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Tips on Buying Cars/Infiniti lease and negative equity

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Question
Hi Roger,

In June of 2012, I leased an Infiniti G37 for roughly $360 a month with no money down, no taxes, etc., 39 months, 10,000 miles a year.  I drove out of the dealership writing a check for just the first month's payment.  Since I had never leased a car before, this seemed like a phenomemal deal.

Six months after I leased the car, I took a new position and instead of driving about 8000 miles a year as I had done my entire adult life, I am now driving about 15000 miles a year.  I am now out of miles with a 13 months left on my lease.

I started shopping around to see about getting out of this lease into s new Q50 or maybe one of the new Lexus models.  You probably know where this is headed so I will make this short.  My current payoff on the G37 is $27000 and they are telling me the value of the car is between $19500 and $21000, depending on which dealer you ask.

I knew when I did the lease that they were dumping vehicles to make room for the Q's that came out last year.  However I did not know that they has such a supply that they are still trying to sell the 2013 G models new!!

I now know that they set the residual value at the end of the lease at roughly $24000, didn't think to ask back then.  Based on a sticker price of $40,000, thats a residual factor of 60%.  I have found that the best cars have a 3 yr residual of about 55%.

I feel like they intentionally structured the lease in a way that harms a person that needs to end the lease early.  What is your opinion of this and does anyone else think that this is wrong? Have you heard of any lawsuits in regards to this? When a dealer advertises how great a lease is, they always say that you are only paying for the amount of the car you use.

By the way, in the last 6 years my wife has leased 2 Lexus' and a Ford Explored, with no money down, taxes rolled into the lease.  Each time, she ended the lease a year early and had a few hundred dollars of positive equity.  I honestly feel Infiniti new that the way they structured these leases were not realisitic.

Thanks for taking my email.

Howard

Answer
Hi Howard,

Thanks for your question and very accurate observations ....

True: The low payment and the easy lease terms were all made possible because of a subvented money factor and synthetically high residual values.

True: You are also the victim of your job change and your longer commute distance.

False: They didn't intentionally structure the lease terms to harm anyone ...they did it to sell cars that were starting to stack up. All of the auto makers do it from time to time to help dealers clear out aging inventory

False: You are screwed with no way to get yourself right with your lease and your lease end value is so high that you are stuck with this car forever

Here is how you fix the problem or at least mitigate the bloodletting:

In your question you mentioned that the trade-in value of your car according to the dealer was only $19,500-$21,000 and your lease and value was around $24,000. When you trade in your vehicle regardless of what you may think or what it may look like on paper you are basically selling your car to the dealer for its wholesale value and that's all... Most people take advantage of this opportunity because it allows them to have somebody pay off the old car loan, reestablish a new car loan and do it all on one sunny Saturday afternoon at the dealers. The dealer then take your car that he purchased for wholesale he sells it for retail and that's what makes him the dealer. In order for you to bail yourself out of this situation you need to stop thinking like a customer and start thinking like a dealer.

Personally I would never ever consider trading in a car on a different car at the dealer ship... It's such a bad deal in most situations. The good news is that in your situation you don't have a choice about trading your car in at the dealership because if you do you will go backwards $5500 minimum according to your numbers. The answer is to retail the car yourself and then purchase your next car that wholesale value dislike the dealer wants to do you I ran the book she's on a basic Infiniti G 37 four-door sedan with 30,000 miles with local all-wheel-drive Limited no no bling! And guess what? The wholesale value of your vehicle is $25,186 and the retail value is almost $28,000... All that means is in order to get the money you need out of this car to pay off the lease you need to write a very good ad and tell a very good story about the car and what a wonderful car it's been and how well you took care of it and change the oil etc.. Craigslist is free... And people would rather buy from a private party the dealer. Just make sure that you are conscious of the prices being charged on the new G37's and the really late-model G37's so that you are priced accordingly. I would list your car right now for $26,000 and change (hopefully you have up to couple thousand bucks floating around should you find a quick buyer and need to make up a deficiency between the purchase price and the payoff. Personally I would buy $1000 grinder car to commute with for the next six months to get your mileage under control and then list the car and retail yourself out of it.

On cars like this with the huge spread between what the actual cash value is and the payoff selling it yourself is going to save you at least $4-$5000 and it's worth the small amount of time it will take you to do it and do it right. My e-mail addresses roadloans@Gmail.com sent me a copy of your ad after you have written it and I will fix it for you so that it makes your phone ring. Your other option is to finish the lease continue to drive it pay the mileage penalty against which they will let you roll into the next car loan or car lease depending what you decide to do. A final option would be to have somebody take over your lease payments for the last 13 months on one of those programs where leased cars are traded around like baseball players.

After many follow-ups if you want I'm here with you I feel your pain and while I can't make all the pain go away I can certainly take all of the sting out of it. Make sure you fill out that survey once you are completely satisfied making sure to give your friendly info provider perfect scores and maximum bonus points  

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Roger Alvey

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I can answer any question about the car buying process. I am a recognized industry expert on all issues regarding auto finance, including sub prime and buy here pay here financing, I can answer questions about car lock out systems, GPS monitoring by your bank, and about auto recovery methods and defenses. I am a 20 yr car industry expert and can tell you what to look for in a used car, how to negotiate the deal, help with how to market your own car, and how to negotiate with the internet department of any car store. I can tell you every single way the dealer is set up to beat you and how to avoid those traps, I can discuss all aftermarket and extended service contract products you will be offered in the finance process, I have lectured extensively on "The Best Way to Buy a Car" to civic groups and university students. I am a credit expert and can tell you what the dealer and banks are looking for and the rate you can expect to pay. HERE IS THE LINK TO MY OTHER ALLEXPERTS CATEGORIES WHERE I HAVE ANSWERED LOTS OF QUESTIONS http://www.allexperts.com/ep/3440-114948/Used-Cars/Roger-Alvey.htm HERE IS A LINK TO MY BLOG http://thecarguyz.wordpress.com/

Experience

20 years industry experience in top management of dealerships and dealer groups. Recognized industry expert since 2004 in the Top 10 industry experts for The Gerson Lehrman Groups Auto Industry Council. I also do consulting work for Atheneum Partners, Expert 360, Expert Connect and Coleman Research. I have been a franchise owner and understand all facets of the auto industry from the time the car leaves the factory until it leaves the lot with it's new owner. I have written training materials for both the prime and the subprime sales and finance process.

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NADA, OADA, NFIB, State Certified Used Car Appraiser

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Special Finance Insider, Dealer, and Automotive News, Gerson Lehrman Group Auto Industry Council News (frequently)

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Willamette University - Salem Oregon BA Economics Willamette University Graduate School of Business - Econometrics Statistics

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GM's Award of (their most prestigious award) Given to Dealers who surpass their annual benchmark planning volume while also maintaining Top Box (top 5%) CSI

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