DDLexus

I'm seriously considering buying a LS430 from the Manheim Auction. I'm going to research the selling prices for the 2001 year to find out what dealers are paying for them. The whole car business is making sense now. Follow along with me...

You LEASE your new LS430 from Lexus. After the lease is up, you drop off your car at their shop, they try to sell it and make a profit, but can elect to take it to the auction (since you, the leasor have paid enough money to sell the car for more money than the depreciation value, they can make a profit there).

Example in $$$. The new LS costs $60k. You put down $4k, and pay $900 a month. In Three years, you've paid $35,400. That means only $24,600 is owed to the bank. The car can realisticly sell at the auction for a few hundred about this price so that the bank still makes $ on the investment.

I'm thinking that I can get into a 2001 LS430 for about $31k. Since most lease vechicles have a mileage lmit around 40-50k miles, I'm looking for this range.

Anyone have experience with auto auctions? Helpful hints?

daryll40

There is an HUGE flaw in your math.

The flaw is that the bank/finance company that wrote the lease needs to make interest on the money tied up in the car. So using your example assuming a 6% finance rate:

Cost $60,000, Cash upfront $4,000 so the net lease financed is $56,000

At 6%, a $900/month payment will amortize that $56,000 down to $31,600, not your number of $24,600. And in the event that the car is indeed worth MORE than what is owed on the lease, one of two things will happen before you ever get a crack at getting a bargain:

1. Most likely the lessee (especially someone smart enough to accumulate enough wealth to be driving a new LS) is going to recognize the excess and sell the car or get the dealer to give him more than the residual.

2. In the event the lessee in #1 IS dumb, the dealer will buy the car for the residual then wholesale the car for more than the residual.

3. If for some very suspicious reason a car DOES come back to Toyota with more amortized than what is owed on the lease, Toyota (or other lessor) will recoup that excess at auction when the invisible hand of the free market bids up the price to what it's really worth.


Totally flawed (non) logic.

DDLexus

You are correct. The bank MUST make money on this lease. If you re-read my original post, you'll see that I factored this into my estimated purchase price of $31k.

You lost me on the buy back option... I have never leased a car, but assume you are saying the if you sign a three year lease, you have the option to buy. If the car is worth more money on the open market than the amount of the buyout, the "intelligent" owner would buy the car, then sell it to make money on the difference.

If this is the case, why does this not happen very often. If it did happen often, the dealers would loose money on the "used car" lot. Right?

daryll40

In the mid 1990s, it DID happen all the time. People had "equity" at lease-end that they could capture by selling the vehicle outright or selling to a dealer as part of the new car deal. This was especially true on SUVs since they were a relatively new product with great demand for used ones and a small market of used ones becoming available.

Since then, however, leasing has become more competitive and many (most?) manufacturers have pumped up estimated residuals while used car prices have fallen due to all the "zero interest" and other incentives on new cars that is effectively a price cut on the new car. And the SUV market has become saturated so demand for used SUVs (hence, resale value) has fallen dramatically. Not to mention the Ford Exploder scandal and now rising gas prices. In other words, the leasing companies know in advance that the returning car probably will be worth less than the estimated residual value...the manufacturers make it up elsewhere as the cost of moving the metal and keeping payments competitive. Many, like Ford, actually lost money because of this calculated and miscalculated estimate.

All of that being said, the real bottom line is that regardless of what financing was on the car to begin with, at auction the car will sell for what someone is willing to pay...in other words, what it's worth. If the prior bank, leasing company, dealer or individual owner had equity in it or not, it's irrelevant. It will sell for what the market will bear. Not more, not less. You're looking for a free lunch but there never is one.

Daryll40

RA40

iTrader: (6)

The cars at the auction houses for dealers can be marginal ones. Not quite "bad" but not quite presentable for a high end dealers lot and not ready to be dumped into the low line places open to the public. I've bought several cars at auction and if they are in good and represented condition, it is not going to be a steal.

If you get lucky you may get it slightly below. In most cases, you will pay actual value or more. Make sure you know the model you are considering inside and out. The public auctions...ask people if they have ever bought from this auction house before. A bunch of first timers is a bad sign as guys who make a living buying and repairing these cars go where they can turn a good deal. Newbies bid up the price so fast you will regret ever rasing the paddle up.

