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      11-21-2021, 09:38 AM   #1
AlteBMW
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Chip shortages and residual values

The chip shortages have resulted in cars being in short supply as well as decontenting. You can no longer get high end audio in the on line configurator, and laser lights and night vision are gone. Used car prices are up and new prices are seeing few discounts (the laws of supply and demand). Some orders are taking 6 months to deliver. All reports are this situation will not abate until well into 2022. My lease is up in about 9 months so out of curiosity I took a look at the residual value and my remaining lease payments and then looked at Kelly Blue Book for a ballpark number for the car's value. Even with the inflated residuals BMW uses, the actual value is a few thousand over the residual plus payments (I have only 10000 miles and likely would have maybe 17 or 18,000 at lease end, well below the 22,500 allowed). So why in the world would I turn in this car at lease end? It would make sense to either extend the lease until the chip shortage is no longer an issue, or buy it for the residual price. There'd be a year left on the warranty, so that is not an issue. Aren't a lot of people going to be in his situation? If so, won't it serve to further reduce the supply of used cars and reduce demand for new cars? That would further increase used prices but could also result in downward price pressure for new ones. Wouldn't it then make sense for dealers to make attractive offers on leased car turn in/new car transactions? That kind of transaction gives them a used car to sell as well as a new car sale. What am I missing?
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Last edited by AlteBMW; 11-21-2021 at 09:45 AM..
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      11-21-2021, 11:18 PM   #2
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Quote:
Originally Posted by AlteBMW View Post
The chip shortages have resulted in cars being in short supply as well as decontenting. You can no longer get high end audio in the on line configurator, and laser lights and night vision are gone. Used car prices are up and new prices are seeing few discounts (the laws of supply and demand). Some orders are taking 6 months to deliver. All reports are this situation will not abate until well into 2022. My lease is up in about 9 months so out of curiosity I took a look at the residual value and my remaining lease payments and then looked at Kelly Blue Book for a ballpark number for the car's value. Even with the inflated residuals BMW uses, the actual value is a few thousand over the residual plus payments (I have only 10000 miles and likely would have maybe 17 or 18,000 at lease end, well below the 22,500 allowed). So why in the world would I turn in this car at lease end? It would make sense to either extend the lease until the chip shortage is no longer an issue, or buy it for the residual price. There'd be a year left on the warranty, so that is not an issue. Aren't a lot of people going to be in his situation? If so, won't it serve to further reduce the supply of used cars and reduce demand for new cars? That would further increase used prices but could also result in downward price pressure for new ones. Wouldn't it then make sense for dealers to make attractive offers on leased car turn in/new car transactions? That kind of transaction gives them a used car to sell as well as a new car sale. What am I missing?
My 2019 760 lease is up in 3 weeks. Residual is $97,000. In today’s marketplace the car might be worth $90000 wholesale. $97000 retail. I am turning it in. I am buying a new S580 I ordered and I am being given a $14000 discount off of MSRP from my Mercedes dealer which is exceptionally kind in today’s market.

Last edited by Kmish; 11-21-2021 at 11:24 PM..
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      11-22-2021, 06:19 AM   #3
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The short version is that car dealers do not have any business model other than to torque you, regardless of the circumstances or their own best interests.

I had a call last week asking if I wanted to sell the B7 to a BMW dealer. Was told they were paying premium value. So I said ok, I’ll listen. (You always listen if someone wants to give you money). I filled out THEIR website eval (affiliated with KBB) and it gave a range of 87k to 96k with a probable value of 91,625. THIS WAS TRADE VALUE, mind you, not retail value. TRADE VALUE.

They offered me 81k. Then suggested they could probably get to 83 to close the deal. I was too annoyed to respond to either of their emails.

It’s how their machine works.
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      11-22-2021, 06:57 AM   #4
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Quote:
Originally Posted by Kmish View Post
My 2019 760 lease is up in 3 weeks. Residual is $97,000. In today’s marketplace the car might be worth $90000 wholesale. $97000 retail. I am turning it in. I am buying a new S580 I ordered and I am being given a $14000 discount off of MSRP from my Mercedes dealer which is exceptionally kind in today’s market.
14k off in todays times is super. Enjoy the S580.
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      11-22-2021, 03:41 PM   #5
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Quote:
Originally Posted by AlteBMW View Post
The chip shortages have resulted in cars being in short supply as well as decontenting. You can no longer get high end audio in the on line configurator, and laser lights and night vision are gone. Used car prices are up and new prices are seeing few discounts (the laws of supply and demand). Some orders are taking 6 months to deliver. All reports are this situation will not abate until well into 2022. My lease is up in about 9 months so out of curiosity I took a look at the residual value and my remaining lease payments and then looked at Kelly Blue Book for a ballpark number for the car's value. Even with the inflated residuals BMW uses, the actual value is a few thousand over the residual plus payments (I have only 10000 miles and likely would have maybe 17 or 18,000 at lease end, well below the 22,500 allowed). So why in the world would I turn in this car at lease end? It would make sense to either extend the lease until the chip shortage is no longer an issue, or buy it for the residual price. There'd be a year left on the warranty, so that is not an issue. Aren't a lot of people going to be in his situation? If so, won't it serve to further reduce the supply of used cars and reduce demand for new cars? That would further increase used prices but could also result in downward price pressure for new ones. Wouldn't it then make sense for dealers to make attractive offers on leased car turn in/new car transactions? That kind of transaction gives them a used car to sell as well as a new car sale. What am I missing?
You, unlike most, are a savvy buyer.

