Have you ever considered what impact discounts on machinery and equipment can have on the back end of a lease? If the lessee misses the opportunity to negotiate a good discount and misses by 10% from the marketplace, either the lessor or the owner of the equipment will lose money when it comes to remarketing the equipment. If the example below the MSRP was $250,000 and the discount was offered was 24% while the rest of the marketplace was getting a 36% discount. If you expected 15% residual at the end of the expected usage of the equipment at 36 months, as did other users in the same situation, you could potentially lose over $5,000 at 36 months. If you continually miss the mark on the discounts it could mean the loss of substantial profits over the year.
Mfr List Price | Vendor Discount | Original Equipment Cost | Fair Market Value Forecast at 24 months | Fair Market Value Forecast at 36 months | Fair Market Value Forecast at 48 Months |
$250,000 | 24% | $ 190,000 | 32% | 18% | 9% |
Forecasted Residual Value | $ 60,800 | $ 34,200 | $ 17,100 | ||
$ 250,000 | 36% | $ 160,000 | 32% | 18% | 9% |
Forecasted Residual Value | $ 51,200 | $ 28,800 | $ 14,400 | ||
Potential | Lost Profits | $ 9,600 | $ 5,400 | $ 2,700 |
% of MSRP 3.8% 2.2% 1.1%
In another scenario that can have a devastating consequence is when the owner, lessee, or lessor purchases or finances equipment that has been on the market for a year or more and does not get the discount reflective of the current marketplace. This happens more times than you would expect. The user then assigns a residual value at the end of the expected usage time that is not reflective of the marketplace. Due diligence of any asset acquisition by the owner, lessee and or lessor is a key element to maximizing the return on your investment.
