End of 24 mo Lease Residual vs. Trade-in Value
12-04-2015, 10:38 AM
#1
End of 24 mo Lease Residual vs. Trade-in Value
I'm coming to the end of my 24 month lease on my 2014 991S. I'll make my last payment in December.
I'm not going to get another Porsche, so I'm was looking at options for trading the car as opposed to just turning it back to Porsche. The car is in completely acceptable condition with the only issues being normal rock chips from daily driving in the city and some rash under the bumper that can't be seen unless you're under the car. I am afraid of dealing with the lease turn in without buying another Porsche. I'm pretty sure they're going to try to "get" me. The rock chip allowance size is really small, especially on the soft plastic bumper where the paint peels up with the rock chips. My inspection is next week, so we'll see how that goes.
I'll be under my 12,000 mi/yr limit by a couple of thousand and the residual is ~$81.5k. Trade quotes are all in the $73-74k range with the estimators indicating the condition of the car is not driving down the price. Apparently the market for two year old 911s with 20k miles is pretty soft. How does Porsche accept that? Did they wiff on estimating the remaining value at the time of lease or were they just subsidizing the cars in January of '14? We're talking difference in residual to market price of 10%. That's a lot. Way more than most used car sales generate.
At this point I guess I'm just going to throw them the keys. Even factoring in the tax savings I could get trading the car in (6.25% in Texas), it makes no sense to trade the car.
Is this normal with Porsche leases?
I'm not going to get another Porsche, so I'm was looking at options for trading the car as opposed to just turning it back to Porsche. The car is in completely acceptable condition with the only issues being normal rock chips from daily driving in the city and some rash under the bumper that can't be seen unless you're under the car. I am afraid of dealing with the lease turn in without buying another Porsche. I'm pretty sure they're going to try to "get" me. The rock chip allowance size is really small, especially on the soft plastic bumper where the paint peels up with the rock chips. My inspection is next week, so we'll see how that goes.
I'll be under my 12,000 mi/yr limit by a couple of thousand and the residual is ~$81.5k. Trade quotes are all in the $73-74k range with the estimators indicating the condition of the car is not driving down the price. Apparently the market for two year old 911s with 20k miles is pretty soft. How does Porsche accept that? Did they wiff on estimating the remaining value at the time of lease or were they just subsidizing the cars in January of '14? We're talking difference in residual to market price of 10%. That's a lot. Way more than most used car sales generate.
At this point I guess I'm just going to throw them the keys. Even factoring in the tax savings I could get trading the car in (6.25% in Texas), it makes no sense to trade the car.
Is this normal with Porsche leases?
12-04-2015, 10:47 AM
#2
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Were the trade in quotes from a Porsche dealer or from another brand that you are trying to jump into?
If you're not going to jump into another sports car from another brand, toss the keys and walk away.
If you want to get into something else and they don't want to come up over the 81.5k, try to shop a dealer that will. If not, toss the keys back and use another negotiating skill on the new ride (if that's the goal)
With that spread, I'm not sure there is any option other than tossing the keys back. Haven't really heard feedback from people on how hard Porsche is when the car goes in for it's once over after a lease term. Would be interesting to hear from people with experience.
If you're not going to jump into another sports car from another brand, toss the keys and walk away.
If you want to get into something else and they don't want to come up over the 81.5k, try to shop a dealer that will. If not, toss the keys back and use another negotiating skill on the new ride (if that's the goal)
With that spread, I'm not sure there is any option other than tossing the keys back. Haven't really heard feedback from people on how hard Porsche is when the car goes in for it's once over after a lease term. Would be interesting to hear from people with experience.
12-04-2015, 10:52 AM
#3
Were the trade in quotes from a Porsche dealer or from another brand that you are trying to jump into?
If you're not going to jump into another sports car from another brand, toss the keys and walk away.
If you want to get into something else and they don't want to come up over the 81.5k, try to shop a dealer that will. If not, toss the keys back and use another negotiating skill on the new ride (if that's the goal)
With that spread, I'm not sure there is any option other than tossing the keys back. Haven't really heard feedback from people on how hard Porsche is when the car goes in for it's once over after a lease term. Would be interesting to hear from people with experience.
If you're not going to jump into another sports car from another brand, toss the keys and walk away.
If you want to get into something else and they don't want to come up over the 81.5k, try to shop a dealer that will. If not, toss the keys back and use another negotiating skill on the new ride (if that's the goal)
With that spread, I'm not sure there is any option other than tossing the keys back. Haven't really heard feedback from people on how hard Porsche is when the car goes in for it's once over after a lease term. Would be interesting to hear from people with experience.
I'm sure if I went for a new high end car I could get the trade, but they wouldn't move the needle on price of the new car to compensate. I got the 911S for substantially under MSRP and got some sales tax credit, so I'm overall happy with the dollar and cents deal I got on the Porsche.
I just find it strange to see such a wide deviation on trade vs. residual. Ideally if I was Porsche, I'd want those to numbers to damn near align to ensure I could make money on the resell after the lease. Looks to me like the residual is close to the retail market price of the car.
