Residual comments

[QSHIPQ <QSHIPQ@aol.com>]

Phil writes:
>Not quite.  Residual value is the result of a simple calculation -
>projected resale is an educated guess.  Years ago, it was even possible
>insure a projected resale value (the Lloyds "J" policy).
>BTDT.
>The trick in leasing is to get a residual value accpeted that is lower
>than the projected resale, even if not by much.  At the end of the
>lease, the proceeds of the asset sale pay off the residual and the
>profit goes into the pot.
Well here in the states it's not quite that simple calculation.  There is a
residual value, and that value is guaranteed by an insurance policy for
residual value (price to a dealer is around 150USD or so).  Now if the actual
cash value of resale in three years turns out to be less, then the insurance
pays the lessor the difference.  So really, the lessor looks for high
residual, reducing the cost of a lease to a consumer, or increasing the
profits more likely.  A points game, that the insurance co's and dealers
rarely lose (and god forbid you exceed your mileage).  The customer can win on
a buyout, but that's not quite so easy.  The residual game is run buy some
smart actuary dudes and dealers (neither of whom cares of your wallet), so
getting the upper hand takes some work.  High mileage cars, and extremely low
mileage cars are the general exceptions.  Since ACV is calculated with mileage
and condition, and residual isn't, a win is possible.  For the average Joe,
this isn't an automatic win. A new model car with no history, goes to past x-
year history in class, and that can be a win (maybe audi excepted).  The game
is tight here tho.  And wins are possible, not probable.  Predicting the
future is a risk.  Returns can be good, rarely great.  It is an automobile
after all.  Ask a few speculators that bought 'rare' ZR1's and NSX's.

And, although the mighty 740i looks good now, it didn't enjoy such a fine ACV
vs residual on the 88 and 89 750IL leases.  The risk BMW didn't realize is
that the 740, albeit a dozen HP short, was a better engine for the buyer here
in the states.  So, ACV took a dump, by the very actions of the boys in
bavaria.  Auction price on that car in the early '90's was in the 15-18kUSD
range.  So that risk can go both ways....

Scott Justusson
QSHIPQ@aol.com