I figured I'll post this one up as a new thread in case someone decides to search for it.

I think this is the biggest misnomer that is propagated on this forum. The residual value of the vehicle is determined solely by the MSRP of the vehicle and the percentage that MBUSA sets for a given month. Adding in a pre-paid maintenance will not increase neither the MSRP nor the percentage therefore it is NOT residualized. It is simply increasing capitalized cost and the lessee is liable for the difference between capitalized cost and residual value during the term of the lease meaning you will pay for the entire maintenance with money factor and all.

Any dealer who says otherwise is lying and deceiving.

Note: Some manufacturers sometime will bump residual percentage by a point if you opt for the pre-paid maintenance. So in those cases the maintenance is costing you less as you get a higher residual value but the discount has nothing to do with the residual percentage but with the MSRP of the vehicle.

Example:
Vehicle: MSRP $50K
Residual value: 62% for non-maintenance 63% for maintenance
Maintenance price: $1,500.

Under the misnomer people would tell you that the $1,500 maintenance really only costs $570 because you're only paying for 38% of it as it is "residualized". Again, this is not true.

Under real world condition where the captive finance company gives you a point bump on residual your residual on the car would go from $31K to $31.5K so you're only saving $500 off of the $1,500 not $930 like you would think.

As the MSRP of the car goes up the deal gets better, for example on a $100,000K car your saving is $1,000 as 1% is $1K.

But this scenario only applies if the finance company does give the one point bump in residual for buying pre-paid maintenance which MBUSA may or may not do.

But to say that the "maintenance cost is residualized" is simply incorrect.

Update: After reviewing a recent Mercedes Lease Bulletin it is obvious that MBFS actually does the very thing I thought was not possible. They add the pre-paid maintenance cost to the MSRP of the vehicle therefore it is fully residualized. I posted the page from the bulletin further below.

 

I know a bit about leasing as I did it professionally for more than forty years. Factually, the lessor can and does residualize anything they so choose. Different manufacturers over the years have residualized a variety of added on options not appearing on the Monroney label. Tires, wheels , moon roofs, and etc. would be some examples.

In the case of Mercedes, I leased a 2012 E-350 in mid 2012. I did purchase the pre-paid maintenance because it was residualized. Or, at least, the lease contract worked out to be to the exact penny as the cost should have been to be residualized.

Because of my own experience with Mercedes leasing and because of my professional experience, I would question the validity of your theory.

 

Off topic, but the pre paid maint is like a hidden gem.

If you pay for the 10k out of pocket, then get the 3 yr for $999. It will cover the $400 20k, $200 30k and $1200 40k service for $999. NO TAX! so vs paying each at the dealer with tax and shop supplies etc, that saves you about 50%!

for an E it is 699 for 2 yr and 999 for 3 yr. it is more for bluetec. $769 and $1269

for $699 I got my 80 and 90k covered which is normally $1200 and $200 as stand alone!

hidden gem if you play it right.

 

Sure, lessors can residualize whatever they choose to residualize. But every residual value bulletin I have seen in recent times come from a captive finance source shows residual as X% of MSRP.

Again, if the manufacturer chooses to give you an extra point for having pre-paid maintenance then, depending on your MSRP some or most of the pre-paid maintenance will be "residualized" depending on MSRP and the cost of the pre-paid maintenance. But it is not residualized in the sense that everyone assumes it is and that is a fact.

 

Obviously you know far more about this than anyone else. But, this was a conversation topic when I leased my E-350. I was told specifically that the pre-paid maintenance was in fact residualized in an effort to have the vehicle returned elegible to be Certified.

I paid $795 for three year pre-paid and did the calculations for the change in lease payment with my own calculator. Whether that has subsequently changed, coincidentally worked out to the exact number, or you are simply misinformed...I don't know! I do know though I am driving the result.

As to your point about adding a residual point for buying the pre-paid maintenance, that would be preferable for the consumer. Most any E will list for at least $60,000 and therefore add $600 to the residual regardless of term length. A $795 pre-paid package would cost the consumer a net $195 plus a small amount of interest. A calculation that would not be lost on Mercedes Credit.

What your purpose is in this conversation, I am not sure of. But, if you were to be right and they do add a point to the residual instead of residualizing the maintenance, the consumer goes from a good deal to a better one. And, I paid too much.

 

Well what do you know, I stand corrected.

Here is the pertinent page from the actual bulletin for December and it clearly shows that the $899 cost of the pre-paid maintenance is indeed added to the MSRP that the residual is calculated off of.

So in the example you end up paying 39x$10 + $26 = $416 for the pre-paid maintenance on a 39 month lease which is a pretty decent deal.

I also attached a sample from an Audi bulletin that does it the way I outlined by bumping the residual for opting for pre-paid maintenance.

Again, I was wrong, my bad. Bottom line is read the lease agreement and know what you're paying for. In this particular case you'd be a fool not to take the pre-paid maintenance.