Leasing buyout? Residual vs Market value

[BrazGenesis]

By Dec 2015 my 2012 Tech+Premium ends the 36 month lease term.
The residual value is around 22.X.
Quite obviously the market value will be well below that one. (I can buy a 2012 for less than that right now)

The specifics of my case are:

- Wondeful and perfect car.
- Will have at most 18K miles on it
- Obvious opportunity to buy an used car from myself...

I understand an Extended Warranty is required and is the key to give "stability" to the whole deal. I could use it for three more years and still sell it with a four year warranty.

The central point: what am I going to hear from the dealer about residual value Vs current market price?
No doubt that paying a little over the market price is a sound good business. I know the car and it is just perfect and well taken care of.

A second question: I think the car has been leased by Dec 19th 2012. Is there a HMA policy related to extending this term for one to two months? If yes at the same or a lower price? Reason is obvious: I would cross 2015 and by doing the deal in 2016 MAY lead to an even lower market price.

 

[7i bigblock]

By Dec 2015 my 2012 Tech+Premium ends the 36 month lease term.
The residual value is around 22.X.
Quite obviously the market value will be well below that one. (I can buy a 2012 for less than that right now)

The specifics of my case are:

- Wondeful and perfect car.
- Will have at most 18K miles on it
- Obvious opportunity to buy an used car from myself...

I understand an Extended Warranty is required and is the key to give "stability" to the whole deal. I could use it for three more years and still sell it with a four year warranty.

The central point: what am I going to hear from the dealer about residual value Vs current market price?
No doubt that paying a little over the market price is a sound good business. I know the car and it is just perfect and well taken care of.

A second question: I think the car has been leased by Dec 19th 2012. Is there a HMA policy related to extending this term for one to two months? If yes at the same or a lower price? Reason is obvious: I would cross 2015 and by doing the deal in 2016 MAY lead to an even lower market price.

I could be wrong but 2015 date will not make a lot of difference in the value. You did a lease so you knew the numbers up front. It comes down to , if you like the car keep it , if you like the 2015's better get one. You seem to know the numbers and yes buying the warranty is a good idea and the dealer may offer you a good deal because your a good customer. Call your dealer or stop in and see the financial person and ask your questions. Its like a personal thing. Of course , did you get a quote on a 2015 and see how you liked those numbers. its what ever meets your needs and requirements.

 

[Brian1940king]

What's the problem?
Just go get the numbers from a dealer.

They will get the buy out from the leasing company and will give you a new monthly payment number.

If you don't like the deal after negotiations, go to another dealer.

I had a leased 2012 Buick Lacross, 31 months into a 39 month lease.

Two dealers agreed to a no penalty buyout and one dealer wanted $2k to make the deal on a 2015 Genesis AWD Signature package.

All of them were within a few dollars in monthly payments. 36 mo., 12k mi per year, no money down, taxes includes.

I was leary about them keeping their word to buy the lease car, but they made it part of the Hyundai lease in writing, as a trade-in.

They actually completed the buyout in a little over 30 days.

They still have the Buick for sale on their used car lot, 7 weeks later.


Good luck.

Brian

 

[BrazGenesis]

I could be wrong but 2015 date will not make a lot of difference in the value. You did a lease so you knew the numbers up front. It comes down to , if you like the car keep it , if you like the 2015's better get one. You seem to know the numbers and yes buying the warranty is a good idea and the dealer may offer you a good deal because your a good customer. Call your dealer or stop in and see the financial person and ask your questions. Its like a personal thing. Of course , did you get a quote on a 2015 and see how you liked those numbers. its what ever meets your needs and requirements.

After your post I did some homework, mostly using KBB.
You are probably right. Given the excellent condition of the car the market value will not be that different from the one in my leasing document.
I will give time to time, the Gen 1 will no longer be sold brand new... and see how the price behaves.
Thanks for your advice!

 

[BrazGenesis]

What's the problem?
Just go get the numbers from a dealer.

They will get the buy out from the leasing company and will give you a new monthly payment number.

If you don't like the deal after negotiations, go to another dealer.

I had a leased 2012 Buick Lacross, 31 months into a 39 month lease.

Two dealers agreed to a no penalty buyout and one dealer wanted $2k to make the deal on a 2015 Genesis AWD Signature package.

All of them were within a few dollars in monthly payments. 36 mo., 12k mi per year, no money down, taxes includes.

I was leary about them keeping their word to buy the lease car, but they made it part of the Hyundai lease in writing, as a trade-in.

They actually completed the buyout in a little over 30 days.

They still have the Buick for sale on their used car lot, 7 weeks later.


Good luck.

