Why VW residual value doesn't reflect market value?

[pierreracine]

VW Finance Canada states a $14 570 residual on a 48 months and 16 000 km. 2011 Jetta TDI lease , which is about the same MSRP to residual percentage they applied to the Sportline 2.5 gasser.

In other words, VW seems not to recognize, at least in their leasing contracts, the superior market value of the TDI.

Does anybody know why?

Thanks for any information regarding this...

 

[pierreracine]

I forgot to mention the residual appies to a 2011 Jetta HIghline. And it is, of course,
16 000 per year... Sorry.

 

[mo_focus]

interesting. Maybe by then they think they is going to be so many TDI's that there shouldnt be a demand for it.

I dont see that happening!

 

[Joe_Meehan]

In the mind of the dealer LEASE = ADP (Additional Dealer Profit.

Leases are just another tool to increase the complexity of the deal and more opportunities to get money from your pocket to their pocket.

The only time I can see a lease being useful to the leasee is the small business. And then I would generally recommend avoiding the lease.

 

[Ol'Rattler]

Just a guess, but I suspect the residual is not based on resale value but on original MSRP with the mileage and length of the lease factored in.

 

[ruking]

The answers might be very complex, but really it is a more studied version of what msg #4 said. To cut to the chase, dealers really just want the chance to make a good deal more (profit) on a USED TDI. So the cheaper they can get it (closer or under a gasser) and the higher they can sell it (over and above a gasser) the more.... made (profit)

 

[dieseldorf]

I can't believe no one has posted a valid response yet.

Lease residual values have been reduced across the board at all mfrs creating higher pmts for the lessee. They (lessor) ended up owning lots of cars for way too much $$$ so they reduce the residual to a point they are comfortable with and don't end up getting buried when the car is sent to auction. It really isn't that complicated, guys

Used car prices have fallen dramatically over the past couple of years and cars being turned in could not be sold for the residual value shown to the client.

 

[ruking]

I can't believe no one has posted a valid response yet.

Lease residual values have been reduced across the board at all mfrs creating higher pmts for the lessee. They (lessor) ended up owning lots of cars for way too much $$$ so they reduce the residual to a point they are comfortable with and don't end up getting buried when the car is sent to auction. It really isn't that complicated, guys

Used car prices have fallen dramatically over the past couple of years and cars being turned in could not be sold for the residual value shown to the client.

No it isn't complicated. It is also a perfect way to get a used car (coming off lease) Sure, some folks totally flog a lease car, but then a lot of folks actually are gentle with them. A family member got a used $50,000 330 I BMW for nothing NEAR that. It was leased to a corporate executive by its corporation and she had a parking space in downtown SF !? The car was actually pristine. If one has never been to a few car auctions, it is truly a hoot.

 

[dieseldorf]

No it isn't complicated. It is also a perfect way to get a used car (coming off lease) Sure, some folks totally flog a lease car, but then a lot of folks actually are gentle with them. A family member got a used $50,000 330 I BMW for nothing NEAR that. It was leased to a corporate executive by its corporation and she had a parking space in downtown SF !? The car was actually pristine. If one has never been to a few car auctions, it is truly a hoot.

Umm-kay. So you're suggesting the car mfrs haven't lowered residual values, RUking

 

[ruking]

Umm-kay. So you're suggesting the car mfrs haven't lowered residual values, RUking

Well like I said it CAN be complicated/complex. So I would say yes they have and no, no one purposely wants to be the fastest depreciating vehicle in the universe. If they did it in collusion and it could be shown, it would set up interesting anti trust prosecutions and fines, etc, etc.

Indeed if what you say is true across the board, I would not have had to do nearly the amount of research I have on any of the cars I have eventually bought; on point 03 TDI. Indeed it should mirror the depreciation of a 2003 Ford Taurus, which thankfully it... doesn't.

 

[dieseldorf]

Well like I said it CAN be complicated/complex. So I would say yes they have and no, no one purposely wants to be the fastest depreciating vehicle in the universe. If they did it in collusion and it could be shown, it would set up interesting anti trust prosecutions and fines, etc, etc.

Indeed if what you say is true across the board, I would not have had to do nearly the amount of research I have on any of the cars I have eventually bought; on point 03 TDI. Indeed it should mirror the depreciation of a 2003 Ford Taurus, which thankfully it... doesn't.

OK, so you are suggesting the selling dealer can influence the residual value of the car when they're writing up the deal

 

[ruking]

No. Those are already pre determined. It has more to do about banking than the realities of the deal to a customer.

 

[dieseldorf]

No. Those are already pre determined.

OK, thank you. I feel like we are making some progress

Now, let's take a look back at Pierre's opening post. Wasn't he asking about residual values?

 

[IFRCFI]

the superior market value of the TDI

Niche market. Your average consumer doesn't see the market value of a diesel as being superior.

 

[aja8888]

Interesting thread. I am NOT knowledgeable about leasing vehicles as I have never done that.

