You gotta love these special advertised lease deals. They sometimes are super deals, sometimes not and are generally hard for folks to understand (they just look at the payment). I like to run them backwards and see what kind of deal it is - often they don't even list a money factor you have to just work it out.

This is what TFS lists for a special in my area:



Offer good on new 2010 Prius 5-Door Hatchback II Model 1223. Aluminum double overhead cam 16-valve VVT-I 4-cylinder gasoline engine and permanent magnet AC synchronous electric motor. CFC-free automatic climate control with electric compressor, dust and pollen filtration mode, humidity sensor and air filter. AM/FM/MP3 CD player with six speakers and satellite radio capability. Power windows. Power automatic door locks with anti-lockout feature. Remote keyless entry. Cruise control. Star Safety System. Carpet floor mats and cargo mat, plus much more! $219/Mo. – 36 Month Lease. $2,299 due at lease signing. Includes $1,430 Customer Down Payment + First Month’s Payment/$219 + $650 Acquisition Fee. $250 security deposit waived to qualified buyers subject to approved credit through Toyota Financial Services. Good on Tier I PLUS only. 36-month payments total $7,884 – excludes state and local taxes, tags, registration and title, insurance, and dealer charges. Lease Factor .00075. Closed-End Lease. Lease-end purchase option $15,504. The manufacturer’s suggested retail price for the new 2010 Prius 5-Door Hatchback II Model 1223 is $23,750. Includes destination charge, but excludes state and local taxes, tags, registration, title and insurance. Adjusted Capitalized Cost is $22,366 based on dealer participation. Other options and dealer charges extra. Lessee may be charged for excessive wear based on Toyota Financial Services/Toyota Lease Trust (TLT MI & OH) standards for normal use and for mileage in excess of 36,000 miles



Check my math and make sure I didn't mess up...


First strange thing, if you take MSRP ($23,750) and residual ($15,504) you get 65.28%, which is odd. If you take out the $200 floor mats (TFS is strange out residualizing options) the MSRP is $23,550 so the residual is still odd at 65.8%. The key is taking the destination charge out of the MSRP - yep, the whopping $750 charge is not residualized at all. So take $750 out of the MSRP AND take $200 out for the options (floor mats) and you have $22,800, divide into $15,504 and you have 68.0% - a nice round number. So you pay a $650 bank fee and all of the destination charge and all of the floor mats when you do the lease. Lease a car with the expensive nav pack and you could be paying for a lot or all of that as well.

OK, if you take the "adjusted" cap cost of $22,366 and the residual of $15,504 and the MF if 0.00075 it does work out to $219 per month for 36 months. So that part is correct.

Now, you look at the money out of pocket in the sample lease. $2,299 which is broken down into the $219 first payment, $650 bank fee, and the rest ($1,430) is cap cost reduction. Since the payment worked out using the "adjusted" cap cost "based on dealer participation" then we know this adjusted cap included the cap cost reduction, so we add that back in to see what we are paying for the car - $1,430 + $22,366 = $23,796 which is $46 MORE than FULL MSRP on the car! Gee, what a sweet deal. Actually the high residual and super low MF make it a deal, but they are doing you no favors on the price. All the local dealers get $300 and up for "doc fees" which means your sweet lease special advertised by Toyota deal is over MSRP + 100% of destination and accessories + whatever your dealer charges for fees - then tags, title, and taxes.

High residual, low rate, but a lot of stuff hiding here - and it would seem some meat still left on the bone that could be trimmed? "Dealer participation" usually means a nice discount off of full price, but it does not appear to be the case here.

dwynne,

Great analysis! A sky high 68% residual for a 2010 seems just as odd as a 65.28% residual. You and I both know that the selling price is negotiable. As you indicate, most people focus on payment only which, in leasing, is a HUGE MISTAKE. I always view selling price as independent of the cost of money and residual and so; I won't allow the dealer to use a low money factor and high residual as a bargaining chip in negotiating selling price. After all, cost of money and residual are established by the fund provider even though the dealer has some control over the cost of money as it's based on a tiered (reserves) structure. As you know, in national promo ads, the lease rate is usually the buy rate (i.e., 0% reserves).


In the case of a trade, I also treat the trade value as separate and distinct from the sell price of the newly acquired vehicle. One has nothing to do with the other. I recently negotiated a lease where an area dealer offered 6K on the trade-in. KBB trade value was less than 3K. I told them that the assigned trade value has nothing to do with the sell price of the new vehicle. They said nothing and, so, I constructed my one-page lease proposal, which included the 6K trade value, and the dealer rejected it on the basis that my sell price was too low given a very generous trade allowance. It was a great application of the "rob Peter to pay Paul principle" at work which, of course, backfired on them. Say what you mean and mean what you say! These clowns must think we're all stupid.

Thanks for the reply, John.

The dealers swear the "featured lease" includes a discount off of MSRP. Did you read the lease details Toyota posted and run the numbers yourself? Based on what they list and disclose, I can only make it work out if you pay over MSRP for the car.

Now, if someone went to lease one the actual numbers on the lease contract could be "better" - I guess...

Hi dwynne,

I didn't read the details of the lease at the TFS website. I only read your post and agree with you 100%. After deducting mats and destination charge from the MSRP, I did get an "adjusted" MSRP of $22,800. So, you are spot on at 68%. I've encountered those odd situations in the past and I can usually resolve them by doing the same sort of thing that you did. It's a real mind-reading game.

I also agree that the sell price exceeds the MSRP. I've never seen that in any promo add nor have I ever seen the money factor disclosed until now. I'm sure that a potential customer can do better than the terms disclosed in the ad as you suggested.

Good to see you guys active again.

Our leasing business has really picked up lately.

We are going to be launching a new consumer site this year, DriveItNow.com. Right now it just has our quoting engine.

It will be built out to include buying, financing and leasing for retail and commercial consumers.

We'll move this forum over and add a section for blogs and other great content.

Stay tuned ....