Are leaf lease rates high due to questionable residual value

[Red5]

Hello,

I've been in the market to lease a 2013 Leaf (SV) and have been doing some research and also talking to a lot of dealers. Somehow the Math was just not adding up! And I think I finally figured out how the dealerships are possibly making a killing on new leases by essentially not passing on the Federal and State Rebate to the consumer.

It all has to do, in my opinion with, the Residual Value. For those of you that may be unfamiliar with this term, residual value is the value of the car at the end of your lease. It can be expressed in terms of a dollar amount or a percentage of its initial value.

Or in other words your initial down payment (not including fees etc.) plus all your monthly payments should bring you (if the car depreciates at a know rate) to the Residual Value.

Now according to cars.com the residual value after 2 years of a Nissan Leaf SV is $19,125.00

http://www.cars.com/go/alg/index.jsp?makename=Nissan&modelname=LEAF&year=2013" onclick="window.open(this.href);return false;

The invoice is price is $29,810.00. The difference is $29,810 - $19,125 = $10,685.00

Now factor in the rebates from the FED and State (CA) $7,500.00 + $2,500.00=$10,000.00 (Which the dealer does not pass on!)

Therefore the net Residual Price of the Car at the end of the lease should be $10,685.00 - $10,000.00 = $685


Obviously you pay more than that amount for the duration of your lease.

Most dealers will after much negotiation quote you a price of $2,500.00 down plus approx. @200.00 (plus tax) per month for a 24 month lease. $2,500.00 + ($24x200) = $7,300

Your total payment minus dealer cost = dealer profit.

$5,400.00 - $685 = $4,715.00

So my question is -- Does this give the dealer a potential to make approximately $5000.00 (+/- any state rebate) profit per vehicle? Obviously all these numbers can change by each deal but are dealers changing or manipulating the money factor to somehow justify the numbers? Or are they pricing the Residual value of the car well below the posted cars.com estimate.

Surely this can't be true. Someone tell me I'm wrong.

Even if my numbers are way off the point to be taken should be DO NOT fall into the trap of negotiating monthly payments and down payments for a lease. Look at Invoice cost (minus any rebates). Then demand to know what residual value and money factor they are charging you. Once you have this information you will be able to make a way more informed decision about your purchase. I suspect you will have the upper hand at that point. Happy Hunting!

RED5

Other interesting links

http://www.cars.com/go/advice/financing/calc/loanLeaseCalc.jsp" onclick="window.open(this.href);return false;

http://www.edmunds.com/car-leasing/the-residual-value-of-leasing.html" onclick="window.open(this.href);return false;

 

[Boourns]

Generally the money factor and residual value is set across the board. I believe it's somewhere around 57%.

But the short answer to your question is, yes. The Leaf's residual value is pretty low compared to other ICE cars. Also the money factor is higher than I have paid for past ICE car leases.

 

[Red5]

I had dealer try to sell me a certified leaf for just about $1000.00 below Residual value. Even then the dealers have got to be making an absolute killing by holding on to the Rebates for themselves.

 

[davewill]

I had dealer try to sell me a certified leaf for just about $1000.00 below Residual value. Even then the dealers have got to be making an absolute killing by holding on to the Rebates for themselves.

Ummm, where did you get the idea that the dealer gets the incentives? The $7500 federal tax credit is credited as a capital cost reduction on the lease. The $2500 CA rebate is a check sent directly to the consumer.

I think you are just trying to stir the pot.

 

[Red5]

No sir I'm not trying to stir the pot. I'm merely trying to gain as much information I can and since the dealers have not been too forthcoming so I decided to post here.

But you make a good point -- I don't want anyone to think that my posts are based on things I know for a fact. For that I would need to work for Nissan finance. And I do not.

My post was merely an observation after doing some research online and crunching some numbers and talking to dealers.

As far as the $7,500 federal tax credit it still reduces the cost of the the lease. A cost that is not, in my opinion, fully passed on to the consumer. As far as the CA $2500 rebate I was told that a 2 year lease would be cheaper than a 3 year lease by a dealer because for a 2 year lease the dealers gets to credit some of that - somehow. The exact figures were not explained to me.

I'm here to gain some information to make the most informed decision I can before leasing. If I've made some errors in my math or logic in coming up with my conclusions please feel free to correct me.

 

[mwalsh]

As far as the $7,500 federal tax credit it still reduces the cost of the the lease. A cost that is not, in my opinion, fully passed on to the consumer.

Oh, yes it is.

As far as the CA $2500 rebate I was told that a 2 year lease would be cheaper than a 3 year lease by a dealer because for a 2 year lease the dealers gets to credit some of that - somehow.

Oh, no it's not.

I'm here to gain some information to make the most informed decision I can before leasing. If I've made some errors in my math or logic in coming up with my conclusions please feel free to correct me.

You're welcome.

 

[Red5]

It would be helpful if you used numbers to prove your point. Empirical evidence always goes much further to illustrate a point than simple yes or no answers. Or use an argument based on logic.

Once again, I'm simply trying to gain a better understanding of all the variables in a complicated leasing equation.

Thank you for your continued indulgence.

Perhaps I should be more trusting of the information car dealers provide. )

 

[DoctorSaul]

Hello,

I've been in the market to lease a 2013 Leaf (SV) and have been doing some research and also talking to a lot of dealers. Somehow the Math was just not adding up! And I think I finally figured out how the dealerships are possibly making a killing on new leases by essentially not passing on the Federal and State Rebate to the consumer.

It all has to do, in my opinion with, the Residual Value. For those of you that may be unfamiliar with this term, residual value is the value of the car at the end of your lease. It can be expressed in terms of a dollar amount or a percentage of its initial value.

