The listed residual value is normally set to make it extremely unfavorable to buy out the lease. The appropriate amount of depreciation still occurs, they just achieve this by inflating the sales price for leases as most people only care about direct costs to themselves when starting a lease.
It’s stuff like this that’s the real reason dealerships love leases. Their much more complex than a sale so the dealerships have far more options to screw people.
>The listed residual value is normally set to make it extremely unfavorable to buy out the lease.
Close but it's a little more nuanced.
You lease a trendy car (4Runner or something) and they expect able to turn it around, detail it and sell it on their CPO lot for way to much money to someone who thinks they're being savvy by buying CPO. You wanna keep it then you gotta pay them the way too much money they'd otherwise make.
You lease a black sheep (say a Sentra, Chrysler 200, Focus or some other cheap lower end compact that there's gonna be a ton of with high miles in a few years) and the buyout will be minimal because they expect to make peanuts reselling it.
Your lease rate is based in part on their expectation of how much profit the car will get them at the end of your lease. Something with a low MSRP and customer base that drives the used value straight into the ground won't make them squat after cost of turning it around and selling it used. So in those case you pay much less on the buy out.
Lowering the buyout without lowering the upfront cost simply increases what you’re paying during the lease. Anyway a favorable buyout price means they lose out on charging you for excess mileage at the end of the lease because you can simply buy out the lease and skip those fees.
The buy out on the black sheep cars can be a really good deal. Instead of lowering the price a manufacturer can artificially raise the residual thereby dropping the lease rates down.
They loose more money but they make up for it in volume and get to book profits now and losses later (financial engineering).
I don’t think leasing a 4Runner ever makes financial sense unless you flip though cars every 2 years and live in a high sales tax state.
It’s stuff like this that’s the real reason dealerships love leases. Their much more complex than a sale so the dealerships have far more options to screw people.