In case you hadn’t heard, we just released a new leasing feature on CarWoo. As a part of this rollout, Kevin’s continuing his series on information for car buyers (er…leasers) from the perspective of a former car dealer.
Leasing is more of a science than an art. There was a time in the history of car-sales when leasing represented a “Home Run” due to the fact that dealers could easily hide the selling price sometimes charging mark-ups 6 or 7 thousand over the MSRP. These days most dealers discourage you from leasing in large part because the avg. profit per lease runs half of cash or traditional finance deals. Leasing can be hazardous, don’t get me wrong, the most dangerous kind being the lease that you are talked into when there seems to be no other way to reach your monthly payment budget.
My review of what constitutes a perfect lease takes your utilization of CarWoo!’s new lease tool for granted.
Be Aware of Optimistic Residual Values
I often wondered how BMW could offer a $50,000+ car for only $499 per month. It wasn’t until I was trying to take a 5-series in on trade that it dawned on me. The customer provided a copy of his original BMW lease agreement for me to calculate his payment on the Volkswagen CC he was intending to lease from me. My first step was to determine his pay off for the BMW, which was $37,000 .With that number I researched the actual cash value of the vehicle which was only $25,000! After checking it twice it became very apparent that on this particular lease (30 months, 7000 miles per year) that BMW was “Highly Optimistic” with their 74% residual.
I was looking down the barrel of $12,000 worth of negative equity which, in short, doubled the payment on the Volkswagen CC. Needless to say, the buyer did not trade in his lease, but instead allowed it to complete with the BMW dealer and leased another car fresh from me.
While leases, when done correctly, can be wonderful deals for consumers, it is prudent to be aware of the trap that is set with an exaggerated residual value and the hazards of deviating from the specific terms of your lease.
What, Then, is The Perfect Lease? – What to look for in a Lease Negotiation
Incentivized Lease Money Factors (think 1.9% APR but for a lease) are commonly paired with “Lease Bonus Cash” which results in a “Win Win” for the Leasee.
- Incentivized APRs are commonly an “either-or” scenario to any “Bonus Cash” that may be advertised or otherwise attached to the vehicle. But leasing allows you to take the benefit of both for good reason; the manufacturer really wants the car back in three years – it’s that simple. This commonly occurs when a new model or model redesign comes to market.
Benefits of matching the term to the benefits of owning a new car
- BMW, Audi, Porsche, Lexus, Infiniti, Acura and other Luxury cars come with a 4 year 50,000 mile “New Vehicle Limited Warranty” which covers that period for defects in both material and workmanship. These brands also either provide, or make available at a fair price, an extended maintenance program that covers the lease term. This adds tremendous value to their leasing program by allowing you one monthly payment that includes everything but fuel and insurance costs.
Residual Values Are Better? Yes, but…
- Residual values represent that amount that you are not obligated to pay for, unless of course you choose to buy it at the end of your term. If you can control your miles than go for the highest residual possible. As an example, I was working with Audi during their mid-year launch of the A4, it was released in the spring of 2005. The residual was 72% for a 10k per (10,000 miles per year) lease over 30 months (2yrs 6mo). The payment with <$3000 cash was around $350 including tax. It was a GREAT DEAL so long as you lived to the letter of the lease. HORRIBLE DEAL if you went 1000′s over the mileage constraint. Words to remember- High residuals are Great if you drive @ or less than what your allowed.
Building the Perfect Lease with CarWoo!
CarWoo! provides you with the tools required to find the lease that fits your needs in a simple, straight forward and identity-protecting forum. We require the dealer to disclose all of the figures of the lease which provides you the clarity you need to make the right choice. CarWoo! is committed to providing a transparent and content rich decision making platform for the buying process, with the introduction of our leasing tool this same philosophy is applied to the leasing process. Sign up is simple, click here to get started.