Leases-Leasing
Lease Residual Values?..Who Determines Them in a New Car Lease? You'd be Surprised!
Residual values are often determined in-house by the largest manufacturers Others will turn to outside parties, such as Automotive Lease Guide (on the Internet) for help.
Where does the money come from? The money to pay the manufacturer is often a bank, credit union, pension plan or automobile manufacturer?s leasing or lending subsidiary. It agrees to provide funds to pay the dealer the selling price of the auto. It is often called the money source
The Money source must then find someone to determine a residual value for every auto it proposes to buy from a manufacturer. If the market is depressed at the end of a lease and theresidual value is higher than the used car value, then huge losses result to the Money source. This is not a business for the squeamish.
Who are typical Money sources? (not necessarily current)
- American Honda Finance Corporation
- Banc One Credit Company
- BMW Financial Services, NA, Inc.
- Chase Automotive Financial Service
- Chrysler Credit Corporation
- Ford Motor Credit
- Fifth Third Bank
- General Motors Acceptance Corp.
- Huntington National Bank
- Mazda American Credit
- Mercedes-Benz Credit
- M&I Automobile Leasing
- Mitsubishi Motors Credit of America, Inc.
- Nissan Motor Acceptance Corp.
- Provident Auto Lease
- SouthTrust Bank N.A.
- Toyota Motor Credit Corp.
- Usbank
- Volkswagen Credit, Inc.
- Wells Fargo Bank
The customer (lessee) actually contracts with a Money source that may, in fact, be a savings institution in which the customer has deposited funds. Some Money-sources are employee pension funds in which the lessee is essentially borrowing his own money.
Who does the lessee really pay? The customer leasing the auto begins by agreeing to pay the Money source a monthly payment for the term of the lease. At the end of the lease the Money source that actually owns the car, gets the car back and hopes it can be sold for at least as much as the residual value quoted to the customer in the lease, plus some incidental costs associated with the selling price. If not, the money Source loses money. For example, the Minneapolis Star Tribune reported that Chrysler lost of $400,000,000 in 2001 on end-of-lease cars that sold for less then the contracted residual values.
Who decides the interest rate on the lease? The Money source privately decides on an interest rate it needs to return a profit to its investors or lenders. A third-party firm, such as LeaseLink (on the internet), is hired to prepare the computer displays of monthly lease payment vs. interest rate. That it displays on the participating Dealer?s computers. It displays varying financing terms and monthly lease payments and the residual value and interest rates or money factors for the brands sold by the Dealer. Included in this information is the identity of several Money sources, whose rates actually compete with the Dealer?s own manufacturer.
The Dealer?s role The new car Dealer is simply a facilitator between the lessee and the . It has no loyalty to its manufacturer in this regard and is really the customer?s best friend by showing the customer several monthlyleasepayments and interest rates from several Money sources.
Residual values based on Money source vehicle preferences Some Money sources choose to finance only certain types vehicles, such as Jeeps, based on historical residual resale value data and successfully having recouped the residual value in the eventual sale of the used Jeeps at the end of the lease.
At the end of the lease When the lease is finalized, the Money source pays the sale price; a portion is used to pay the dealer?s cost and the balance is the dealer?s profit. And the happy customer drives away with a smile and a lighter wallet.
Copyright 2006 by Beacon Data LLC All rights reserved.
Ralph Hoffmann, article author, graduated from the Univ. of Wisconsin, majoring in Applied Mathematics. He has ten years experience raising venture capital, plus added business experience, and used his math and business background to develop automotive program software to show customers how to save money when planning to lease or buy a new car. His web site is: Vehicle residual values
Ralph Hoffmann
Tags: Residual, residual value, lease, leasing, interest, interest rate, rate, lease paymentSimilar articles
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