My suggestion...don't.

IMO of course.

DDLexus

You're right. Some auctions have some bad cars at them. The Manheim auction that I am planning on using holds the largest share in the auto auction world. The FTC recently ordered them to reduce the number of auction sites becuase that were close to having a monoploy.

The cool thing about auctions today is that you can view the car with digital pictures over the web. Also, there is a $$$ back guarantee that will allow you to return the car if it was misrepresented. So, if the interior is in poor shape, but there was no mention of this condition on the "condition report", you have the right to refuse the deal. Sounds like a good safety.

Take a look at this one...

daryll40

Looks good, but I doubt you'll get any kind of real bargain.

Also, just for the record, note that it lists the vehicle as "6 Cylinders". All LS430s are 8 cylinders. No big deal, but just wanted to point that out in case you are not familiar with the vehicle.

DDLexus

I'm aware of the typo in the description. I wonder if that is grounds for a return one the car arrives with a V8. Ha!

So, you don't think I can get this car for $33k at an auction? Only time will tell.

RA40

iTrader: (6)

I'm skeptical...that is not to say a deal cannot be had...good luck on bidding.

daryll40

I don't know if you can get the vehicle for less than $33K, but if you DO, that means that it's only worth that. Otherwise someone else (and the folks who go to auctions know their vehicles probably better than you or I) would have bid it to the fair market value price.

DDLexus

I'm hedging my bet that...

The people attending the auction are looking at making money on the car (hence wholesale pricing). I'm simply looking for a car at the wholesale price. It's kinda simple to me, the dealers attending the auction need to make money on the cars they buy, so they pay LESS than what you'd pay on the street.

More examples...
I found that most 2001 LS430 with NAV and 50k miles are going for $37k or more. That means the dealers selling these cars probably paid $35 or LESS as a trade-in or at an auction. So, why would it be difficult to comprehend that the deals at the auction will only bring in fair market value. If that was the case, then the dealers buying cars at auction would have to sell their cars for MORE than Fair Market Value. Make sense?

daryll40

You do have a point there. But I guess that begs the next question: What credentials do you have that allows you to attend a dealer-only auction? (I'm pretty sure that Manheim is dealer-only). And if not dealer only, then for sure you won't be getting any kind of bargain as novices bid up the prices.

DDLexus

Daryll40,
Wouldn't you like to know...

I have a contact that is a dealer and charges a small finders fee for bidding on cars on the clients behalf. Sounds like a win-win situation. The broker gets paid without having to borrow money from the bank and keep cars on his lot. The buyer give some specific details about the "dream car" and has a guarantee from the auction that if the car was misreprented, the car can be returned and auctioned again.

The broker can bid on-line or can go in person to these auctions. There is also history reports that can help the broker consult with the potential buy as to what the particular car has been selling for around the US. The auctions are Lexus/Toyota facotry direct lease vechicles. Several other manufacturers also bring their cars in.

Got you interested yet?

Once I get my car, I'll let everyone on ClubLexus know how satisfied I was with the process and car.

daryll40

Ok, then it does sound like a reasonable risk to take. At best you'll buy at wholesale plus the fee. At worse you say you can refuse the vehicle if it's misrepresented although you won't have the same hand holding for any minor stuff as if you were buying from a dealer. With the LS430, you probably cannot go wrong. Just be ABSOLUTELY SURE that the vehicle has not been wrecked or is a lemon (unlikely) in any other way. Guarantee or not, with a middleman involved, it will be much less hassle for you to do your due diligence first than for you to try to return it thru the broker later on. I would imagine that the spread between wholesale and retail approaches $5000, so, if you can access a Toyota/Lexus auction, it sounds like a good risk. Good luck and do let us know how it works out.

Kansas

I paid a bit less than $31K about 8 months ago for a like new 2000 LS that had just off a 3 yr/36,000 mile lease. It was fairly loaded - original list about $63K. The semi-retired dealer I bought from does not maintain a car lot, bought the car at the local auction and had to have paid much less than $31K to realize a profit. The large gap in the prices between 00 LS and 01 LS are probably more related to the body style change than to content. At the time I was looking, I could find no 01 LS430's - at least locally under $40K.