What Toyota is in Shortest Supply?

Like most people, I would have thought that it was the Prius Hybrid.

But no, yesterday a mustard-colored envelope from my local Toyota dealer came in the mail.

Quoting the enclosed letter :

"Ira Toyota is in desperate need to acquire several pre-owned 2004 Toyota RAV4s in order to fulfill special used vehicle requests. Our records indicate you own one of these vehicles and our new car managers have been authorized to buy back your current vehicle."

"We would like you to exchange your 2004 RAV4 for any new 2006 Toyota car, truck, van or sport utility vehicle. With factory incentives and generous trade-in values, we feel confident that you can make this exchange with little or no out of pocket expense and with a monthly payment that fits your budget."

I never would have guessed that it would be the shortage of pre-owned 2004 RAV4s that is stressing out the Toyota dealer network.

Browsing the website covering all of the local Toyota dealers, there was indeed a complete absence of any 2004 RAV4s. They just aren't making them anymore.

This produces a bit of a quandary. Just how desperate are those dealers? They clearly know where I live. Even if I had bought the security option, it would be unlikely to slow them down much if they chose to employ more active measures.

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I get these all the time

I get these all the time about my Volvo v40. It is a marketing ploy to get you in the door. That is my assumption anyway. I suppose it could be a genuine plea, but I doubt it.

Joel is right. I got a

Joel is right. I got a similar letter about my 2003 New Beetle. When I took my car in for its 20K tune-up, I asked the dealer about the offer, and he admitted that it was just a marketing ploy -- his actual word was "hustle." (He knew I was an economist and had no interest in the offer anyway -- hence his candor.)

Having worked for a car

Having worked for a car dealership, I can certify that this is just a ploy. This is a gearing up time for dealers. The market is about to get hot again after the winter. So, first, dealers need to have plenty of good, used vehicles on hand and wholesale prices will continue to rise. Secondly, they really need to get rid of their 06 stock to make room for the 07's coming in the summer. This is a great way to kill two birds with one stone. If you actually want to buy an 06 in the near future, you might be able to squeeze them for a little bit more right now, especially considering they need to move a lot of units to make up for the past couple of months. But, of course, if you wait till August those 06 prices should drop significantly. And in the future, the best time of the year to buy any car is in December, when dealers are truly desperate.

Just got a similar letter

Just got a similar letter for my '02 WRX.

Yeah! --I tell ya! The

Yeah! --I tell ya! The things companies will do these days to advertise! I guess I don't mind too much, as long as they are not miss-leading in their presentaion!
Jeremy Mendenhall
victorytutorials.com

Thanks, all. Opinions

Thanks, all. Opinions wanted.

To evaluate any possible offer, how does this sound?

Exchange a 2004 RAV4 for an equivalent 2006 RAV4 (RAV6 ?) for an additional 20 identical loan payments starting in June 2010.

Current dealer-sourced loan = total of 72 payments of $400.61, 20 payments paid, 6.95%, original principal = $23,530.68, all costs and taxes included, current buyout = $17981.84.

Current mileage = 6905 after 20 months, would be less than 30k miles after either the current loan or a possible extended loan would be paid off.

My last Corolla made it (barely) through 15 years and 106k North of Boston snow/salt miles, so I would expect to hold on to whatever I had when the payments concluded.

I suspect that the dealer would not be willing or able to meet this requirement for flat payments and no other costs, but just in case, would the 20 month delay in the start of body rust and wear be worth the 20 additional future payments, allowing for their discounted present value?

Thanks, Don

Never pay interest on a

Never pay interest on a depreciating asset.

:-)

Don't do it, Don. Why

Don't do it, Don. Why should you pay interest on another 20 payments if you intend to finish them off and own the car anyway? By your logic, if you took the deal you'd want to do the same thing 20 months from now for an 08. RAV4's are good cars and if you perform the maintenance you shouldn't have any problems riding out the current loan. The 20 payments for a 20 month delay is a horrible deal.

