Many manufacturers now offer the rental of their products over a period of five years.
Not to save the customer, but because the industry has understood that it is to the advantage of the dealer to stretch the sauce as much as possible. And of course, without the customer even realizing it, he finds himself caught in a gear from which it is difficult to extricate himself.
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The following case is the story of an acquaintance who, a few months ago, chose to return to live in her country of origin, France. In doing so, she had to get rid of her 2018 Chevrolet Cruze LT, which she had leased for a 60-month term in October 2018. A car she was very satisfied with, although she had only driven so far. 21,000 km.
The clauses of his contract were as follows: 60 monthly payments of $ 333.21 for a total of $ 19,992.60, after which there is a possibility of redemption for $ 6,367, plus taxes. Leased at a rate of only 0.5%, the small Chevrolet Cruze was yet to be paid for more than 80% at the end of the term, the suggested retail price including shipping costs being $ 24,490. It must be said that the client, for the sake of peace of mind, had chosen to add to this rental an extended warranty protecting the car for the entire term, thus adding a taxable amount of $ 1,218. And since this addition is not “residualizable”, he had to include the full sum of this guarantee in his rental term.
Obviously, you will have understood here that the car was thus sold at full price, without any discounts, which in itself is not dishonest. Except that it was clearly not a godsend. Now, after 20 months of rental and only 21,000 km driven, the customer came to the dealership to find out how much he would buy the car for. She knew she would have to deal with negative fairness, but by how much?
The dealership therefore offered him $ 11,000 taxes included ($ 9,567.30) for the car, while his debt including the buy-back amount at the end of the term was still around $ 22,000. However, at the same dealership there was at that time a used Chevrolet Cruze, identical to his and with similar mileage, for which $ 16,495 was being charged. This meant an approximate profit of $ 7,000 for the dealership, excluding financial products that could accompany the resale of that same car.
Insulted and unsure of what to do, she asked me if there was a way to get rid of this car without having to incur a loss of more than $ 10,000. Not knowing the terms of her contract, I suggested that she place an ad for her for a lease transfer, which I thought would be resolved quickly given the mileage and condition of the car. However, I did not yet know that it was a 60-month term, which allowed me to understand where she was.
Quickly, I explained to her that by renting her car for 36 or 48 months, she would only have to pay between $ 25 and $ 40 more monthly. An amount roughly similar to the cost of the extended warranty it chose to cover the two years not covered by the manufacturer. However, at the end of the term, the residual value would have been higher, thus reducing the total amount of the lease obligation. Now, in his case, to get rid of his car at the dealership, he still had to pay off the total debt of the vehicle, including the buy-back amount.
The solution would therefore be to transfer the rental lease to a new buyer, including an incentive. Why? Because it is not at all attractive for a buyer to take over a lease for more than three years, rather than renting a new car on a similar term. To successfully find a buyer, it was necessary to donate the winter tires, pay the lease transfer fee of $ 575, and offer a six-month lease as an incentive. Roughly speaking, the customer had to pay a little over $ 2,500 to get rid of her car, when it cost her $ 11,000 at the dealership.
Obligations to consider
Remember this: the longer your rental term, the greater your obligation as a landlord.
Like many, you may also want to change your car early, a gesture that will of course be encouraged by your dealership. In doing so, you would then fall into the negative equity trap, which means that your new car would be financed the negative amount to be covered from your old vehicle.
Then, on the other hand, if you are among those who are keen to keep their car until the end of the term, then you would have to replace brakes, tires or whatever, which you probably would not do with a car rental. shorter term. You would therefore be the one who, by obligation, would restore a car to condition before giving the keys back to the dealer, who would then sell it at a high profit without investing a penny, or almost.
So, just like financing over 72 months, leasing for more than 48 months is in my opinion a trap in which you should not fall. In closing, you would be right to say that the now-defunct Chevrolet Cruze is a car that devalues faster than a Toyota Corolla. However, the principle remains the same. Too long a lease is only for the benefit of the dealer.