The better question is: Why would the dealer give you a better price on your new vehicle than what they can get from someone else? Dealers are turning over their inventory at 100% well within 30 days of arrival.

As most people are trading in well below auction value and the residual value is contractually obligated, there is zero incentive to give money away.
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      11-28-2021, 11:22 AM   #6
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Quote:
Originally Posted by AlteBMW View Post
The chip shortages have resulted in cars being in short supply as well as decontenting. You can no longer get high end audio in the on line configurator, and laser lights and night vision are gone. Used car prices are up and new prices are seeing few discounts (the laws of supply and demand). Some orders are taking 6 months to deliver. All reports are this situation will not abate until well into 2022. My lease is up in about 9 months so out of curiosity I took a look at the residual value and my remaining lease payments and then looked at Kelly Blue Book for a ballpark number for the car's value. Even with the inflated residuals BMW uses, the actual value is a few thousand over the residual plus payments (I have only 10000 miles and likely would have maybe 17 or 18,000 at lease end, well below the 22,500 allowed). So why in the world would I turn in this car at lease end? It would make sense to either extend the lease until the chip shortage is no longer an issue, or buy it for the residual price. There'd be a year left on the warranty, so that is not an issue. Aren't a lot of people going to be in his situation? If so, won't it serve to further reduce the supply of used cars and reduce demand for new cars? That would further increase used prices but could also result in downward price pressure for new ones. Wouldn't it then make sense for dealers to make attractive offers on leased car turn in/new car transactions? That kind of transaction gives them a used car to sell as well as a new car sale. What am I missing?
The two cars I've ever leased Ive ended up buying because I barely put miles on the car and the residual has always been lower than the market value for that reason.

I suspect your used value would be higher as well. For me personally, If there wasn't a big overall design/feature change I wouldn't get the new car anyway. I also stay away from the first year runs of completely new designed cars like the plague. Historically, German cars don't fare well for reliability in that scenario.

I did however read in the Journal recently that the supply chain shortage might be abating soon. This may not apply to the chip shortage, where the long term solution that's emerging is the car companies to manufacture their own CPU chips!

I would wait and see, if you don't get exactly what you want for features and price, I would just buy our your current car. From a dealer's perspective, they will try to maximize their short term profit. Seems their buyer policies have changed to facilitate that anyway. ( I was able to buy my car lower than residual, apparently you can't deal on that number anymore)

https://www.wsj.com/articles/supply-...ng-11637496002
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      11-29-2021, 09:15 AM   #7
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Quote:
Originally Posted by KK22 View Post

I would wait and see, if you don't get exactly what you want for features and price, I would just buy our your current car. From a dealer's perspective, they will try to maximize their short term profit. Seems their buyer policies have changed to facilitate that anyway. ( I was able to buy my car lower than residual, apparently you can't deal on that number anymore)

https://www.wsj.com/articles/supply-...ng-11637496002
Thanks. That is exactly what I am going to do. And yes, my understanding is there is no negotiation allowed to dealers on lease end buyout, though I have seen somewhere that some people were able to get BMW Credit to negotiate. Not sure how much. But the point is that even without negotiation, at my current residual/buyout it is below market.

If the dealer wants me to turn it in and lease me a '23 it is going to have to be a very attractive deal.
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      12-24-2021, 05:55 AM   #8
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I also found that the rise in retail prices, seems disproportionately high.

In other words, whilst right now your trade in would be worth more, the cost to change is too dramatic a jump still.

The up side if you are getting something now. IS....

Your residual will be much much higher, because.

1. Nobody wants electrics
2. There wont be tons of new ICE coming into market.
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      12-25-2021, 01:29 AM   #9
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At the moment there’s not tons of anything new coming into the market. We are finding lots of manufacturers are quoting lead times of 9-12 months, some are > 12 months, and we have had some orders cancelled by the manufacturer.

We purchased a Mercedes S class retail in June for £37k (trade was £35k) and just sold it trade with 15k more miles AND calling for a B service for £38k (and has a retail price of c. £42k). Could have got £39k if serviced and trailered 300 miles, but wasn’t worth the extra effort.

I am also seeing manufacturers reducing corporate discounts, and had two notifications last week alone, their justification being supply constraint. We have a 330e on order, which we may not see until 2023!

Just had a couple of iX3’s delivered to drivers, so I am sure will get some feedback on those in the new year. The current BIK savings make them attractive for our drivers, and the Class 1A NIC savings make them attractive for us!

I am particularly interested in real world range in cold weather and at motorway speeds - as WLTP figures assume a mix of driving conditions, and charging times assume >20 Celsius!

Happy Christmas all
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