Trogdor
02-13-2013, 12:12 PM
A lot of you may have seen me talking about this, but may not fully understand how it works.
Kare 11 ran a story last fall explaining the numbers break down, and how the market got to this place.
http://www.kare11.com/news/news_article.aspx?storyid=985847
Typical leases work like this:
You pay for X% of the car. The remaining value of the car is called the residual value. We can estimate the value of the vehicle 2-4 years from now because you are restricted to a certain number of miles per year. So based on X miles over Y years, we plan for the vehicle to be worth Z amount. That residual is the price which you can buy the car at the end of the lease.
The traditional model that most car manufactures follow is this:
Over value your residual, so that when the lease it up the customer is in a position where their car isn't worth as much as their residual. This puts them in a position where it's financially unwise to buy it. This then is where they rely on dealers to then sell you a new car.
Mitsubishi's model is this:
Undervalue the residual so that when the lease is due the customer has equity, and may want to use that towards buying a new Mitsubishi. Yes, I said equity in a lease, but I'll get to that in a minute. This also puts customers in a position where they can buy the used car they just took care of, for less than what the car is worth.
Take my Evo for example. The residual for my car is about $16,000. By that time it should be 4 years old and will have about 60,000 miles on it. I just sold a 2008 with 95,000 miles on it for $19,999. So yes, I'm pretty confident my car will be worth more than $16,000.
And yes, I'll be over my miles, and yes I've modded the hell out of the car. But none of that matters because I'm buying it. Those things only matter when you return the car.
Mitsubishi also has what they call a "Pull Ahead" program. It goes out 6-9 months before the end of your lease. It's a letter saying that if you buy a new Mitsubishi, they will let you our of your next 6-9 payments.
*A little known fact about leases*
Never just turn in the keys and leave! Dealers will buy a leased vehicle, even if it's not our brand!. It works just like if you have a loan on a car. We take the value of the vehicle (what we would buy it for) - remaining lease payments + residual. If residual and remaining payments are less than what we would buy your car for, you have equity!
Kare 11 ran a story last fall explaining the numbers break down, and how the market got to this place.
http://www.kare11.com/news/news_article.aspx?storyid=985847
Typical leases work like this:
You pay for X% of the car. The remaining value of the car is called the residual value. We can estimate the value of the vehicle 2-4 years from now because you are restricted to a certain number of miles per year. So based on X miles over Y years, we plan for the vehicle to be worth Z amount. That residual is the price which you can buy the car at the end of the lease.
The traditional model that most car manufactures follow is this:
Over value your residual, so that when the lease it up the customer is in a position where their car isn't worth as much as their residual. This puts them in a position where it's financially unwise to buy it. This then is where they rely on dealers to then sell you a new car.
Mitsubishi's model is this:
Undervalue the residual so that when the lease is due the customer has equity, and may want to use that towards buying a new Mitsubishi. Yes, I said equity in a lease, but I'll get to that in a minute. This also puts customers in a position where they can buy the used car they just took care of, for less than what the car is worth.
Take my Evo for example. The residual for my car is about $16,000. By that time it should be 4 years old and will have about 60,000 miles on it. I just sold a 2008 with 95,000 miles on it for $19,999. So yes, I'm pretty confident my car will be worth more than $16,000.
And yes, I'll be over my miles, and yes I've modded the hell out of the car. But none of that matters because I'm buying it. Those things only matter when you return the car.
Mitsubishi also has what they call a "Pull Ahead" program. It goes out 6-9 months before the end of your lease. It's a letter saying that if you buy a new Mitsubishi, they will let you our of your next 6-9 payments.
*A little known fact about leases*
Never just turn in the keys and leave! Dealers will buy a leased vehicle, even if it's not our brand!. It works just like if you have a loan on a car. We take the value of the vehicle (what we would buy it for) - remaining lease payments + residual. If residual and remaining payments are less than what we would buy your car for, you have equity!