I'm going to need you to tell me how they "rob ya" on leases vs a traditional loan.

 

Make a much higher profit % on leases than they do on a new car sale.

I simply don't understand the want/desire to have a new car every 2-3 years, but I'm also not a very materialistic. I have a 2006 Nissan Altima that I plan on driving til she dies out on me. It's been great the last year not having any type of car payment and knock on would I get to enjoy that for a little while.

Make a much higher profit % on leases than they do on a new car sale.

 

I got what you were saying. I am asking you how that happens.

I got what you were saying. I am asking you how that happens.

 

Simple....Dealer XYZ pays $20,000 for a new car. Typically, you can walk out with a sale price of somewhere between $21,500 - $22,000. A profit of roughly 7.5-10%.

 

Same car, you lease it for 3 years at $250 a month. They bring in $9,000, then at the end of the 3 years will have a PBO of roughly $16k-$18k. They've more than doubled their profits on the car. You don't buy it, and you lease another one and the cycle starts again. Because they basically "maintain title" to the car while your leasing it, they pretty much make straight profit on all lease income. There is no additional cost to them whether you're buying the car or leasing it.

 

Most dealers also finance their own leases. Not usually true for new car purchases. So all interest goes straight to their F&I income accounts.

Simple....Dealer XYZ pays $20,000 for a new car. Typically, you can walk out with a sale price of somewhere between $21,500 - $22,000. A profit of roughly 7.5-10%.

 

Same car, you lease it for 3 years at $250 a month. They bring in $9,000, then at the end of the 3 years will have a PBO of roughly $16k-$18k. They've more than doubled their profits on the car. You don't buy it, and you lease another one and the cycle starts again. Because they basically "maintain title" to the car while your leasing it, they pretty much make straight profit on all lease income. There is no additional cost to them whether you're buying the car or leasing it.

 

Most dealers also finance their own leases. Not usually true for new car purchases. So all interest goes straight to their F&I income accounts.

 

Almost all of the above is incorrect.

 

1. No dealers finance their own leases. I work with them every day in this area specifically. 99.9% of their leases are through the manufacturer's financing company. So if you're UKMF Chevrolet your leases are being written through Ally . If you're UKMF Ford they're being written through Ford Motor Credit.

2. Cash flow is key to a dealer's success. Dealers take out a loan from the manufacturer to finance the new cars they get from them. It's called "floorplanning." If they financed their own leases their cash flow would be in the tank. Per their franchise agreement they have X days (maybe 3) to completely pay off the loan for the vehicle they just sold. So if the loan for the car you mentioned above is $20k they have to stroke a check for $20k immediately. They can do this because the lending source immediately pays them for the contract they just wrote. That couldn't happen if they financed their own leases.

3. Profit on a lease is calculated the same as profit on a loan. How much did you sell the car for less how much did the car cost. There is still a sale price on a lease. The customer knows what that sale price is. So there is no logical reason for there to be a higher profit on a lease than a loan. The only way I could see that being true (and it used to be true in the late 80s/early 90s) is if the dealer does not have to disclose the sale price on a lease. They do. It's called Reg M. Customer walks out the door with a complete layout of how the lease payment was calculated.

4. F&I income is made off of spread in the financing. If the lending source charges 2.9% for this loan and they sell it at 3.9% they collect , usually, 75% of the difference.

5. Dealers, again, do "maintain the title" to the car. No dealer wants to do that.

Almost all of the above is incorrect.

 

1. No dealers finance their own leases. I work with them every day in this area specifically. 99.9% of their leases are through the manufacturer's financing company. So if you're UKMF Chevrolet your leases are being written through Ally . If you're UKMF Ford they're being written through Ford Motor Credit.

2. Cash flow is key to a dealer's success. Dealers take out a loan from the manufacturer to finance the new cars they get from them. It's called "floorplanning." If they financed their own leases their cash flow would be in the tank. Per their franchise agreement they have X days (maybe 3) to completely pay off the loan for the vehicle they just sold. So if the loan for the car you mentioned above is $20k they have to stroke a check for $20k immediately. They can do this because the lending source immediately pays them for the contract they just wrote. That couldn't happen if they financed their own leases.

