Time To Hand Back Your Lease? DON'T!
Viraf Baliwalla, 2021-11-01
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José B. bought a new Honda CRV 4 years ago and his lease was up this past August, 2021. The vehicle was in good shape and the buyback, based on Honda's original residual calculation 4 years ago, was now $13,805. However, Honda never predicted COVID and the dramatic impact it would have on the car market.
José had used a car broker, Automall Network, back in 2017 to negotiate the cost of the lease for him. So when it came time to hand the vehicle back, like most people do at the end of their lease, and enter into a new lease, he called his car broker again to get the process started.
Much to José's surprise, his broker told him not to hand it back in. Due to COVID, the market was very different today than what was expected and his vehicle was now worth a lot more than the $13,805 that he could buy it back at. Buying back would also mean having to certify the vehicle and pay taxes. José didn't want to keep the vehicle and wanted to lease a new CRV so his broker used their connections to shop the vehicle around and conducted a silent auction amongst dealers. Ultimately, the highest bid received was for $18,800.
While traditionally, one would simply hand over the car and walk away, José was able to walk away with a cheque for $4995 from the winning dealer to use as he wished.
COVID has had a deep negative worldwide impact on people, businesses and economies. However, for those whose time had come to hand back a lease or sell an extra vehicle they no longer needed, there was a small bright spot. COVID created a perfect supply and demand storm for used car sales and lease returns:
the dealer auctions, which are a significant source of vehicle inventory for dealers, were running dry so dealers had a very difficult time getting decent used inventory for sale. As a result, prices of whatever ran were being bid up to very high levels
- manufacturers have had a very difficult time getting parts, especially chips for modern day electronics. Therefore, new car dealers have had a very difficult time to get new inventory and so started buying any used cars they could to keep their doors open, again driving prices up
- as businesses started to reopen, car rental companies that typically buy hundreds or thousands of new cars every year were also not able to get new inventory for their fleets and so started buying used cars, again driving prices up
- governments ordered businesses to shut down during the pandemic so people did not need to go into work or commute for well over a year, leaving them with vehicles that were not being driven much and so had very low mileage. As well, there were not as many accidents because of fewer vehicles on the road
- low mileage vehicles with no accidents are considered premium and therefore fetch top dollar, even in an already inflated market caused by the above supply issues
- leased vehicles that were assessed based on the typical depreciation curve are now worth a lot more at lease end and can fetch a much higher price on the open market than their residual buy back amounts. The same is true for vehicles that people just want to sell
- in many cases, the higher values can also cover much of the negative equity to break a lease or pay off any financing if the transaction is done properly.
"The markets are strong right now in the dealer channel" says Viraf Baliwalla, President of Automall Network and José's auto broker. "Nobody knows how long this will last but those that have the opportunity should seize it".
Automall Network is a Toronto based fully licensed dealer but does not operate like a dealer, they work for consumers throughout Canada and the US. Just like one would hire a real estate broker to help them buy or sell a home, Automall Network helps people buy or sell a vehicle. They start with a free consultation for either buyer, seller or lessee to determine the best course of action depending on the situation and the vehicle.
For media inquiries, contact Viraf Baliwalla, President, Automall Network at (416) 249-5474 ext 303 or [email protected].
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