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If you’re leasing a car right now, this advice is for you. (If you’re not, welcome anyways.)
The United Auto Workers (UAW) union is currently striking at “Big Three” automaker plants. The “Big Three” are General Motors (GM), Ford, and Stellantis (which produces brands like Chrysler and Dodge, among others).
We’ve written up a general overview for what you may need to know at this stage here, but wanted to give leasing drivers some more specific advice. You, leasers of America, could be in a pretty good position here.
A Little Background
If you’ve been leasing for a while, you probably haven’t been keeping an eye on the used-car market. In short, it’s not good. But why should you care about used-car prices if you’re leasing, anyway?
When you sign a lease contract, your car’s residual value (an estimate for its worth by the end of the lease period) is locked in. Supply chain issues during the pandemic drove used-car prices through the roof, meaning residual value estimates were around $7,000 lower than actual market rates for the same models.
This, in turn, made lease buyouts especially lucrative. There are a few variables that can affect the total cost of buying out a leased vehicle (a.k.a. the buyout price), but many people were still able to buy out their cars for thousands of dollars below market price.
The thing is, the used-car market hasn’t ever really recovered. And even though most manufacturers have wised-up to these higher prices and adjusted their calculations accordingly, you’re still in a pretty darn good position as a lessee today.
The strike will mainly affect production for a few specific makes and models initially, but the longer it lasts, the more it’ll spread. And with fewer new cars out there, used cars become more valuable. Especially used cars with an easy-to-follow paper trail of repairs, mileage limits, and drivers incentivized to keep the car in good condition. And those used cars are – you guessed it – leased & returned cars.
Fewer New Cars = Higher Used-Car Prices
When the value of used cars goes up, dealerships will go above and beyond to get leased cars back on their lots.
When they leased it to you, the dealership expected to eventually get your car back in decent condition, turn it around, and sell it for something close to the residual value. (More, if they can upsell.) If the car you’re driving is currently valued higher than that residual, the dealership would be set to make even more money on the sale. Bottom line: they want the car back.
We saw this during the pandemic, with some manufacturers going so far as to try and ban buyouts altogether. (Tesla owners, unfortunately, that’s what got between you and us. We miss you.) GM started causing problems for lessees, too.
But if you still have a buyout option in your lease agreement (most of you should), you stand to gain from the going rate for your leased car, too.
How to Make a Buyout Work For You
Lease buyouts can generally go one of two ways: you buy out and keep the car as the new owner, or you buy out the car and try to sell it.
Interested in selling? Let’s say you (or we, if you’re interested in working together…) call up your leasing company, get the payoff info, and find out it’s a good bit lower than the going rate for your same make and model in similar condition. If you buy out your leased car, you could then try to sell it for a nice profit in this emerging hot market. (Whether or not the profit you’ll make is worth getting rid of the car is up to you.) This makes the most sense if you no longer need a car or have another you can use.
Interested in owning? If you do need a vehicle and you’re not interested in navigating a sale, there’s another way to financially benefit from a buyout in these market conditions. It might not sound as lucrative as the first option, but could be just as (if not more) financially savvy for you.
If your leased car’s current market value is higher than the buyout price, buying out and keeping your car can be a stellar way to go. Sure, there’s no new cash in your pocket, but you still have a car. And not only that, it’s a car in pretty good shape, that you already know the maintenance history of, that you’ve paid less than market value for. And instead of leasing it, you’d become the owner. Say goodbye to mileage limits and an expiration date on your relationship with your car.
Think about it – you started leasing the car when it was new, so if you buy it out now, you’re basically accessing all the benefits of leasing (maintenance package, lower average monthly payments, etc.) plus the benefits of new-car ownership after your lease is over. Tell that to your friends at the dealership.
Love Your Leased Car? Keep It.
Drivers are holding on to their cars longer and longer – and buying a new one is getting more and more expensive. You’ll need to be even more careful in weighing your options as time goes on and the strike plays out. If you do plan on leasing again, keep in mind that you may have a smaller selection and less control over customization than you had previously.
If a lease buyout sounds like it could work for you, we invite you to talk to us. Not only do we facilitate the buyout transaction and take care of all your paperwork, but we’ll hook you up with a competitive loan to cover the buyout cost. You could own your leased car with monthly payments comparable to what you’re already covering. Plus, you’ll skip the (insane) rising costs of leasing today.
If you want to talk about your lease-end option to buy and keep your car, give us a call at (888) 307-5197 to speak to an advisor. If you’d prefer to learn more or get started online, visit us at leaseend.com. We’ve got resources, info, and a team of lease-end experts ready to help you figure out the best way to buy out and keep your car for good.