Last post on May 01, 2013 at 3:12 PM
You are in the Sedans
What is this discussion about?
Lexus GS 430, Acura RL, BMW 5 Series, Volvo S80, Audi A6, Infiniti M35, Infiniti M45, Mercedes-Benz E-Class, Cadillac STS, Sedan
#5884 of 10338 Re: Fast and loose with the facts? [bartalk3]
Jan 14, 2006 (9:27 am)
I agree there is a value (your value) not the market value mind you, but there is a value that can be placed on pride of ownership.
I have washed, waxed, dressed the tires, etc, my leased cars and for the 30 - 36 months have a great sense of Pride of Ownership.
The house car satisfaction is somewhat of an argument that must be based on an assumption that is rarely true. That assumption is that houses and cars either retain, rise or decline in value in synch.
My brand new house in 1990 has doubled in market value (even in one of the weakest [economic] US states, Ohio), few cars will even retain their value let alone grow in a like period of time (unless the car is/was a collector's car or in some way a vehicle that will or may become a classic or collector's item.)
As a mortgage amount switches from interest and principal to principal and interest (and even before) it is very easy to turn that principal (equity) into cash with a second mortgage. A fifteen year old car would have little liquidity unless it just happened to be so special and/or so rare that you could convert it to cash by selling it or by finding a financial institution willing to loan against the asset.
Of course, there is, today, (in some cities) an argument against buying your own house. Generally, buying your own house eventually generates a nice entry on your balance sheet. Generally, the same cannot be said about a car.
And, with subvented leases (as noted in my example) leasing actually is a decent way to have minimal and predictable impact upon cash flow.
In my example, above, I assumed the buy of the car was both at 0% interest and was somehow free from sales tax. Conversely, I assumed the lease example included sales tax and did also include a money factor greater than 0.
Finally, I assumed total expenses from 50,001 to 90,000+ miles would be $1,000 plus $1,400 for tires. It seems that this assumption was perhaps a little light, but I let it stand just in case the car in question was a Lexus (of course the Lexus would NOT have included maintenance for the first 50,000 as would the Audi and the BMW.)
Now all of this goes to heck in a handbasket if leases stop being subvented. Moreover, although there are still below market financing rates out there today, 0% has become a rare bird indeed.
Then there is the "high mileage" argument. I assumed 15,000 miles per year. I also assumed that the person who wanted to argue for value would literally have to sell the car at year 6 + 1 day to actually recapture the $13,500 estimated market price. A 6 year old car with 90,000 miles on it may not be able to be sold that quickly 1 day after the payments cease. And, as a practical matter, every day that passes tends to erode ever so slightly the market price of the car.
If you drive 6,000 miles per year does this equation change in favor of one vs the other? I don't know, but it seems that it would be more desirable to "buy" the car if your total mileage at 6 years and 1 day was only 72,000.
Of course the cost per mile of the lease would drop too in that example and it would rise if the mileage instead of 15K per year would rise to 20K per year, etc.
My attitude seems to have come full circle, I will buy commercial and residential real estate, I will rent cars and computers (for business use.)
Of course conditions change, and this analysis and these conclusions are based on what seems to be the case "today."
Realistically, it seems hard to imagine BMW, for example, can stop subventing their customers leases. My wife, an attorney, not an accountant not a financial analyst, said to me recently, "My $47,000 BMW is $580 per month, it will be hard for BMW to convince me to pay much more than that for a comparably priced car in 2008." In other words, when she goes back to BMW for her 2008 Bimmer and the price comes in at $47K (or a couple thou more or less) the payment will have to remain in the "range" that they have already established.
I don't know if she is correct, I know that with that thought process going on, BMW will be hard pressed to convince her to pay significantly more per thousand than she is currently paying. For right or wrong, BMW, then seems likely to continue subventing. Ditto Audi and probably some of the other guys.
Pricing pressure from Japan, Korea, China! and even as reflected by GM's price decreases (announced this month) are highly unlikely to encourage significant rises from the "we've been attracting customers by subventing" crowd.
Why would the Chinese bring a car to market and name it Geely? Haven't they ever heard of the movie of a similar sounding name from Ben and Jen?
#5885 of 10338 Re: Fast and loose with the facts? [markcincinnati]
Jan 14, 2006 (10:13 am)
Very good analysis. LPS in any dress is a considerable investment. Buying vs. Leasing has always been a good topic.
Right now, Leasing looks to be the better value due to the "nice" monthly payments and lower out of pocket.
Why doesn't everybody lease? I understand your theory of 6year lease vs. 6year ownership. Your analysis is a perfect scenario, kind of like having the car in the garage and never driven.
I can't see how and why people would every purchase a car outright if it was true.
If I can go into a dealer and lease $50K car with $640 no questions asked, then I will do it. But, the endless fine print and gap insurance this and fine print that, its never $640.
BMW, Mercedes & all the LPS manufacturer's lure the buyers by saying, lease a LPS for $599 for 36months....with $3500 due at inception. Then the fine print comes and in the end, you probably will owe more than the $25K they calculated.
Leasing is the dealers advantage. If it wasn't we would never have the option of leasing.
#5886 of 10338 Re: Fast and loose with the facts? [markcincinnati]
Jan 14, 2006 (10:43 am)
Good post, Mark. I appreciate the time & effort that you clearly put into it. You've given us a lot to think about.
The only thing that puzzles me is your seeming belief that other posters here are insisting that buying (as opposed to leasing) is the only right way to get into the game.
I haven't seen that here - not on this board, at any rate. All of us would agree, I think, that there is no single correct solution to this complicated business of acquiring & operating an automobile.
