited by cssnms; 04-16-09 at 07:58 AM.