But, it would make sense to me that for any given lease deal, the dealer has to cover the downside (his), which will be getting the car back and either selling it or taking it to auction. Is the residual value at the time of the lease established by current auction prices?

So, when the used car market is soft, then lease deals tend to be high payment low residual contracts, written to protect the dealer at the end. Am I mistaken in this line of reasoning?

 

[lexa]

In other words, VW seems not to recognize, at least in their leasing contracts, the superior market value of the TDI.

Does anybody know why?

it is such a simple math/business that I'm shy to hurt your intelligence pointing to it.

Here you go : lower residual price == higher dealer profit from the lease deal.

 

[pierreracine]

it is such a simple math/business that I'm shy to hurt your intelligence pointing to it.
Here you go : lower residual price == higher dealer profit from the lease deal.

Yeah... it's such simple math/business that I'm ALSO shy to hurt your intelligence...
Volkswagen finance Canada just changed the residual value of the TDI highline from $14 570 to to $15 411 ( as of 19/11/2010). Almost a whopping $1 000!
I guess your SO simple mathematical genius figured that one out too...
Pierre Racine, Canada

 

[lexa]

Yeah... it's such simple math/business that I'm ALSO shy to hurt your intelligence...
Volkswagen finance Canada just changed the residual value of the TDI highline from $14 570 to to $15 411 ( as of 19/11/2010). Almost a whopping $1 000!
I guess your SO simple mathematical genius figured that one out too...
Pierre Racine, Canada

the math employed here is for ~6th grade school education, at least it was in my school. If you even joke about it being math genius ...i told you before I am shy...

not sure about Canada pricing, but in US new JSW TDI selling prices have been dropping significantly for the past year, from $1-2K above MSRP to $2-3K below, that's 15-20% down...

many local dealers now have more TDI JSW than TDI sedans on the lot, one has more JSW TDI than any other model in inventory or 1/3 of whole inventory.

in US there is $1000 dealer cash incentive on all JSW TDI now...

as far as lease... only price difference matters for profit.

if VWoA sales plays their games and instead of lowering sale price for lease contracts they bump re-purchase price and it makes somebody happy, they have earned their upkeep.

 

[fgbrault]

and[/I] it makes somebody happy, they have earned their upkeep.

My understanding is that TDIs are hard to get rid of in the USA, as people are waiting for the 2011 TDI or demand a discount. I assume that won't be true when for the 2011 when it hits the US market.

 

[ruking]

OK, thank you. I feel like we are making some progress

Now, let's take a look back at Pierre's opening post. Wasn't he asking about residual values?

Yes, we are ! I am glad you finally agree with me. Those values (residual) are really FULLY negotiable. For example in that BMW deal, the price was far less than the "residual's". That was one variable that made it a so called "better" deal.

Trust me, the bank does NOT want a stable of used cars, REGARDLESS of, dare I say ... residual values !!?? If for example, you don't believe it, I really have no problems in you (anyone else for that matter) paying more than say... you would have/want to.

Whole industries are built on disbelief.

Natch, if you are the seller, you want the most. If you are the buyer, you want to pay the least. If you are the middle man (dealer/s, auctioneer) you want the most profit/fee/s and as many times as the title can/will change hands. If you are the taxing authority you want 9.75% of the deal, EACH time the deal is ... made.

 

[lexa]

My understanding is that TDIs are hard to get rid of in the USA, as people are waiting for the 2011 TDI or demand a discount. I assume that won't be true when for the 2011 when it hits the US market.

perhaps, but if 2011 JSW TDI is any indication, it is rather about demand not meeting the offer, at least in my metro area.

 

[ruking]

I personally do not see it so much as a diesel related product issue, as it is mostly too many products chasing way too little buyers. So for example in "good times" past, a good to great year saw 14 to 16 M vehicles sold. Last year 2009 (of complete figures) saw 9.5 M sold. Per this example, that is a 32% to 41% drop. Many OEM's and models show much WORSE drops. So if the lower percentages and numbers persist, fewer cars will HAVE to be sold @ WAY higher pricing.

VW on the other hand with MY production of app 225,000 units saw a 25% of total unit D2 sales. Remarkably they also made a profit !!?? When you contrast that with past sales, say 4% or 9,000 units for the 03 TDI. That is phenomenal growth. So really if one needs/wants to have a VW diesel, now really is the time as the current crop was producted using the old models. They as noted in other posts are trying to make deals. In addition starting 2011 the VW was priced lower than MY's before.

 

[lexa]

I personally do not see it so much as a diesel related product issue, as it is mostly too many products chasing way too little buyers

I agree, it is about supply vs. demand.

evidently in our metro, TDI supply vs. demand ratio forces (perhaps not only) TDI prices down.

 

[itsfatboy]

I wonder why the residual on my 2006 is unchanged, in spite of the fact that the 2011's are selling for (on average) $6K less than the 2010's.

Shouldn't that trickle down to other model years?