Notice to motorists at the end of their vehicle lease contract: the market for used vehicles in good condition has tightened so much over the past year that the market value of your vehicle could be higher than the purchase cost at the residual value entered in your rental agreement.
Posted at 5:00 a.m.
In the opinion of experts, it is worthwhile to be well informed about the state of the market for vehicles similar to yours before deciding between buying it back or returning it to the dealer at the end of the lease contract.
“A motorist who makes this decision without having previously informed himself about the market value of his used vehicle could find himself making a gift of a few thousand dollars to his dealer”, indicates George Iny, president of the Association for the protection motorists (APA).
Almost never seen
A gift ? “It should be noted that the strong demand for certain types of used vehicles has increased their value on the resale market. We now see discrepancies of $2000 to $6000 from the residual value [de rachat] listed in the rental contract. Especially since this value had been estimated a few years ago, before the pandemic and its significant impact on supply and demand in the automotive market”, explains Mr. Iny during an interview with The Press.
PHOTO ROBERT SKINNER, THE PRESS
George Iny, President of the Association for the Protection of Motorists
To ensure they get the best buy-back offer for their vehicle at the end of the lease, motorists should do their homework to learn about the market situation for similar used vehicles. Also, their dealer’s first offer is not necessarily the best they can get.
George Iny, President of the Association for the Protection of Motorists
At the Corporation of Quebec Automobile Dealers (CCAQ), the CEO, Robert Poëti, also reports an “exceptional market situation for used vehicles”, and in particular for vehicles in good condition that return to the market in end of his rental contract.
“The increase in demand and prices for these used vehicles has been such for a year that it is causing a phenomenon rarely seen since the popularization of car hire-purchase some twenty years ago, explains Mr. Poëti. .
“This phenomenon, in accounting terms, is the formation of a “positive equity” in favor of the holders of rental contracts, that is to say the difference between the current market value of their used vehicle and its value residual recorded in the rental contract. »
PHOTO PATRICE LAROCHE, SPECIAL COLLABORATION
Robert Poëti, President and CEO, Corporation of Quebec Automobile Dealers
The market is exceptional for used vehicles in good condition, and inventories are abnormally low among traders. Hence the very specific situation of “positive equity” in favor of customers who are at the end of leasing vehicles with higher demand. So much the better if they can take advantage of it!
Robert Poëti, President and CEO, Corporation of Quebec Automobile Dealers
Predict the end of his term
For motorists at the end of the rental contract, how can they make the most of this “positive equity” in the value of their used vehicle? According to George Iny, of the APA, at least six months before the end of a rental contract, an informed motorist should inquire about the market value of his vehicle (see box on this subject) in order to then be able to estimate its potential positive equity value under the terms of its lease.
With this estimate in hand, a motorist can then decide on the most advantageous option at the end of his rental contract.
He could thus buy back his vehicle at the residual value indicated in the contract in order to then be able to resell it at a higher price of a few thousand dollars in the used vehicle market.
“By doing so, it is the motorist who collects the ‘profit’ resulting from this price difference – his positive equity – instead of it being left to the advantage of the car dealer”, summarizes the president of the APA .
With a good estimate of the market value of his vehicle, the motorist will also be better able to “shop around” for offers to buy back his rental contract before expiry from car dealers.
“Used vehicle stocks are very low at most dealerships,” admits Robert Poëti of the CCAQ.
“Therefore, for vehicles in high demand, such as compact SUVs and economy cars, dealers may offer a bonus of a few thousand dollars to their customer to ensure they get their vehicle at the end of the lease, rather than to sell it to him at the residual value written in the rental contract, which often dates from before the impact of the pandemic on the automobile market. »
But beware, warns George Iny of the APA, “You shouldn’t accept your dealer’s first buy-back offer before comparing it with offers from other potential buyers of the vehicle, both merchants than individuals.
How to find out the market value of your used vehicle?
When the time comes to acquire or replace a vehicle, savvy motorists are used to shopping around for merchant offers based on their needs and budget.
However, given the “overheating” of the market for used vehicles in good condition, motorists at the end of the lease contract now have an interest in shopping around for offers to buy back their vehicle before the expiry of their contract.
To be well prepared for this shopping trip, the expert interlocutors of The Press recommend finding out the market value of your used vehicle by comparing the offers and prices of similar vehicles on websites such as these:
(site managed by the Association of Used Vehicle Dealers of Quebec [AMVOQ]which brings together 1,300 car dealers)
(electronic ad site managed by the Toronto-based Trader Inc., which also manages AutoTrader.ca in English Canada)
You can also consult the websites of brand dealers to check their stocks of similar used vehicles.
Which vehicles have the highest potential for premature buyout premiums at the end of the lease?
At the Corporation of Quebec Automobile Dealers (CCAQ), Robert Poëti, CEO, states that “most SUV models [véhicules utilitaires sport] and CUS [compacts utilitaires sport] deserve a bonus.
He also mentions “compact and economical cars” among households looking for a second family vehicle for convenience trips.
Automobile Protection Association (APA) President George Iny sees ‘highest demand’ for all-wheel-drive compact SUVs from brands like Toyota, Honda and Subaru, as well as sister brands Hyundai and Kia.
The president of the APA also indicates that American-made pickup trucks offer a certain premium due, in particular, to their strong demand for export to the second-hand market in the United States.