My experience has taught me that the economic "sweet spot" of a car's life is the 4-year period that begins in its 5th year.
By this point, you've paid off most or all of any loan that you might have taken out to finance the initial purchase. Depreciation, which is at its fiercest during the 1st 4 years of a car's life, levels off significantly. And although the warranty has expired by now, repair costs are manageable - assuming, of course, that you've maintained your car properly. Also, you're likely to see a drop in your insurance premiums. (This seems to be the case in downstate NY.)
For me, the cost per mile during these years is as good as it gets. I'm not sure, though, that there is much benefit in keeping your car beyond its 8th birthday & I know that I will probably never again hang onto a car for more than 10 years. (I did keep 1 car for 13 years. That was a mistake; I won't do that again.)
So this is what works for me, but I wouldn't dream of pushing this approach on someone else. I also wouldn't rule out leasing in the future, although I've always owned & must admit that I'm not entirely comfortable with leasing.
Some years ago, a fellow who posted on the Edmunds Audi A4 board (but who has since disappeared, unfortunately) offered what I've always thought was the most convincing argument in favor of leasing. Put simply, it came down to this: "I work hard at a stressful job. Leasing may cost a couple of extra dollars per day, but a new car every 3 years gives me real pleasure & makes my long hours more bearable."
I've never come up with an effective rebuttal to that. Our vices, after all, are what make us interesting.
#5887 of 10338 Re: Fast and loose with the facts? [jimbres]
Jan 14, 2006 (1:36 pm)
Another advantage of leasing: not having to go through the hassle of selling your car privately to dozens of strangers who come to your house and want to take it for a long test drive, or trade it in to a dealer who will always give you much less than you know it's worth.
#5888 of 10338 Re: Fast and loose with the facts? [mg808]
Jan 14, 2006 (2:53 pm)
In my case my Audi required NO security deposit (the loyalty factor.) I did have to pay a plate transfer fee from my 2003 allroad to my 2005 A6. I did have to pay my first month's payment up front (this varies based on the loyalty bonus Audi and BMW (for example) offer from time to time.)
My monthly payment is literally $641/36 months 15K miles per year.
Had I financed the car at MSRP 0% for 72 months with no money down and assuming that there was $0.00 sales tax, the monthly payment would have been dead on $750 x 72 months and there would have been no mileage issue.
In either case the warranty is 4 years or 50,000 miles 100% and the service is paid for almost entirely (gone are the days of unlimited free wiper blades every month, for example.) Oil changes are 10,000 mile intervals and a "major" service interval 60,000 miles would not be paid for even with the CPO'ing from 50,001 miles to 100,000 miles which essentially simply holds the owner harmless from repair costs (but NOT maintenance costs.)
Will Audi lease another $50,000+ vehicle to me in 2008 for the same cost per thousand or in some way figure out a way to keep me a loyal customer via subventing? I have no idea. I have a hunch, they will, after 28 cars from AoA, figure out a way to come up with a custom tailored loyalty incentive.
I read an article, and I do not know if it applies to things like cars that continue to become commoditized (and I do believe the LPS cars continue to become more alike, other than style, as time marches on), but the gist of the article was that it cost 5 times the marketing and sales resources to attract a new customer than it does to retain a current customer. If this is indeed AT LEAST IN SPIRIT applicable to LPS cars, it seems loyalty programs don't cost they pay.
All of this leads me to the conclusion that the fact that two Cincinnati dealers (one Audi and one BMW) claim 75%+ of their sales are leases, indicates that subventing is here to stay.
Don't tell anyone, but here is another data point, I thought the new Jeep SRT8 might be a serious contender against -- for instance -- a BMW X5 or Audi Q7 (to name two) considering its MSRP of $39,995. The lease payments at this point in time make this car with all the options which MSRP's about $43,000 cost more (on a lease basis) than a much more expensive German car.
My friend and his wife looked at some SUV type vehicles lately -- they were thinking American. But apparently depreciation (real or artificial) or lack thereof relative to the American cars, made a more expensive Euro car less money per month than an American model with a lower MSRP.
These are complicated issues or they can be -- but it is now less an issue of MSRP and content (and even performance) than it is of subjective preferences.
Repeat after me: the next wave is "Mass Customization."
#5889 of 10338 Re: Fast and loose with the facts? [bartalk3]
Jan 16, 2006 (4:17 pm)
I've never had a problem selling my cars. In my neck of the woods (a NYC suburb), the demand for well-cared-for used cars far exceeds the supply. Just in my neighborhood, there are easily a dozen folks looking for reliable used cars for their about-to-be-licensed teenage offspring.
Then you've got the middle-aged guys looking for cheap cars so that they don't have to leave their Boxsters at the railroad station.
Most of the time, I don't even have to advertise.
#5890 of 10338 Re: Fast and loose with the facts? [jimbres]
Jan 16, 2006 (9:58 pm)
My experience has taught me that the economic "sweet spot" of a car's life is the 4-year period that begins in its 5th year.
I agree and also like the thoroughness of Mark's post. Therefor, I paid cash for my minivan and will keep it for 9-10 years, I hope. However, I plan to replace my M45 in 3-4 years, as it is an indulgence, and I do like having a new car. With the apparent break given by the makers for leasing many of these LPS sedans, it seemed to me like leasing was the way to go, for short term commitments, anyhow.
As you said: Our vices, after all, are what make us interesting.
#5893 of 10338 Has the luster worn away?
Jan 18, 2006 (6:18 am)
This forum seems to have tapered off quite a bit in the past few weeks. Has that "new-car-smell spell" worn off all the new LPS owners?