Brian

Thanks for your points. Please see my other post on this thread.
As for anticipating discussion with the dealer, while I agree it is the objective way to deal with this, I read some guidance on leaving the dealer ask you first if you want to buy the car. That could lead to a better price SHOULD a real difference in residual Vs market happen.
In summary I am entering a "wait and monitor" mode.

 

[BrazGenesis]

Just a quick update here:

1. I said the residual value in the leasing agreement was 22.X. Wrong, it is 24.7K in fact.

2, Went to the dealer and asked what would happen in Dec 2015 should the market value be much lower than 24.7. Plain answer: no change in $$$ option to purchase. It is hard to believe but it is what they said.

Based on the discussions here I'd say it is more and more obvious that the car will not be worth 24.7 by the end of lease.

 

[VivienM]

2, Went to the dealer and asked what would happen in Dec 2015 should the market value be much lower than 24.7. Plain answer: no change in $$$ option to purchase. It is hard to believe but it is what they said.

That's how it is. Dealer has no discretion; the leasing company sets the price, and every leasing company I've heard of does not have a department that will negotiate buy-out prices.

Which, in a way, is silly - if they'd get $15K at auction, they're better off selling it to you for $16K rather than hold out for $24.7K... (unless, as I have long suspected, they have some kind of insurance-type thing that protects them from that)

You could always return the car and hope you track it down to a dealer a few weeks later and re-buy it?

 

[LA Genesis]

Unless you are totally in love with the car I would not overpay to buy it. How do you like the 2015s? I think they're great cars and I'm guessing you can get a reasonable lease and not have to buy an extended waranty.

You also might want to consider leasing or financing a new 2014. I would let Hyundai choke on their own depreciation.

 

[DavidA5913]

I was told that Hyundai sold a bunch of Genesis Sedans to rental companies such as Enterprise, and these have now come back to haunt them. Although they moved a lot of cars, now they are flooding the market and causing a huge drop in value.

This factor in addition to the new 2015 car being so superior in every way, the residual value is nowhere near true market value.

Although I originally had every intention of buying my 2012 at the end of the lease, I would have been upside down by over $3500.00. I figured Hyundai was better off taking the hit rather than me, so I leased a 2015 instead.

I must say this is a great car and I believe I made the right choice. I am hoping Hyundai learned from their faux pas and won't repeat the sales to rental fleets and that the latest Genesis won't be changed to a gen 3 for at least 4 or 5 years. I guess time will tell if I did the right thing in 3 more years.

 

[BrazGenesis]

That's how it is. Dealer has no discretion; the leasing company sets the price, and every leasing company I've heard of does not have a department that will negotiate buy-out prices.

Which, in a way, is silly - if they'd get $15K at auction, they're better off selling it to you for $16K rather than hold out for $24.7K... (unless, as I have long suspected, they have some kind of insurance-type thing that protects them from that)

You could always return the car and hope you track it down to a dealer a few weeks later and re-buy it?

This sounds crazy but is not impossible. My problem is that I will need a car immediately after the lease ends.

______________________________

Help support this site so it can continue supporting you!

 

[BrazGenesis]

Unless you are totally in love with the car I would not overpay to buy it. How do you like the 2015s? I think they're great cars and I'm guessing you can get a reasonable lease and not have to buy an extended waranty.

You also might want to consider leasing or financing a new 2014. I would let Hyundai choke on their own depreciation.

Well, the car is pristine, loaded and is a great car. But there is no way to pay 3K over market value AND extented warranty.
You are right: that may end up in a 2015/16.
In summary, I will lose the opportunity for a huge reduction of the total cost of ownership for, lets say, six years.
But having to buy a Gen2 is a delicious problem...

 

[BrazGenesis]

I was told that Hyundai sold a bunch of Genesis Sedans to rental companies such as Enterprise, and these have now come back to haunt them. Although they moved a lot of cars, now they are flooding the market and causing a huge drop in value.

This factor in addition to the new 2015 car being so superior in every way, the residual value is nowhere near true market value.

Although I originally had every intention of buying my 2012 at the end of the lease, I would have been upside down by over $3500.00. I figured Hyundai was better off taking the hit rather than me, so I leased a 2015 instead.

I must say this is a great car and I believe I made the right choice. I am hoping Hyundai learned from their faux pas and won't repeat the sales to rental fleets and that the latest Genesis won't be changed to a gen 3 for at least 4 or 5 years. I guess time will tell if I did the right thing in 3 more years.

First of all congrats on your 2015. If you made the decision now, try to imagine my case, given that my leasing ends by Dec 2015. It is going to be such a difference that it is hard to imagine they will stick to the current practice.
Well, it is wait and see...
Adding my two cents to your very well made points I'd say the the difficult digestion of the G1 new stock still available is a major problem in pricing for the whole line.
I see the 2015 needing some extra discounts to generate volumes/momentum. That is almost impossible to do without reducing absurdly the prices of the remaining Gen1s in stock.

