Slumping Economy Affecting Luxury Auto Leases

October 6, 2008

There used to be a time when many Americans who bought luxury cars using loans could turn around and sell their vehicle for a profit after having paid their loan off. The value of the vehicles that they were purchasing was often worth considerably more than the residual values of their lease contracts. This meant that the amount the vehicle could be bought for was of a higher value than what was listed at the end of their lease.

Since the recent turmoil in the economy, this has changed. Many vehicles are now coming off leases under the value stated on their residuals, making them poor investments for those that want to see their property grow in value.

According to the values established by the Black Book, the leading guide for the industry that determines residual values, the average value of a BMW is now about $3,000 lower than what they were worth when new. This is especially true for the big three domestic automotive manufacturers, and even the Japanese makers to an extent, which almost always had tight sales margins.

The value for regular vehicles is of a much smaller drop, however. The average consumer car now loses around $500, which is significantly lower than their luxury brethren, especially regarding the vehicles produced by European manufacturers.

The shifts in value regarding the vehicles have led consumers to change the ways they perceive and handle their vehicles once their leases are completed. In many ways, these changes are valuable to buyers, since it means that they can get the vehicles for much cheaper than what they normally could otherwise. However, this doesn’t mean that the market is a goldmine of cheap luxury vehicles.

Initial prices may change, but the vehicles are still strong holders of value, making them considerable investments for long-term purposes. You want to understand how a lease works and the value of a vehicle in relation to one before pursuing an option.

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