12-04-2015, 11:10 AM
#4
Burning Brakes
I'm not all that experienced with leases but isn't this a close-ended lease? As such, you turn in the car at the end and walk away. If the residual is $81.5k, you can buy it at that price (or use that figure to lease the same car for another term), I don't see how trade-in value does anything for you if you don't want another Porsche. If the trade-in value is $10k under the residual, that's the price they would pay you if you had bought the car instead of leasing it. Since you could buy the car at the residual, that would be like them charging retail markup on the trade-in, so I suppose you could use that if negotiating to buy the car. If you turned it in and walked away, the next person may or may not buy the car for $81.5k; they might only be willing to pay less. But you don't want another Porsche, so the trade-in info doesn't really help you.
As for whether this was a subsidy, I think closed-end leasing is always a gamble for Porsche. If they put a lower residual, the lease payments would have been higher and you might have walked from the initial deal. Or, you might get a bargain compared to market if you later buy the car at a low residual. If the residual is high compared to market, the customer I would think would simply do what you are likely to do and turn in the car. Porsche then takes the risk of selling it. All of this is somewhat academic if you leave the brand, which is probably why Porsche and most other makers like leasing, as it tends to keep you coming back. It can fall down for them if they end up with too many used cars to re-sell.
As for whether this was a subsidy, I think closed-end leasing is always a gamble for Porsche. If they put a lower residual, the lease payments would have been higher and you might have walked from the initial deal. Or, you might get a bargain compared to market if you later buy the car at a low residual. If the residual is high compared to market, the customer I would think would simply do what you are likely to do and turn in the car. Porsche then takes the risk of selling it. All of this is somewhat academic if you leave the brand, which is probably why Porsche and most other makers like leasing, as it tends to keep you coming back. It can fall down for them if they end up with too many used cars to re-sell.
12-04-2015, 11:20 AM
#5
I'm not all that experienced with leases but isn't this a close-ended lease? As such, you turn in the car at the end and walk away. If the residual is $81.5k, you can buy it at that price (or use that figure to lease the same car for another term), I don't see how trade-in value does anything for you if you don't want another Porsche. If the trade-in value is $10k under the residual, that's the price they would pay you if you had bought the car instead of leasing it. Since you could buy the car at the residual, that would be like them charging retail markup on the trade-in, so I suppose you could use that if negotiating to buy the car. If you turned it in and walked away, the next person may or may not buy the car for $81.5k; they might only be willing to pay less. But you don't want another Porsche, so the trade-in info doesn't really help you.
As for whether this was a subsidy, I think closed-end leasing is always a gamble for Porsche. If they put a lower residual, the lease payments would have been higher and you might have walked from the initial deal. Or, you might get a bargain compared to market if you later buy the car at a low residual. If the residual is high compared to market, the customer I would think would simply do what you are likely to do and turn in the car. Porsche then takes the risk of selling it. All of this is somewhat academic if you leave the brand, which is probably why Porsche and most other makers like leasing, as it tends to keep you coming back. It can fall down for them if they end up with too many used cars to re-sell.
As for whether this was a subsidy, I think closed-end leasing is always a gamble for Porsche. If they put a lower residual, the lease payments would have been higher and you might have walked from the initial deal. Or, you might get a bargain compared to market if you later buy the car at a low residual. If the residual is high compared to market, the customer I would think would simply do what you are likely to do and turn in the car. Porsche then takes the risk of selling it. All of this is somewhat academic if you leave the brand, which is probably why Porsche and most other makers like leasing, as it tends to keep you coming back. It can fall down for them if they end up with too many used cars to re-sell.
I figured that a car company that does as much leasing as Porsche does would have pricing models to ensure they don't lose on the back end. I can't figure out how they'll make much if any money reselling this car.
12-04-2015, 11:58 AM
#6
It's not really an issue for me. It's a closed-ended lease. I just didn't want to deal with a lease turn in and figured that Porsche wouldn't have agreed to buy the car at the end of the lease for a loss.
I figured that a car company that does as much leasing as Porsche does would have pricing models to ensure they don't lose on the back end. I can't figure out how they'll make much if any money reselling this car.
I figured that a car company that does as much leasing as Porsche does would have pricing models to ensure they don't lose on the back end. I can't figure out how they'll make much if any money reselling this car.
12-04-2015, 12:18 PM
#7
The money has been made for PFS. You buying the car off them is icing on the cake. The dealers want the car off of PFS because they get it for a bit less than he trade in value. Your price and the dealer price are about $10K apart for PFS sales. You can negotiate the buyout if you wanted, they rather sell to you. If not, turn the car in to the next dealer (Porsche or not) and ask for a discount on your next car since you're giving them a car that will profit them heavily in the used car market.
They better have made some good money on the front end or with my financing to cover that.
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12-04-2015, 12:42 PM
#9
12-04-2015, 12:45 PM
#10
The trade in market value of the car is about 75K at best. That's what a dealer needs to pay to cover storage, marketing, interest and profit at the retail market rate. The trick is, PFS is buying the car back at basically retail. No dealer is going to buy the car back from PFS for the residual value. Porsche will lose around 6 to 7k.