Or in other words your initial down payment (not including fees etc.) plus all your monthly payments should bring you (if the car depreciates at a know rate) to the Residual Value.

Now according to cars.com the residual value after 2 years of a Nissan Leaf SV is $19,125.00

http://www.cars.com/go/alg/index.jsp?makename=Nissan&modelname=LEAF&year=2013" onclick="window.open(this.href);return false;

The invoice is price is $29,810.00. The difference is $29,810 - $19,125 = $10,685.00

Now factor in the rebates from the FED and State (CA) $7,500.00 + $2,500.00=$10,000.00 (Which the dealer does not pass on!)

Therefore the net Residual Price of the Car at the end of the lease should be $10,685.00 - $10,000.00 = $685


Obviously you pay more than that amount for the duration of your lease.

Most dealers will after much negotiation quote you a price of $2,500.00 down plus approx. @200.00 (plus tax) per month for a 24 month lease. $2,500.00 + ($24x200) = $7,300

Your total payment minus dealer cost = dealer profit.

$5,400.00 - $685 = $4,715.00

So my question is -- Does this give the dealer a potential to make approximately $5000.00 (+/- any state rebate) profit per vehicle? Obviously all these numbers can change by each deal but are dealers changing or manipulating the money factor to somehow justify the numbers? Or are they pricing the Residual value of the car well below the posted cars.com estimate.

Surely this can't be true. Someone tell me I'm wrong.

Even if my numbers are way off the point to be taken should be DO NOT fall into the trap of negotiating monthly payments and down payments for a lease. Look at Invoice cost (minus any rebates). Then demand to know what residual value and money factor they are charging you. Once you have this information you will be able to make a way more informed decision about your purchase. I suspect you will have the upper hand at that point. Happy Hunting!

RED5

Other interesting links

http://www.cars.com/go/advice/financing/calc/loanLeaseCalc.jsp" onclick="window.open(this.href);return false;

http://www.edmunds.com/car-leasing/the-residual-value-of-leasing.html" onclick="window.open(this.href);return false;

Simple: the Fed rebate and the CA rebate are independent of the residual value of the Leaf. The residual value is based on history of the sales of the car in the past and with projection algorithms for the future. Hence, the value of the car, say in two years, is not dependent on whatever rebates the lease took into account in order to calculate the lease payment.

 

[jjj240]

$2500 CA rebate is NOT applicable for 2 yr lease, only for 3yr or longer lease, or purchase.

$7500 FED rebate is applied in cap cost reduction in lease contract, so it's passed on to lessee.

Now according to cars.com the residual value after 2 years of a Nissan Leaf SV is $19,125.00

http://www.cars.com/go/alg/index.jsp?makename=Nissan&modelname=LEAF&year=2013" onclick="window.open(this.href);return false;

The invoice is price is $29,810.00. The difference is $29,810 - $19,125 = $10,685.00

Now factor in the rebates from the FED and State (CA) $7,500.00 + $2,500.00=$10,000.00 (Which the dealer does not pass on!)

Therefore the net Residual Price of the Car at the end of the lease should be $10,685.00 - $10,000.00 = $685

Where is $5400 coming from???

Your total payment minus dealer cost = dealer profit.

$5,400.00 - $685 = $4,715.00

 

[fc123]

Contrary to some impressions, Leaf residuals quoted by CA dealers are actually pretty good, over 60% on a 3 year lease with 15k miles. Take one common example

S with Quick Charge package

MSRP: ~$31,300
Negotiated price: ~$28,300
Out-the door price with sales taxes: ~$31,000 (with California state taxes)
Out-the-door price after tax credits: ~$21,000 ($7,500 for federal, $2,500 for state)

Typical Lease on this car: 3 years with 15k miles per year
Drive off cost: $2,000 for everything including tax, registration, title, fees, etc.
Monthly payment: $238 for 35 months
Disposition fee: $395 assuming you don't keep the car
Get $2,500 back from state of CA tax credit
Cash out of pocket over 3 year period: ~$8,200
So you're only paying $8,200 out of pocket for a car that would otherwise cost $21,000 to take home.
That is 39% of the car's value over 3 years
Inversely, you could say the car is holding over 60% of it's value. That is better than most.

 

[kubel]

I don't think OPs assessment is 100%. My $7500 was applied as 'lease cash' which was a cap cost reduction, though I still paid tax ($450) on it.

 

[fc123]

I don't think OPs assessment is 100%. My $7500 was applied as 'lease cash' which was a cap cost reduction, though I still paid tax ($450) on it.

Agree not 100%, but I think it's very close for typical deals people are getting in CA and a good way to approximate.

Keep in mind my $7500 federal tax credit was also applied as 'lease cash' which was a cap cost reduction. In the lease deal, that is already factored into the lower monthly payment for anyone leasing. The monthly payment I used was an example includes all taxes.

The purpose of my post was because many people are talking about Leaf residuals in the 40% range because that is what Nissan actually uses when they do their calculation. But Nissan is talking about 40% of a much higher price that doesn't include the benefit of federal/state tax credits.

Once you factor in federal/state tax credits, the otd purchase price is much lower and the residual value is much higher.

 

[planet4ever]

Once you factor in federal/state tax credits, the otd purchase price is much lower and the residual value is much higher.

From Nissan's perspective, they don't see the CA rebate at all, and the federal tax credit nets out to zero, so their residual value is a very reasonable fraction of the selling price. From your perspective, the tax credit means you get a better deal, because it lowers your monthly payment, and the rebate is cash in your pocket.

Nothing questionable here at all. Move along.

Ray