Professor

For example, if a 4 year lease on a $50K car was only a dollar and the residual in the lease was $49,999, could the car dealer be liable if the true market driven residual was only $12K?

mrdeeno

Yes, the liability will always go to the dealer unless you decide to purchase the car for $49,999 or whatever the end of lease sale price is in the contract.

Or you can just return it and let the dealer try to sell a $12k car for $49,999. Either way, once the lease is over, it ain't your concern.

mrdeeno

An example of this happening was several years ago at the start of the SUV boom. Domestic dealers were giving great residuals on leases for SUVs.

4 years later when people started to return the leases, the dealer would be stuck with SUVs that were valued lower than what they estimated, so they were stuck selling these SUVs at a loss on the used car market.

CGTSX2004

iTrader: (1)

No, the dealer is not liable. The manufacturer will be the one eating the cost. Since the vehicles are on consignment, once its "leased" it becomes the property of the company financing the lease deal, which in most cases, is the finance arm of the manufacturer.

This means that when the lease ends and the vehicle is returned, if the market value of the vehicle is substantially less than the projected residual, than the money they have been collecting from the lease will not be enough to cover the depreciation and so the price differential between the money earned during the lease period and value of the vehicle at the end of the lease is all money lost.

jftjr

Further, the leasing companies buy hedge insurance against this possibility... residuals are a commodity, like anything else, and can be hedged against. The dealer, manufacturer, and leasing company don't care if the car isn't worth the residual at the end... they'll be made whole one way or the other.

mrdeeno

My bad, that's what i meant...dealer, manufacturer, whatever.

but YOU'RE not liable.