Quote:
Originally Posted by TunTac
Thanks for the insight, Cliffy!
Here's another question I've always wondered: What happens when, say, a manufacturer inflates the residual on a vehicle for a promotional lease term? Take BMW for example; virtually all their vehicles have inflated residuals, so what happens to all those lease returns that are nowhere near the lease-end value?
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That question is the reason Nissan almost went bankrupt about 7 years ago. Back in the mid to late 90's, they leased a huge number of cars. They all came off lease at the same time and all had residuals of $2000 to $4000 above wholesale value. It cost them a huge amount of money and nearly sunk the company.
This is also the reason Toyota nearly dropped out of the leasing game completely in the early part of this decade. Toyota was loosing an average of $1200 per car at auction. Toyota has a lot better cash reserves than Nissan and they weathered the storm a lot better. As a result, Toyota lowered the residuals and I think they lowered them too much. With residuals that low, there was no monthly payment advantage to a lease. We are only just now getting back into leasing as they bump the residuals a bit.
Different leasing companies handle it different. Some will negotiate residuals with the customer. Others will negotiate it with the dealer. Others just suck it up.