Automobile dealers may want to consider locking the doors when Albert DiMaria pulls up.
About a year ago, the Plymouth Meeting man started trying to get out of the lease early on his wife Stephanie’s 2019 Nissan Sentra, while trade-in values have been higher than at almost any other time in history.
But DiMaria, 28, learned some things had changed during the pandemic. New restrictions from the manufacturer would make it too expensive for him to stop leasing early. So he put his structural engineer background to work — methodically studying the contract, learning everything he could, and surveying six dealers. He then created an Excel spreadsheet comparing different fees he could face.
When the lease expired in June, DiMaria walked out owning his vehicle and all the equity that comes with it, while saving himself hundreds in fees.
“Nissan Motor Finance actually changed their policy, I think within the last year or two, to where you’re not allowed to sell your lease to a third party,” DiMaria said, which Nissan confirms. “You have to buy it out from them first, pay all the taxes, do all that, get the title in hand a month or two months later, and then go sell it to one of those third-party companies.”
Leasing has long been one way to get into a new vehicle for a more manageable monthly payment, but now it’s one more market turned upside down by the pandemic.
As DiMaria’s spreadsheet showed him, closing fees can vary from dealer to dealer. But fees aside, for today’s lessees whose three-year leases are expiring, such as DiMaria, high vehicle values mean a lot of equity, so buying your end-of-lease car might be a terrific deal vs. buying something else.
But at the same time, that equity is becoming harder to tap. And people considering a lease on a new vehicle now may face a whole lot of heartache.
When a vehicle is leased to a customer, the company considers the value of the vehicle, the monthly payments, interest rates, and other factors, and then assigns a residual value, or what it expects the vehicle to be worth when the lease ends. That sum must be paid off unless a lease for a new car is negotiated.
The pandemic has increased the value of both used and new cars far more than they have been in years.
The result: The average leased vehicle is now worth $7,208 more than its residual value, according to Edmunds.
“The predictions that people had made when they were assigning leases in 2019, no one could have predicted there would be chip shortages, a pandemic, and all these things that reduce the amount of vehicles out there,” said Ron Montoya, consumer advice editor for Edmunds.com.
While manufacturers and other leaseholders are not able to change the terms of leases signed in the past, they have added more restrictions to how people can get out of their leases.
Lessees used to be able to simply sell the vehicle to a third-party buyer, such as another dealer or a private individual. This would mean not having to come up with the residual payment to get out of the lease, as the buyer would cover all that money, but almost all manufacturers have eliminated that option, Montoya said.
A Nissan spokesman confirmed in an email that the company changed its policy effective May 2021.
So now vehicles have to be purchased by the owner — who must either come up with the cash or finance the residual — or traded on a new vehicle from the same manufacturer.
“There was a number of manufacturers that, because of the vehicle shortage, they wanted the lease-return vehicle to stay in dealers inventory,” Montoya said. “For those particular brands, you can only take the vehicle to that dealership or purchase it yourself.”
And in at least one instance, even stricter rules are popping up. Ford announced that as of June 15, leased Mach-E and Lightning models must be turned in to the dealer or renewed into a new Ford vehicle at the end of the lease.
A Ford spokesperson says this change comes so Ford can better manage battery recycling and materials.
What hasn’t changed are the fees — dealers are able to charge various fees to customers when it’s time to return the car.
DiMaria’s spreadsheet shows that among six Nissan dealers in the region, fees included a lease purchase fee, a documentation fee, and an inspection fee.
“I’m just urging people to shop around,” DiMaria said. “There’s a $600 difference for making five phone calls, so that was the whole point of wanting to share this story.” He got numbers from a sixth dealer in person.
Only two of the dealers charged all three, while three others charged two of them.
Montoya called two of the fees pretty standard business practice: the lease purchase fee and documentation fee.
“An inspection fee — that might be a dealer being a bit ambitious in terms of wanting to charge for things,” Montoya said.
The winner for DiMaria’s business ended up being Concordville Nissan, which charged only the lease purchase fee. The dealership handles about 30 to 50 buyouts a month.
“Every morning we start out the day with two or three of them,” said Ryan Ekberg, general sales manager at the medium-volume Nissan dealer in Glen Mills.
“In fact, I’m working on two lease buyouts as we speak,” he added from a bustling showroom on a Friday, as he called out to other employees while on the phone.
So, in what’s become a common story across different facets of the economy, the leasing winners seem to be people who managed to snag a vehicle before the start of the pandemic.
People looking for a vehicle now are going to need a lot of money — and some good luck — to find a new ride.
Rising interest rates and low inventory mean today’s buyers may save far less on their monthly payment as a lessee vs. buying outright, and so leasing has become a less attractive option financially.
As a result, leasing has dropped from 31.68% of new vehicle financing in 2020 to 21.31% in 2022, according to a May report from Experian. The historic average has been about 30%, according to Jessica Caldwell, executive director of Insight.
Though buying a car is almost always a tough proposition, DiMaria has invested time now and he knows where he will go when it’s time to buy an SUV for his family. And even though DiMaria paid off the residual and kept the Sentra, the dealer may ultimately have made a good investment, as well.
“They got us in the showroom, we ended up sitting there for two hours, and running the numbers on a new Rogue,” DiMaria said. “It didn’t work out this time, but we plan to go back in a few months.”