Agree 100% Lexus does not have a higher resale value according to ALG (Automotive Lease Guide) Anything outside of what they determin should be the normal values, is subvented or paid for by the sales side from the Manufacturer. Take BMW for example. They leased a huge number of cars between 03-08 now on average, BMW looses roughly $2300 per vehicle at auction due to so much volume. BMW reported a loss of 1.06 BILLION EUROS from its lease maturities and write offs.

Volume is not the most import thing.

On Thursday, March 12, BMW Reports First Annual the largest maker of premium cars in the world, reported a drop of 78 percent for its group earnings before interest and taxes, news that sent the company's stock down 12 percent.

The reported earnings figure of 921 euros or $1.18 billion fell substantially under the projected 1.54 billion euros, a figure arrived at by 20 analysts surveyed in a Reuters poll.

After taking a 1.06 billion euro write-down for cars coming out of lease arrangements and for bad debts, BMW has proposed cutting its 2008 common stock dividend from 1.06 euros to 0.30 euros.

Models like BMW's Z4 roadster fell sharply in demand in the last quarter of 2008, leading to the company's first annual profit drop since 1993. Like its rival Mercedes-Benz, BMW made money for years from attractive lease deals that were highly popular in the U.S.

With credit drying up, however, the market for such premium offerings has fallen sharply, leaving analysts to ponder the true potential of a premium market that may not actually exist.

Additionally, both Mercedes and BMW are facing heavy research and development burdens as they struggle to meet the increasingly stringent requirements of emissions laws that have forced the carmakers to replace their heavier engines.

 

As others have said, residuals have nothing to do with the REAL resale of a car.

They are set by the finance company, and if they NEED to sell cars, they will raise the residual to make a $60,000 car more appealing and sell them in volume.

BMW took a huge financial hit a few years back.

Stupid high residuals so that customers could drive $60,000 cars for the same money as a $45,000 one. But there's only so long you can do that and it will come back to bite you. They lost of boatload of money at the auctions and sales.

BMW did the same thing with their 7 series. Nobody wanted to pay the normal lease cost on a $85,000 car with the horrid idrive and somewhat fugly styling.

That's when you jack with the residuals so you can lease a $85,000 car for $1000/mo when it should be $1400.

Audi's resale is very high right now and they are bringing really stong money at the auctions and sales. Audi is not bribing people to buy their cars, and it's been great for the brand and image.

 

So can someone shed some more light on how the residual value specifically relates to the economic value of the vehicle at the end of the lease, or whether it is purely an incentive to entice an owner who is giving up "his" car to keep it, vs. have the dealers deal with a flood of used vehicles coming of leases?

 

It is a fine line that has to be walked.