They better have made some good money on the front end or with my financing to cover that.
They better have made some good money on the front end or with my financing to cover that.
12-04-2015, 12:48 PM
#11
This is my first lease. I've financed other mid to high end cars and always found that the lease end residual always mapped well to the expected trade in value at lease end.
12-04-2015, 01:30 PM
#12
Interesting. That means if one was planning on trading the car in two years from my similar position, the only smart choice was leasing. I would have taken an additional 7k hit otherwise.
This is my first lease. I've financed other mid to high end cars and always found that the lease end residual always mapped well to the expected trade in value at lease end.
This is my first lease. I've financed other mid to high end cars and always found that the lease end residual always mapped well to the expected trade in value at lease end.
12-04-2015, 01:40 PM
#13
PFS is likely out zero. There are companies that take the residual value risk (for a fee) and it is likely PFS transfers that risk to someone else or they would have to carry a provision on their financials.
Here is the first one that came up when i Googled:http://www.rvigroup.com/businesses/rvi.shtml
Here is the first one that came up when i Googled:http://www.rvigroup.com/businesses/rvi.shtml
12-04-2015, 02:15 PM
#14
Porsche residual values are deflated. Their money factors are inflated. The 2014 'S' is selling for more than $81K in both retail and private party transactions. They're well hedged against any downside risk in the market. Dealers love lease returns since it provides huge profit potential, especially if they don't CPO the car.
12-04-2015, 02:34 PM
#15
Three Wheelin'
There is so much info here I hardly know where to begin. It has been my experience that the residual is PFSs estimated market value of car. Unless there is some economic black/grey Swan, they are pretty good at figuring this number out. Given they are close on the Residual/Market price, since when did a trade-in ever net a Market (= private party) price (referring only to Porsche here)? I have read that used car sales are a nice profit center so dealers are buying cars either through trade-in or at auction at less than real market prices. The only profit side of a leased car (for the lesee) is to buy the car off lease when the Market value is greater than the residual, then do a private sale. I do not possess a wealth of knowledge on the details of car sales, but if there is a profit in the used car market why would a residual be set to a trade in value? This is almost like a kickback to a buyer if they lease and can buy off-lease for less than market value. That sounds suspiciously like a free lunch, but perhaps other manufacturers are less sophisticated than PAG or don't rely very much on leasing as a profit center. I dunno' this may very well be true.
PFS is the financing branch of PAG (VWAG). It is all internal and the thing is, we have no idea what the cost of the car is. Sure, the dealer you lease the car from makes a profit but the car belongs to PAG. This is just an example, but your $110K car may have only cost PAG $50K. You lease for two years and that puts 20K in PAGs pocket. Then, if you turn the car in it goes to auction or the dealer buys it - that is maybe another $65K for PAG. So, PAG has made a fair bit of profit from the car - maybe not as much as a sale (depending on the sale price to a dealer) but what they marginally lose here they probably make up for in increased volume and an economy of scale reduction in cost.
Oh, and the Germans are nothing if not fastidious so I suspect that they have also factored in the future value of money, exchange rates, off-shore tax liability, etc. and perhaps even currency arbitraged to further cover any long term exposure (either on interest rates or the residual price of the car/market value if turned in). I mean, I have a little pea brain and can think of this so the finance experts are probably all over the vast universe of financial risk minimization and profit maximization.
Personally, I have leased two 911s and both times the residual was less than the fair market value of the car. The first time I bought out the lease and sold the car. The second time, with my current car (997.2 GTS), the dealer pressured me hard to trade it in for a 991. The residual was about $60K and the market value, at the time was about $75K. I declined the offer and kept my car.
In the end, don't forget that PFS will hit you with about a $400 turn in fee.
Best of luck!
PFS is the financing branch of PAG (VWAG). It is all internal and the thing is, we have no idea what the cost of the car is. Sure, the dealer you lease the car from makes a profit but the car belongs to PAG. This is just an example, but your $110K car may have only cost PAG $50K. You lease for two years and that puts 20K in PAGs pocket. Then, if you turn the car in it goes to auction or the dealer buys it - that is maybe another $65K for PAG. So, PAG has made a fair bit of profit from the car - maybe not as much as a sale (depending on the sale price to a dealer) but what they marginally lose here they probably make up for in increased volume and an economy of scale reduction in cost.
Oh, and the Germans are nothing if not fastidious so I suspect that they have also factored in the future value of money, exchange rates, off-shore tax liability, etc. and perhaps even currency arbitraged to further cover any long term exposure (either on interest rates or the residual price of the car/market value if turned in). I mean, I have a little pea brain and can think of this so the finance experts are probably all over the vast universe of financial risk minimization and profit maximization.
Personally, I have leased two 911s and both times the residual was less than the fair market value of the car. The first time I bought out the lease and sold the car. The second time, with my current car (997.2 GTS), the dealer pressured me hard to trade it in for a 991. The residual was about $60K and the market value, at the time was about $75K. I declined the offer and kept my car.
In the end, don't forget that PFS will hit you with about a $400 turn in fee.
Best of luck!