Keep in mind that the second you drive a brand new car off the lot, it instantly loses 20% of it's value. Just because you owe 18k on your car does not make it worth 18k. They'll want to pay 15k for it. Also consider that Toyota's really hold their trade value well, and your mileage is astoundingly low. As time goes by, the initial depreciation will be absorbed by the RAV4's value retention. Again, unless you're unhappy with your car, you should keep it and pay in full. If you keep the interior nice and perform the regular maintenance (make sure to have the mechanic note such in your owner's manual), at the end of your term you'll be much better off than if you go for the hypothetical deal. You'll actually be able to get some nice money back instead of pissing more away.

Stretch, Thanks for your

Stretch,

Thanks for your valuable information.

There are a couple of ways that I can look at the question which might give different results.

First, assume that I keep either car indefinitely. Then the difference is that in 2016, 12 years out, the extra payments would have resulted in a car with almost 2 less years of body rust and about 7000 miles less mileage (43k vs 50k). In neither case would the residual realizeable (by me) market value or the real trade-in value be significant. This doesn't sound like a good deal, but it is not without advantages, especially considering that it may be 50/50 whether the car outlasts me or vice versa.

Alternately, assume that I make the final 72nd payment in 2010 and re-enter the market. If we take your $15K number
for present trade-in value, it would superficially seem that I would need to be able to get more than $7K in trade-in value for a 6 year old car for it to beat the $8K (20X$400) in additional payments that I wouldn't even have made yet on a total dollar basis. Also, I have a two year newer car. Counter arguments would be welcome here.

By your logic, if you took the deal you’d want to do the same thing 20 months from now for an 08.

That had crossed my mind. I bought the RAV4 under the duress of my 1989 Corolla AllTrac sedan being truly at its end of life. Given the choice, I would have simply replaced it with another, but it, and the AllTrac Camry had both been long discontinued. If the 4wd Matrix wasn't the ugliest car Toyota had made to that point, it might have been considered. I'm holding out some hope that Toyota may come up with new choices in the next couple of years. The RAV4 is supposed to appear in a V6 this month, and might be considered for some premium, if available.

This would seem to be the unique time when the dealer cannot reasonably drop the trade-in value to compensate for any other concessions that may exist, especially considering the ultra low mileage. However, it seems unlikely that an acceptable offer will be made.

Thanks, Don

Alternately, assume that I

Alternately, assume that I make the final 72nd payment in 2010 and re-enter the market. If we take your $15K number
for present trade-in value, it would superficially seem that I would need to be able to get more than $7K in trade-in value for a 6 year old car for it to beat the $8K (20X$400) in additional payments that I wouldn’t even have made yet on a total dollar basis. Also, I have a two year newer car.

I don't think that's quite right. Because your car is only worth 15k, you won't be able to trade those 20 payments made for an equivalent 20 payments on the 06. There's an extra 3k that you have to come up with that will be assessed to your new loan, which means you have to make 80 payments for a car worth only 72. Remember, by trading in now, the value of your vehicle only goes to pay off your existing debt (and not all of it). As long as you're upside down (ie owe more than the car is worth), you can not make out with any sort of trade, period. Not only would you be paying an extra 3k for the 06, but you could never recoup any value for it. You would literally be giving them free money, and it would only put you even further upside down on the 06 than you are on the 04.

This would seem to be the unique time when the dealer cannot reasonably drop the trade-in value to compensate for any other concessions that may exist, especially considering the ultra low mileage. However, it seems unlikely that an acceptable offer will be made.

Does the dealer need your car? Yes. Is your car worth more because of low mileage? Yes. Does the dealer really need to move an 06? Yes. Will that add up to a winning situation for you? No. As favorable as that may be, you've still got to make up that 3k somewhere, and I don't think you can do it. But, on the bright side, if you continue to make your payments for the next 6 months, you'll be much closer to owing what the car is actually worth. At that time, the dealer will need to stock up on 4wd cars for the upcoming winter (your RAV4's wholesale value will actually begin to rise slightly) and the 06 price will have bottomed because the 07 will be out. If your object is to come out even on the money and have a newer car, you'll have a much better chance then.

Stretch, Thanks. The story

Stretch,

Thanks. The story has actually become more interesting, at least to me.

