Dealer Profit on ex-Lease Used Cars?

[414bhp]

Hi all,

I am trying to understand how a returned leased car's residual value (as stated in the terms of the lease) relates to the dealer's profit when he sells that car to the second owner. Is the residual value the dealer's cost for the car or is the dealer's cost determined in some other way?

For example, imagine an e90 M3 with a $37k end-of-lease residual value is returned to a dealer. If that dealer then sells the car for $40k, would the dealer's profit be $3k? (Or is the residual value unrelated to the dealer's profit margin?)

Thank you!

[414bhp]

No one knows the answer?

If the usual cost to the dealer to acquire a used car is the price he paid at wholesale auction or the trade-in value he extended to the prior owner for the car, what is the dealer's cost to acquire a lease return car?

[414bhp]

Well, after some serious searching this is the best I could find:

http://www.e90post.com/forums/showpo...7&postcount=16

As a pre owned manager whenever someone returns the lease, we the dealership, have the right to buy it but don't do so 80-90% of the time because of the condition of the car or how much they factory wants for it.

A lot of times it's not worth what the factory wants for it and sometimes it is. Many of the cars cycle back through the auction where dealers go, including bmw dealers, and buy car that they can CPO because it's cheaper for them to buy the car at the auction then directly from the manufacturer. Once in a blue moon did I actually buy a lease return without checking the auction first but it was rare.

To summarize, when a leased car is returned to a dealership, BMWNA sets a price at which the dealer can buy the leased car. If the dealer rejects the car, BMWNA puts the car up for auction. When the OP was writing in 2009, the auction prices for lease returns were often better than the BMWNA fixed prices.

I am not sure where the residual value of the car plays into this exchange, but I guess it is BMWNA that profits when the lease's stated residual value turned out to be lower than the true market value of the car.

[414bhp]

Yay for answering my own questions.

I also found some good information here:

http://www.bimmerfest.com/forums/arc.../t-217874.html

Most BMW dealerships are obligated to buy many of their lease returned vehicles, certify them and retail them. It's all part of BMW's "Full Circle" retail program.

Dealerships can reject some vehicles, and those will typically be those which are less desirable, for whatever reasons, or those which can not become Certified PreOwned BMWs because of some defect (accidents or high-mileage).

....

Dealerships don't "negotiate" with BMW. There is a set price, which is sometimes lower than the residual, and sometimes higher.

[saeyedoc]

I bet if the car ends up at auction, they can claim on their insurance if it's worth less than the residual. Leasing companies do this to hedge against getting the residual wrong.

[mmm def]

at OP talking to himself.

But thanks for the useful info

[Brian W]

Originally Posted by mmm def

at OP talking to himself.

But thanks for the useful info

Most individuals would just bump endlessly and wait for someone else to do the work. Kudos, OP

[Murph335]

Buddy works at an Acura dealer they get a kick back from lease returns, or the factory buy price is less than residual to give room for the dealer profits.