As Jalopnik’s resident car buying expert and professional car shopper, I get emails. Lots of emails. I’ve decided to pick a few questions and try to help out. This week we are discussing lease returns and equity with COVID-19, and trading down to save some money.
I am trying to return my lease and the dealer won’t take it back unless I get something from them but I don’t want to buy or lease from that brand. They said they will give me an extension, but that isn’t what I want to do. I tried calling the manufacturer, and they said the dealer has to take it back but didn’t offer a solution. What should I do?
The lease return thing has become a serious problem in some areas, as highlighted in a recent USA Today article, which reads, in part:
[Ten] people interviewed by USA TODAY... said auto dealers and finance companies have made it difficult, if not impossible, to return leased cars during the coronavirus crisis. Several of those interviewed said dealers and finance companies, usually the manufacturers’ in-house lending arms, pressured them to accept lease extensions or to lease new cars.
Used car sales are down, and wholesale car auctions have taken a hit because there are fewer buyers on the market. This means that some dealers are refusing to take back leases because they know they’ll have a difficult time selling the cars, and in some cases they have no more physical space on the lot to store them.
I spoke with a consumer protection attorney, Daniel Whitney Jr., who represents clients against dealerships. He said that, depending on the circumstances, the dealer may be on the hook:
Depending on what is happing in that particular area, it could be a breach of contract. If the customer has to pay extra due to them not taking it back, they could potentially recover the costs. Keep in mind, it is one thing if the dealership is actually closed due to COVID; it is another if the dealership is still open and trying to sell cars and just does not want to take the lease back.
If your local store won’t take the lease back, it’s time to find another dealer in the region. Usually, you can return your lease to any dealer that sells that brand of vehicle. If dealers are legally open for business and still refuse, you may need to escalate this with further representation.
Speaking of leases, since COVID-19 has reduced driving miles, would there be equity in the car at the conclusion of the lease?
In February 2019, I leased a Honda Civic Touring. My lease is a standard 12K miles a year for three years. I drove about 9K miles my first year, so plenty of breathing room in case my commute changed.
Of course, it did change—to nothing. Stay at home orders and working from home means I barely drive my car. I’m guessing I might end up driving it 6K miles this year unless we’re stuck at home forever. My question: now that I’m apt to come in way under my lease mileage cap, is it a better financial decision to minimize driving it to be at as low a mileage as possible, or is there no realistic way that I can leverage a low-mileage lease when it’s up?
Getting “equity” out of a leased car if you drive significantly under the mileage is a tricky thing. Basically, how lease equity works is the leasing company projects a resale value at the end of the lease given the allotted mileage. If you drive substantially under those miles, your car might be worth more than the projected value and therefore there could be some equity that can be applied to another lease or purchase.
Given that used car values have taken hit, it may be the case that the projected resale on your car is not going to line up with the actual value when it comes time to trade it in. This is hard to predict since you still have some time left on your lease. However, I wouldn’t get too hung up on not driving it to hopefully cash in some equity. Just use the car how you need and be sure not to go over your mileage.
What do you see happening with the auto market recently, and what do you think will happen in the near future? I’m thinking of trading my 340i for something cheap and cheerful.
Now could be a good time to get something a bit cheaper and lower your payments, however, the running theme this week is the reduction in used car values. While the car you potentially buy may be a deal, when you go to trade in your BMW, you are probably going to get a bit less for it, so your lower trade-in value may off-set whatever savings you gained on the other vehicle. What it comes down to is your loan balance versus the trade-offer and how that impacts the loan and payments on the next vehicle.
Got a car buying conundrum that you need some assistance with? Email me at firstname.lastname@example.org!