 

[DavidA5913]

BrazGenesis:

If you leased it from Hyundai, you should have been able to terminate it in October. Hyundai would have contacted you 3 months early hoping to get you into a new car. My dealer paid out my lease term 6 months before my lease ended, (April), and made me a great deal including all the discounts and rebates.

I think turning in the 2012 was the right, if only good, option I had.

If you leased it from a different source, I don't know what to advise other than turn in your old car. If you need a car the same day, that should be easily done.

 

[PMCErnie]

Continuous, rollover, leasing seems to be like a drug addiction. You know it's bad for you financially, but you just gotta do it. What's the problem with buying and keeping a good car for 4, 5, or 6 years?

 

[427435]

Continuous, rollover, leasing seems to be like a drug addiction. You know it's bad for you financially, but you just gotta do it. What's the problem with buying and keeping a good car for 4, 5, or 6 years?

Careful, you are making too much sense. Leasing cars is a fool's way of having a car to drive (unless it's a business write-off). I made payments until my first new car was paid for (the 67 Vette) and never bought a car after that that I couldn't pay cash for. I didn't always have the newest or fanciest car to drive, but that process has sure put a lot of money in my IRA's.

 

[PMCErnie]

Careful, you are making too much sense. Leasing cars is a fool's way of having a car to drive (unless it's a business write-off). I made payments until my first new car was paid for (the 67 Vette) and never bought a car after that that I couldn't pay cash for. I didn't always have the newest or fanciest car to drive, but that process has sure put a lot of money in my IRA's.

Exactly, and it's paid off two of my houses too.

 

[BrazGenesis]

BrazGenesis:

If you leased it from Hyundai, you should have been able to terminate it in October. Hyundai would have contacted you 3 months early hoping to get you into a new car. My dealer paid out my lease term 6 months before my lease ended, (April), and made me a great deal including all the discounts and rebates.

I think turning in the 2012 was the right, if only good, option I had.

If you leased it from a different source, I don't know what to advise other than turn in your old car. If you need a car the same day, that should be easily done.

It is a plain vanilla HMF leasing. Thanks for this precious advice. Being able to decide this 6 months in advance is good whatever the outcome is. I either will own a great car or lease/buy a 2015. And having enough time to discuss/compare is always good.

 

[BrazGenesis]

Careful, you are making too much sense. Leasing cars is a fool's way of having a car to drive (unless it's a business write-off). I made payments until my first new car was paid for (the 67 Vette) and never bought a car after that that I couldn't pay cash for. I didn't always have the newest or fanciest car to drive, but that process has sure put a lot of money in my IRA's.

I'd say using leasing to stretch your buying power may not be wise.
As a principle I lease or buy something I can buy cash.
But good to very good APRs somehow incent you towards liquidity.
Leasing makes easier to finish after 3 years if you realize the car was a bad choice.
Buying ends up reducing your total cost of ownership.
In the case of Hyundai the 5 year warranty plus the extended warranty encouraged me toward a hybrid approach. Lease and buy if I like the car three years later.
I forecasted a lower residual at lease end and WRONGLY tought it would be reduced.
If I manage to buy this car by 21K either cash or at a low APR it is going to be a good business. I'd keep it for 3 more years and sell it with a FOUR year warranty. (probably getting a good price)

 

[GenesisCaptain]

I would love to do work with a leasing company some day to understand their business and financial models. Maybe I need to put that on my list...

Anyone here work with a leasing company? If they set the residual low going in, they they are minting money. Not only do they over-collect from the buyer during the lease, but they have the opportunity to turn a profit over residual at the time of resale.

But, what happens when they set the residual too high? In those scenarios, they under-collected from the customer, and they will take another hit at lease turn-in. How do they get whole?

 

[BrazGenesis]

I invested some time on this. Not an expert though...

- Residual too low: you pay more monthly but can buy cheap at the end
- residual too high: you pay less monthly and they will stuck with the loss because the option to purchase is not attractive.

In the very moment they estimate the residual the fate is written: if you return the car due to high residual they will sell for a lower value either in an auction or in the used lot.

If the residual is about right it may be VERY attractive to buy the car. It was demonstrated here that a 3 year old car even with low mileage faces a huge devaluation.

Hyundai peculiarity: both 5 year warranty and Extended Warranty encourage a buy. Premium cars may become very expensive to service due to its complexity. Using these instruments kind of shields you.

Other than that leasing has a price: the APR. If you manage to lease at a real low APR things become very interesting. A 0.9 APR with around 1.0 CPI means zero real interest rate.
Theoretically the cost of money may be about the same in lease or buy.

That summarizes my findings so far.