Last post on Jan 28, 2013 at 5:55 PM
You are in the Sedans
What is this discussion about?
Audi A8, BMW 7 Series, Jaguar XJ-Series, Lexus LS 460, Mercedes-Benz S-Class, Volkswagen Phaeton, Maserati Quattroporte, Mercedes-Benz CL-Class, Sedan
Let's try to define this forum as being limited to luxury performance vehicles where the mainstream version in a typical configuration has an MSRP of at least $60k.
A luxury vehicle with a base price of $59k qualifies because it would typically be bought with some additional equipment, bringing the MSRP over $60k.
Vehicles like the E, 5, A6, M, or GS, even if available in certain versions over $60k, don't qualify because they are cars from companies that have higher end cars in their lineups.
#24321 of 24726 Re: New M3 V8 weighs 33lbs less than outgoing I-6 [dewey]
Mar 24, 2007 (9:33 pm)
I have no idea what link you are referring to in the luxury lounge. In any case, by your logic, BMW leasing must be making a profit on charging 0.00125 Money Factor, too, then. Obviously that's not the case: 3% lending can not possibly be profitable in the US interest environment where the prevailing prime rate for business loan is 6+%.
Just look at the overwhelming per centage of returns at the end of leases, that's the best indicator that the residual is out of wack with reality.
Like I said before, residual does not have to be in line with reality for car company to make money: if the real production cost of car is much lower than MSRP, profitability can be sustained even if the lease division itself lose money like a sieve. For example, if the real production cost of a new HELC called Macrolla (which is really a Corolla with a new badge) is only $12k, if the MSRP is $200k, the manufacturer can lease the car out with 90% 36mo residual and still make handsome profit. That does not necessarily mean the car is really worth $180k after 36 months. The real life resale value after 36months can be zero for all we care, the amortized $20k is enough to make the manufactuer profitable. The $200k MSRP and $180k residual do not have to reflect real life value of the car at all, so long as enough people can be found to amortize $20k over three years for the car. If that is not achievable, a $10k discount for California factory delivery may just get enough people interested Then the car company can be profitable even if the real life resale value of the car is little over $2000 despite the $180,000 residual assigned to it.
BMW is profitable, so we are told. BMW leasing arm itself can not possibly be highly profitable when it is offering 3% interest and takig back cars at prices that are far in excess of real life auction values. If the residual were not excessive, we wouldn't be seeing such a high per centage of lease returns. After all, the first driver knows the history of the vehicle, the car should be worth more to him/her than to some random joe or jill at auction. If the first driver is not buying the car for the residual amount, you know the car can not fetch that amount at auctions.
So what we are left with are two possible scenrios:
(1) BMW is cooking books, and relying on growing lease vehicle count to cover up for under-stated lease return liabilities. That may well be the case as the company profit growth is stalling despite rapid unit growth; the classic symptom of earning quality erosion.
(2) It costs BMW far less money than MSRP or Invoice to make the car. Subsidized leases are just there to prop up a fictional inflated MSRP. The company can afford to sell these cars at much lower prices. There may be an element truth in that too.
#24322 of 24726 Re: New M3 V8 weighs 33lbs less than outgoing I-6 [brightness04]
Mar 25, 2007 (4:23 am)
have no idea what link you are referring to in the luxury lounge
That is my fault for not providing the link.
Fortunately BMW updated their finacials and here is the 06 one versus the 05 one that we were discussing weeks ago. As you can see BMW still maintains double digit returns of capital and sales growth.
It costs BMW far less money than MSRP or Invoice to make the car. Subsidized leases are just there to prop up a fictional inflated MSRP. The company can afford to sell these cars at much lower prices. There may be an element truth in that too.
Absolutely agree with what you are saying. Our disagreement boils down to semantics.
You call it inflated MSRP or inflated residual.
I call it profitable and healthy sales at BMW.
Your perspective and mine are simply different sides of the same coin.
BMW cooking their books? Depends on what you call cooking. Every accountant does funny things with reserves, accruals and write offs. If that is what you define as cooking then cooked books are not only in the BMW menu but also on the menus of Toyota, GM and in fact every single multinational corporation in this globe of ours. Singling out the chefs from BMW for their cooking is a bit unfair, dont you think?
If you want to see the true health of BMW or any corporation with minimal cooking ( eliminating the affects from reserves and accurals) the the best financial statements to use are cash flow statements. And based on those statements BMW has been consistently generating ooodles and oooodles of cash.
