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The worst of time (can be) the best of times.

by on May.16, 2011

Storm clouds on the horizon? Buying some cars, like the Prius, can be a challenge right now.

Buying a car, these days, can test the patience of Job, columnist Denise McCluggage noted in her latest McBlog, yet the worst of times can turn into the best of times…with a little help. Here’s a sidebar to her column.

Fred Vang is a personal consultant to car shoppers. He lives in Santa Fe NM but his clients come from anywhere. He helps them gel their amorphous thoughts about acquiring a new car into something he can actually search for. He negotiates the deal, he handles the documentation and registration and arranges all the delivery details. In short he drains the tension out of acquiring a new vehicle and enhances the pleasures.

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In the current market that’s hard to do but his long-held connections still leave the door ajar.

Fred sees a bright spot even in a market with new models in limited supply and used cars tagged with extremely high prices. “The worst of times can be the best of times for a few,” he says. And those few are people just coming off a lease.

Fred is a strong proponent of leasing for most of his clients because with a lease comes a stated-in-writing residual value – the amount that the car will be worth as the lease ends. The guy with the lease can’t lose – if the market value is below the residual he can drop off the car and walk away. (Or in some cases negotiate for a reduced price.)  If the market value is higher than the residual he can keep the car paying the lower residual price.

But not this time. Fred’s “best of times” scenario is not so simple.

Star of this show, the guy with the car and a soon-to-end lease. A few months before the lease ends he should start tracking used car prices for cars similar to his. If he can he should check the auction prices his dealer is paying for used cars. These days he is apt to find that the going price is greater than the stated residual value of his car. He should have an idea how much.

“Aha”, I say “He then knows he should buy the car because he can then sell it on the market and be in a better position financially to get another new car.”

“No, No,” says Fred. “Not in these worst of times.”

First, Fred says, he should know that the residual is a tent peg, his tent peg. He can’t be charged any more than that price to buy the car. But he can negotiate with that price as he chooses and actually find himself in a new car with payments no greater, maybe better, than he paid for the car which is soon coming off the lease..

Question marks appear in a cartoon bubble over my head.

“He does not want to buy the car,“ Fred explains, “because buyers pay sales tax on the sale price of the car. This is some places can amount to 10% or more. With a lease the tax in most places is on  the monthly payment. Also the interest rate is less on the lease.”

Fred continues: “The dealer, paying max prices for used cars so he’ll have product to offer, craves the car that’s about to come off the lease. So that guy tells the dealer to give him top dollar for the car, apply it to the lease of a new car, also negotiable, and even before the old lease has ended he drives off in a new car with a favorable new lease. He has leveraged the value of the old car, slipped from one lease into another without having to buy anything. For him, It’s the best of times.”

Exclamation points replace the question marks in my cartoon bubble. Wow!

You can read more McBlog’s and find plenty of other surprises at DeniseMcCluggage.com.

 

 

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