Why are lease residuals so mediocre when resale is so high?

Hey, guys, new to the forums but I did my homework and searched but didn't see anything specifically addressing this issue.

I wanted to buy a used Tacoma but everyone here in the NW is selling for well over book value, so I decided this was probably a great candidate for leasing. The Tacoma is consistently rated as one of the vehicles with the highest resale value, not just among trucks but overall.

But when I got the lease terms from the dealer the residual was nothing impressive. I can't remember exactly, I want to say in the ballpark of 60% for three years. That's fairly average, but you'd expect a vehicle with the 2nd or 3rd highest resale in the world to have a stellar lease residual to go along with it.

The dealer told me not to worry, that I'd get the money back at the end of the lease term because the truck would be worth more than my buyout, but I don't like gambling on something three years away. The rumored redesign could lower resale values for older Tacomas, the new Colorado might be a hit (hey, it's possible ), we could have another recession, etc.

So can anyone on here explain to me why Toyota sets such artificially low residual values on their Tacoma leases? It makes no sense to me, so I'd appreciate anyone who can shed some light on this mystery. Thanks in advance.

 

The lower lease residual they put, the more you have to pay for lease...
For Dealer = pure profit...

 

Tacoma still has the best residual value in the mid-size pickup market. https://www.alg.com/residual-value-awards/

The reality (and the dealer even told you this) is that the residual value is not a match to the resale value. If you think about it, the lower the residual value the more money the dealer can collect up front from you during your lease. Everything is negotiable.

 

Thanks, both of you, for your replies.

Sure, they can make more money by depressing the residual, but if that's their goal why not do it on all cars? The residual is lower than a Corolla.

And if they leased it for a more realistic residual, they'd move even more trucks than they already are. In the long run I'd think they'd make more money that way.

 

Supply & Demand... most dealers don't hold onto Tacoma's for very long on the lots. This varies region to region, but if a dealer knows it'll sell then they are going to demand a higher price. The mid-size truck market has little competition when compared to other autos.

 

60% residual is actually pretty good considering the 2014's have been out for a while. The residual value decreases every month as the truck ages.

The higher the residual the lower the lease payment, however, if your planning on buying it at the end, the lower residual plays in your favor if it is low.

The dealer is right, you should be in a positive equity situation at the end of your lease as long as your mileage isn't way over or excess damage. You can buy it at lower than market value, sell it at a profit, or trade it in with positive equity.

 

Toyota is selling all produced Tacomas.... at almost 150 000 units per year, not sure how much more they can move. Unless they build another factory....
There are no incentive for Tacomas, its hard to get even 0% apr on them (not sure if anybody got one)
Tacoma had killed all competition and when GM comes up with Colorado most likely it will get killed too.

 

As others have stated, Toyota has no need to subvent the leasing parameters for the Tacoma, they're still selling each one that they get. Every dollar they don't spend, or extra profit they can get on Tacoma, they can use to keep Camry #1, etc.

 

The residual value is NOT negotiable. It is set by the lessor and is based on MSRP and factory options. For example, a Tacoma w/ Nav has a higher residual value than a similar truck w/ the exact same MSRP w/o Nav. The money factor is also non-negotiable.

When you lease you are buying the truck FOR the leasing company from the dealer. It should make little to no difference to the dealer if you buy or lease because you are in actuality buying the truck from the dealer for either yourself or the leasing company. The best way to reduce your lease payment is to negotiate the best selling price on the vehicle. This closes the gap between residual value and selling price thus reducing your payment.

And you should be able to trade or buy then sell the leased Tacoma for more than the residual value giving you money back in your pocket after leasing reducing your overall cost of leasing/ownership.

If the resale values on the Tacoma take a hit for some unforeseen reason you just turn your lease back in. It's actually a safer way to protect your future when purchasing a new vehicle. More options.

 

Are you talking LEV? A lower LEV is better for you. You can buy it for less than market value, or trade it in and use the equity towards a new one.

Im confused why you'd want a higher LEV after 3 years of making payments?

I just bought my 2011 DCSB for under 20k at the end of a lease. I couldn't have touched a 2011DCSB for under 20k on the retail market.

 

Again, thanks everyone for your input.

I'm not talking about subventing. On the contrary, I've argued the lease residual is artificially low, while some companies artificially inflate their values. However, your point about profit is valid.

 

Not familiar with that acronym. In my research on leasing, the only figures that really matter are the MSRP, capitalized cost, residual, and money factor. If by LEV you mean residual, I disagree that lower is better. Higher means a more affordable lease and a guarantee of a high turn-in value even if market values take a hit for some reason. If you do choose to buy the vehicle at the end of the lease, as you did, the buyout value will be much lower than an equivalent used vehicle, as you stated, but you've paid out significantly more during the lease, so you've pretty much paid the same amount either way.

One other note for anyone who might be considering leasing any vehicle: one of the posters above mentioned that money factors are not negotiable. For the most part he's correct, however, it's a little-known fact that most dealers get a small cut of the money factor, and that part is negotiable.

 

I see what you're saying. I'd still rather have equity than not at lease end. You're gonna pay one way or another and to me, it will make me happier to see some equity at the end rather than come up with a few grand to make another down payment.

 

I leased a tacoma sr5 4x4. 12k miles a year. paid something like 31k out the door. the residual at the end of the lease is 21k.

Now, there is now way a clean, low milage tacoma is worth less than 25k. In a nut shell, it means that at lease end, I owe 21k on a truck worth 25k.

I can trade the truck for a new one, and I have 4k in positive equity.

I can buy the truck at lease end for 21k.

I can terminate my lease and walk.

Think of a lease as a 3 year note with a balloon.

 

Lease residual value is based on product depreciation, NOT on resale value with current market demands. There is a huge difference there. I have 2 customers who recently bought out their lease on their Tacoma, then turned around and sold them for a nice profit (company trucks, and were getting new company trucks) The fact that today, the current market for these trucks is high is based on consumer demand. If consumer demand for WHATEVER reason fell rapidly, then resale value would also fall. By using raw product depreciation it uses a realistic value, rather than an inflated on based solely on consumer demand.

 

Didn't read all the responses but, here's my pennies worth in a nut shell.

Residual values can be dinked with to adjust lease payments (as well as term, rate & a few other gimmicks). I never lease (for other reasons) but, if I did (for my own comfort) I'd want residual to be as close to the estimated ACV/wholesale. I may also purchase gap insurence.

And never confuse wholesale vs retail...the dealers won't.