3. Profit on a lease is calculated the same as profit on a loan. How much did you sell the car for less how much did the car cost. There is still a sale price on a lease. The customer knows what that sale price is. So there is no logical reason for there to be a higher profit on a lease than a loan. The only way I could see that being true (and it used to be true in the late 80s/early 90s) is if the dealer does not have to disclose the sale price on a lease. They do. It's called Reg M. Customer walks out the door with a complete layout of how the lease payment was calculated.

4. F&I income is made off of spread in the financing. If the lending source charges 2.9% for this loan and they sell it at 3.9% they collect , usually, 75% of the difference.

5. Dealers, again, do "maintain the title" to the car. No dealer wants to do that.

 

Please. I work on this stuff 6 months out of a year. I know how the process works. They make more money on leases. It's simple as that.

Please. I work on this stuff 6 months out of a year. I know how the process works. They make more money on leases. It's simple as that.

 

You've yet to show you know what you're talking about in this specific area. I just detailed why you are incorrect. Tell me where I'm wrong.

 

By the way, I work with it 12 months a year.

You've yet to show you know what you're talking about in this specific area. I just detailed why you are incorrect. Tell me where I'm wrong.

 

By the way, I work with it 12 months a year.

 

I'll concede you may be right regarding the dealerships leasing their own. The one I work with has a subsidiary finance company they use, but that's probably not common practice among all dealerships.

 

They make more profit on the leased car than they do a new car sale. You can't convince me otherwise. I've seen it happen time and time again. What happens when the leasee decides they don't want the car after 3 years? The dealership turns arounds and sells it again, this time at a much higher profit point. Now a car that if they sold it outright would've brought them profits of roughly 10% is bringing them a profit of double that. It occurs over time, but it still happens.

 

I'll try to find the article, but I recall reading something that said the vast majority of people who lease turn the car in after the lease period.

I'll try to find the article, but I recall reading something that said the vast majority of people who lease turn the car in after the lease period.

 

I have never leased a car but the couple of people that I know who do lease one (girlfriend including) have always turned the car in and leased another.

Just began leasing for the first time. I was skeptical going in to it but I feel confident with my decision. I am not in to speakers, tricked out wheels, etc. so that stuff does not excite me. Nor do I look at my car as some kind of huge investment. Having worked with used cars I understand how much value they lose in no time.

I have never leased a car but the couple of people that I know who do lease one (girlfriend including) have always turned the car in and leased another.

 

That is what I understood most people to do.

I'll concede you may be right regarding the dealerships leasing their own. The one I work with has a subsidiary finance company they use' date=' but that's probably not common practice among all dealerships. They make more profit on the leased car than they do a new car sale. You can't convince me otherwise. I've seen it happen time and time again. What happens when the leasee decides they don't want the car after 3 years? The dealership turns arounds and sells it again, this time at a much higher profit point. Now a car that if they sold it outright would've brought them profits of roughly 10% is bringing them a profit of double that. It occurs over time, but it still happens. I'll try to find the article, but I recall reading something that said the vast majority of people who lease turn the car in after the lease period.[/quote']

 

Driving now so I will give more detail later. You are mistaken on the profit at the end of the lease.

I'll concede you may be right regarding the dealerships leasing their own. The one I work with has a subsidiary finance company they use, but that's probably not common practice among all dealerships.

 

They make more profit on the leased car than they do a new car sale. You can't convince me otherwise. I've seen it happen time and time again. What happens when the leasee decides they don't want the car after 3 years? The dealership turns arounds and sells it again, this time at a much higher profit point. Now a car that if they sold it outright would've brought them profits of roughly 10% is bringing them a profit of double that. It occurs over time, but it still happens.

 

I'll try to find the article, but I recall reading something that said the vast majority of people who lease turn the car in after the lease period.

How is it any different then a dealer taking trade a 3 year old car someone purchased? You buy a new car, 3 years later you trade it in for another new car. No difference.

How is it any different then a dealer taking trade a 3 year old car someone purchased? You buy a new car, 3 years later you trade it in for another new car. No difference.

 

I never said it was. The majority of people who buy new cars keep them longer than 3 years though. Not true with people who lease. Plus, when you lease, the car back goes back to that dealership. Again not true if you purchase a new car and than trade it in.

Leasing is growing because young people want what their parents have, but do not want to work for it. They cannot afford a $30000 car, but they WANT it so they lease it because they cannot afford to buy it. I personally thank the suckers that lease because I then get a great deal on a 3 year old vehicle with around 36000 miles on it. To each their own...