It is not only high resale values that makes BMW leasing profitbale but also their strong balance sheets. BMW has the fortune of financing its leases with one of the strongest balance sheets in the industry.
The prognosis: Leasing remains a healthy activity for BMW
#24323 of 24726 Re: New M3 V8 weighs 33lbs less than outgoing I-6 [brightness04]
Mar 25, 2007 (7:03 am)
I am renting my 545i for 2.4% interest.
You don't have to understand 'em to lease 'em, but it does pay to do your homework on residuals and money factors to get the best deals.
I'll leave the "hows and the whys" to BMW.
#24325 of 24726 Re: New M3 V8 weighs 33lbs less than outgoing I-6 [brightness04]
Mar 25, 2007 (8:35 am)
For example, if the real production cost of a new HELC called Macrolla (which is really a Corolla with a new badge) is only $12k, if the MSRP is $200k, the manufacturer can lease the car out with 90% 36mo residual and still make handsome profit.
Hey, brightness, I want one of those Macrolla cars... that's an even better deal than hpowder's BMW deal. Since it's made by Toyota, it won't fall apart piece by piece the way the BMW does, according to houdini. And, I'll bet that Mcdonalds granted rights after a hefty palm greasing from Toyota to use the name Macrolla. Certainly such a car comes with a strong warranty and maintenance plan, and a 3-year supply of Big Macs. No doubt, CR LOVES the Macrolla... and has placed it on its recommended list as well.
#24326 of 24726 Come ON people!
Mar 25, 2007 (8:41 am)
You have the Luxury Lounge for topics that do not involve the subject here. Please use it.
You have got to stick to the topic in this discussion.
#24327 of 24726 Re: Come ON people! [pat]
Mar 25, 2007 (9:02 am)
Sorry, Pat. To assist, I have copied and pasted my last post from here over to the Luxury Lounge... so we can continue there.
#24328 of 24726 Re: New M3 V8 weighs 33lbs less than outgoing I-6 [dewey]
Mar 25, 2007 (12:15 pm)
You may want to take a closer look at the 2006 annual report in that link, not just the management prepared headlines. Cash flow is down 13% despite increasing vehicle sales; "Liquid funds fell by 8.8%"; "Financial assets increased by 19.8% . . . mainly as a result of higher fair values of derivative financial instruments." "The main factors behidn the increase on the assets side were the increased level of leased products (+19.9%), financial assets (+19.8%) . . ." ". . . the total carrying amount of leased products increased sharply by 19.9% . . .. Adjusted for chagnes in exchange rates, leased products would have risen by 29.9%."
No wonder German financial analysts are crying foul. Looks to me like the company is making cars to sell to itself as "assets." Marking up financial assets in the derivative market. Liquid funds fell by 8.8% despite a 6+ billion Euro bond issuance . . . hmm, perfect time to increase dividends, eh? Are the Quandts cashing out?
#24329 of 24726 Re: New M3 V8 weighs 33lbs less than outgoing I-6 [dewey]
Mar 25, 2007 (2:13 pm)
Year after year, BMW profits increase because of increasing sales. Unlike something like energy transactions (ie. Enron), how do you fake car sales? When you can add up cars by dealers, regions, countries, etc. Every brokerage firm in the world has legions of auto analysts watching like hawks over every major car company. And you can't fool everyone over such a long span.
GM has had a lot of accounting irregularities, but GM suffers declining sales over decades. And GM was fudging financial transactions, not car sales.
And remember BMW stocks are controlled by one family for a long time, maybe since the very beginning. If that family has no incentive to sell, what incentive is there to cheat?
I think the reason BMW keeps setting records on sales, profits & stock price despite its spotting reliability records is that it's perceived to be king of the hill in performance and desirability. When Infiniti wants to compare its brand new G37c, it takes the 335Ci, not the CLK. When Acura needs something to compare its brand new MDX, it chooses the X5, not the FX35. When it comes to performance, BMW is the gold standard, and it makes money off that.
#24330 of 24726 Re: New M3 V8 weighs 33lbs less than outgoing I-6 [brightness04]
Mar 25, 2007 (5:12 pm)
"BMW leasing arm itself can not possibly be highly profitable when it is offering 3% interest and takig back cars at prices that are far in excess of real life auction values."
This is the nut of what I've been interested in discussing for quite some time.
It'll be interesting to see how it all turns out.