First, I asked for an Intelliprice trade-in value estimate and got back a range of $14,380 - $17,805. This was at least encouraging.

I think your advice was sinking in that 20 more $400 payments was not so hot. I then happened to notice that there were still a couple of 2005s on the dealer website. This caused me to permanently shift my sights to a 60 payment loan, meaning that only 8 additional payments would be required, hopefully at a lower rate. The long term usage on a 2005 would be the same as on a 2006 at any given point, and if I never wanted to resell, it would be a wash. In the event, the 2005s were gone within hours. Nonetheless, I went into the dealership Friday afternoon.

To summarize the midpart of the story, after 2 or 3 hours of driving the manager crazy, I wasn't going to agree to anything worse than 8 additional payments of $400 for a 2006, and I said no.

Before leaving the dealership, it soon thereafter occurred to me that maybe I shouldn't have rejected the possibility of a lease out of hand. So I had the salesman call the manager back to see what that involved. After risking sending the manager totally around the bend, I finally agreed to a 48 month lease with $325 per month payments and a $18K trade-in buyout of my loan. There was little question at the time that this was the best that I was going to be offered. Obviously, I have traded in my concerns about rust in 12 year old paid-up cars for reduced payments and newer cars in the nearer future. Time will tell if I come to regret that.

On Saturday morning, I was looking at the lease agreement and found an item entitled 'Outstanding Prior Credit or Lease Balance' with an entry of $1188. Since this adds in to help make up 'Gross Capitalized Cost', this has all the appearances of saying that my trade-in allowance was falling short of buying out my loan by that much.

I knew that this was wrong and called the dealership and got confirmation that an error had been made. In fact, I was due a credit apparently because only using 20 months of my warranty reduced my loan buyout cost by $812.

So my Gross Capitalized Cost would be reduced by a total of $2000 (funny how random numbers add up to come out even) with a $1188 reduction and a $812 credit. Effectively, my trade-in allowance exceeded the $18K loan buyout by $812.

So how much should my monthly payment of $325 be reduced in response to the $2000 cost reduction?

Answer : by about $5 a month.

This is the point where I realized that I needed to upgrade my understanding, if any, of auto leasing. I found a site called leaseguide.com, which was very educational and which sold online access to a something called a 'leasekit' for about $15, which included a 'lease inspector' to evaluate lease agreements.

The strangest thing about auto leasing is that there is no requirement to disclose interest rates on the lease agreement, so they don't. They may or may not give you the information if asked, but they don't use interest rates anyway, but instead something called a 'money factor'. However, the interest rate can be derived from money factor by multiplying by 2400. So a money factor of .003 is an interest rate of 7.2%.

This is where the 'lease inspector' is especially useful. If you enter the numbers from the lease agreement, two of the things it calculates are both the money factor and the interest rate.

In my original lease agreement, the 'lease inspector' calculated a money factor of .0026 (a rounded result) and an interest rate of 6.1%. After my capitalized costs were corrected downward by $2000, the money factor used was .00375 and the interest rate was 9%. This seems to explain how my capitalized costs can fall by $2000 and my monthly payments only fall by $5.

The 'lease inspector' also allowed me to calculate what my payments would be if the original .0026 money factor and 6.1% interest rate had been used. The result would have been about $280 per month, about a $40 improvement.

My lease is still in process because of the errors, but I'm not optimistic that I can get any improvement. I'm waiting to see how well they can sell the idea that they just happened to accidently give me a 6.1% rate on the original lease agreement when it should have been 9% all along. This would seem to be the kind of error that you can't make twice and not lose your job.

Thanks, Don

My lease is still in process

My lease is still in process because of the errors, but I’m not optimistic that I can get any improvement.

In the event, after supplying the dealer's financial rep with printouts of the various scenarios, I offered to split the remaining difference, which was readily accepted. With the tools from leaseguide.com, I was able to specify a money factor of .0031, an interest rate of 7.44% and an after tax monthly lease payment of $300 and change. In addition, the Toyota warranty was extended from 36 months/36K miles to 48 months/65K miles for free. Of course with my low mileage, only the time increase will mean anything.

Regards, Don