Repossessions: 14.2.8.4 Manufacturer “Supported” Residual Values
A special issue arises when a manufacturer “supports” an inflated residual value. In this case, inflating the residual value without manipulating rent payments allows the dealer to offer lower lease payments. When rent payments are not manipulated, the total payments can be lower because they need cover less depreciation between the initial capitalized cost and the (inflated) residual value. The manufacturer protects the dealer with a cash subsidy, as the vehicle at lease termination will be worth less than the inflated residual value.