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Suppose you're nearing the end of the lease on your luxury sedan, and you're
pondering your options.
You can simply turn the vehicle back in and walk away or get into a new lease.
Or, you could buy the vehicle and possibly turn a profit.
Until recently, people leasing some luxury cars often found that their vehicles were
worth more than the lease contract's residual -- the amount the car can be bought for at the end of
the lease. This was particularly true if they had fewer miles on the odometer than allowed by the end
of the lease.
But the tumbling economy has taken its toll on values for luxury cars, and many vehicles
now coming off lease are worth less than the residual value.
According to the Black Book -- the
industry guide used to set residual values --
the average 3-year-old Mercedes-Benz now coming
off a lease is worth less than $30,000, while
the value that was calculated when the lease began
was more than $34,000.
BMWs, using the same calculations, are worth about $3,000 less than was calculated when
the cars were new.
Values also are down for vehicles from Detroit manufacturers (due to the cloud of pessimism
hovering over domestic car companies) and some Japanese carmakers (which generally have tighter sales margins).
But the drop for these cars averages
less than $500, making it much less pronounced
than the loss for European luxury vehicles.
This shift in used-car values can affect shoppers and people thinking about what to do
when their leases run out.
If you're shopping for a European luxury sedan, it's turning into a buyer's market -- though
shoppers shouldn't expect dealers to give away pristine late-model vehicles.
But buyers should expect that dealers will be flexible not only on initial pricing, but on
terms for extended service contracts and cut-rate financing.
If you're bailing out of a lease and thinking about buying the vehicle, contact the leasing
company a month or so before the lease is up and propose paying a lower residual value.
To determine what that value should be, check your vehicle's trade-in value on sites like
KBB.com or
Edmunds.com. That should be a starting point for negotiations, but don't be surprised if the agreed value
is not rock-bottom. The leasing company or bank will only be willing to go so far before they will take their
chances at auction.
One last thing to consider: When buying out your lease, avoid taking out a long-term loan to
cover the cost. In the end, you'll wind up paying for the vehicle for seven years or more -- a bad deal when
taking into account possibly costly repairs.
The shift in residual values also will affect people shopping
for new vehicles.
Burned by falling values on cars now coming off lease, manufacturers are going to be far less
liberal with setting residuals on 2008 and 2009 vehicles. That will likely translate into higher monthly
lease payments.
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