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Autumn has arrived: the air is a little cooler (or should be), the sun sets earlier, the leaves change colors, and the auto manufacturers roll out the next model year’s edition of their entire vehicle lineup. If the vehicle is a mainstay in the brand’s lineup, then it will have a major overhaul every 3-5 years, and otherwise not change much from one model year to the next. But each manufacturer also likes to introduce 1 or 2 brand new models each year, to much fanfare, while more quietly retiring those models that don’t seem to be as popular any more. In either case – the overhauled (their lingo is often “redesigned”), or model or the brand new model, there’s some things to keep in mind to make sure you get a great deal – whether you’re buying or leasing.
The Redesigned Model
When a manufacturer plans a vehicle model it plans to sell the it for the next 3 to 5 years mostly the same way: the same chassis, the same powertrain (engine and transmission), and generally the same look and feel both exterior and interior, with the plan to add or update a few features in each model year, but within the general framework that has been established. This means that if you were to see one version of the car with badges on next to another vehicle without badges from the same generation, you should be able to tell their the same model, and may not be able to tell they’re not from the same year unless you look closely. This is on purpose – it allows the manufacturers to spread the huge R&D cost (think billions) over an average of four times as many cars compared to if they did a complete redesign every model year.
With that in mind, an automaker knows that it risks losing sales to the competition if it doesn’t keep its vehicle lineup fresh, so that’s why the models get completely redesigned every few years, to update styling more in line with current fashion, and bring new features into the vehicle (back-up cameras, parking assistance, etc.), that requires integration between multiple parts of the very complex machines we call cars and trucks. Some examples of models being redesigned for 2018 include the Jeep Wrangler, Hyundai Sonata, Honda Accord, Subaru Outback, and the Ford Mustang, among many others.
When it comes to leasing (or buying) one of these redesigned models, there’s a few things to keep in mind to make sure you’re getting the best deal for you:
- Don’t expect substantial incentives on the new redesigned model: the manufacturer didn’t spend years and billions designing something new just to have to then cut price or offer rebates upon introducing it to the market. Dealers always set the price and they compete against one another to make the sale, so you shouldn’t expect to pay MSRP (except in some cases of a very popular vehicle), but don’t expect a huge discount or manufacturer incentives.
- If you are hunting for a big discount, ask the dealer about the outgoing year’s version of the same model (in this case the 2017 model year vehicle). This is the time of year for clearance sales of outgoing model year vehicles, and in the case of models that have been redesigned, that is especially true, as the outgoing model starts to look old when on the same lot as the new refreshed model that is just arriving. Just be sure that any features that are critical to you are also on the old model, and not just something that is available only on the new one.
Specific to leasing, there’s advantages to leasing the newly redesigned model, as well as risks (mostly on the lessor, but they could impact you and the deal you get):
- The lessor already needs to look into their crystal ball to forecast the future and determine a residual value. When it’s the residual value on a redesigned model there’s the additional uncertainty that the automaker’s latest version isn’t as popular as the outgoing version, which will lead to more price cutting than usual, and thus lower values in the future. Fortunately, the lessor for a majority of vehicles is the finance company affiliated with the manufacturer, so they’re likely to be optimistic, and if anything set the residual a little higher than where it will turn out when it’s time to return the car, which will work out in your favor.
- As mentioned, most automakers keep a version of a model (also known as the “generation”) in production for about 4 years on average. If you lease the redesigned model in it’s first year for three years (and especially do it in the first few months of its availability) you’ll often be returning the car when the last year of that same generation is in production. This is a more stable situation for residual values, so while the lessor has some risk as described above, this fact mitigates it – and therefore you shouldn’t have to pay much of a premium to offset the lessor’s risk.
- This isn’t an easy thing to assess – the best comparison will be comparing the residual percentages if you were to lease the outgoing model versus the redesigned model that is just arriving. Keep in mind that this isn’t everything – the outgoing model will likely have more incentives and/or price flexibility, but also may be lacking features you’ll miss having that are included on the redesigned model. But it’s a quick check to ensure you think your deal is fair.
Leasing a Brand New Model
As mentioned before, the MSRP (which stands for Manufacturer’s Suggested Retail Price) is just that – a suggestion, so the dealer will set the price of the vehicle. In the case of a brand new model the dealer’s allotment from the manufacturer may be limited, so they may not be as flexible on price if there is strong demand but their supply is low. While this applies to every vehicle, it’s more noticeable for a brand new vehicle. Be prepared to pay a price closer to MSRP, or on a really hot car over MSRP, as the cost of being one of the first people with a new vehicle that’s just been released. Obviously, if that doesn’t fit your needs, or your budget, time is on your side – even delaying for 1 or 2 months may allow for better deal making, and of course you can consider other vehicles sold that meet your needs.
Similar to the redesigned model, but more so for something brand new, the manufacturer didn’t spend billions of dollars on design, market research and product planning, and setting up a factory line in order to then offer a 5-10% rebate as soon as it reaches the dealership. Outside of any brand-wide events (like holiday sales and promotions), there likely won’t be any incentives on a new model until at least the model year and calendar year are the same (meaning it’s 2018 for these new 2018 vehicles being launched now). If sales are really good, there may not be incentives until the very end of the model year – but the incentive to you the lessee is that you are driving what has turned out to be a very popular vehicle, and your locked in lease-end purchase price may be a great deal.
The Lease Deal
While the price may be closer to MSRP and the incentives may not be offered, there are other things the lessor (who will likely be affiliated with the manufacturer) can offer that could still result in a great lease deal for you. Remember – the manufacturer has put billions into developing this new vehicle, and wants to tell the world about the strong sales, and doesn’t want anyone saying “yeah, but you sold these cars only when offering big rebates”. So they can do hidden things: like offering a really low money factor, which will keep the rent charge component of the payment low. They can also put a high residual on the vehicle – which is partially confidence that the vehicle will sell well and have good resale value at lease end, but also because it reduces the depreciation component of the lease payment. You cannot really compare the residual value or percentage across vehicles, but you can inquire about the money factor offered, and what it would be on different vehicles – and make sure the money factor is at least as low on the new vehicle, or find out why from your dealer if it’s not. And remember, you can always use our calculator to convert between the money factor and the interest rate.
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