This may be better suited for GQ, so if a mod wants to shoo it over there that’s fine with me.
Ok, I know that his game is to make as much money from me as possible. It’s the specifics I’m curious about.
Background: I’m negotiating with an internet sales manager at a Toyota dealership, via e-mail, to possibly purchase a new vehicle. I’ve given him the model and features I want and he’s found me an acceptable option. So far the price he’s given me is fair. Slightly over invoice but less than MSRP. He asked if I had a trade-in, and I said “no” because the current car is coming off a lease, full-term. He told me I might be better off trading it in anyway, if the value of it was higher than the payoff terms in the lease. I checked the trade-in value at Kelly Blue Book and it about $1500 higher than the payoff term, which is $11,330.
After giving him the pertinent info on the car coming off lease, he responds with:
“If you traded it in, you save on the amount taxed. If the tires are OK, we can give you $11400 plus tax savings plus the disposition fee of $350 at lease end. How does that sound ?”
So here are my questions. I understand that if I trade it in they are getting a bit of value on it. However, I’m leasing it directly from Toyota, so they get the car anyway, don’t they?
If I just dropped the car off at the end of the lease I’d have to pay $350 in the dispo fee. So he’s basically saying, trade it in and save the fee (and get about $70 back.)
Does that sound right, or am I missing something? I’m also not sure what he means about saving on the amount taxed?
Some states only charge sales tax on the balance between the trade-in and the new car. If you do a lease turn-in, you’re taxed on the full value of the new car. If you trade that car in, then you’re only charged sales tax on the difference between the trade-in price of the old car and the price you pay for the new car.
In round numbers, say you want a $30,000 car. Without a trade-in, you pay (for example), 6% of $30,000 ($1,800) in sales tax. For a $10,000 trade-in, you pay that 6% on only $20,000 ($30,000 - $10,000), so only $1,200 in taxes. That’s an extra $600 in savings.
Two things might be going on here.
Some car maker’s leasing arm require that if the car is not being traded in, that it must go to the auction. Once at auction, who knows where it might wind up.
In some areas of the country used cars are in short supply and auction prices are being driven up as a result. However the public’s perception of what a particular car is worth has not gone up along with the rise in wholesale prices. This can result in a case where a car is on the lot for $XX,XXX and it is selling at auction for $XX,XXX +$200.
And before anyone calls bullshit, I have seen this very condition at the car dealer where I worked over the last 2 years.
Speaking from experience it is hard to buy a car for say $12,000 spend say $500 in smog, recon, detail and what not, and then make a profit if every customer that looks at it only wants to pay $11,900.
Buy taking a trade, the internet manager is securing a car at a known price, work for his shop, and as a bonus, you get to save money.
Trade the car in.