Getting a good Lease on a car

[red-beard]

I know some of you have worked for/with car dealers in the past, so I'll put this up here:

How do I get a good lease on a car? We're going to do the next car, possibly 2, as a lease through the business.

I know the basics of the lease, economically, as we went through this stuff in engineering economics.

PV, interest rate, time of lease, residual value, etc.

What are the things to watch out for? Where will the leasing group try to stick it to me? Who should I be talking to at the dealer? Should we bring this up first, or last? Can we negotiate better on a new car on the lot from "last year", or don't the dealers usually lease the left overs?

We're going to be using our old BMW X5 as a downpayment, and I'm trying to find a 3 series wagon for the lease.

Hints/ helo?

TIA

[red-beard]

Any help?

Bump

[RWebb]

it's complicated - I know I've seen info on line but not sure where...

good luck

[onewhippedpuppy]

Why not just buy? It's hard to make the numbers work for a lease, you nearly always lose your ass.

[RWebb]

Not always.

When I did my first lease (MB ML40), I put the exact amt. of $$ as the purchase price into a G&I stock fund and made all the lease payments out of that.

It was simple way to test - at the end of the lease, there was still a lot of $$ in the fund. Enuff to make a good comparison, let's say.

For a Boxster S lease I had, the value of the car fell like a stone (technology bubble), so I was very happy to hand it back and say "here is your fun, but not valuable car back - now you dispose of it."

But generally, you will be better off if you do not lease - often depends on taxes

[red-beard]

Originally Posted by onewhippedpuppy

Why not just buy? It's hard to make the numbers work for a lease, you nearly always lose your ass.

It becomes a business expense, which comes out of pre-tax profit

Most of the people I know who have leased, have no idea how a lease works. I've been through the how to calculate the payment, but I know that "things" can be jiggered to make things come out anyway you want. I also know about the residual, and that if it is over esitmated, you can be liable for the difference.

I'm looking for practical advice on how not to get screwed in a lease.

[david911]

check out www.bimmerfest.com ask-a-dealer forum. while it is bmw specific, there is a lot of info on calculating lease payments and different add-on costs.

[B D]

Negotiate the lowest price then tell them you want to lease the car. After that it's all about interest rates (depends on credit) and down payment.

[RWebb]

not exactly - there are other fees they can tack on

[kaisen]

Originally Posted by red-beard

...I also know about the residual, and that if it is over esitmated, you can be liable for the difference.

I'm looking for practical advice on how not to get screwed in a lease.

You cannot be liable for the difference in residual.

Knowing each variable up front will help you not get screwed.
You want to know:
Residual value expressed as percentage of MSRP
Acquisition fee (Up front origination fees, like points)
Termination fee (Fees to turn in the lease, or to purchase at end of the lease)
Money factor (interest rate, usually expressed as .00240 for example)
Capitalized cost before cap cost reduction (what you agree for intial price)

If you know these things, you can make an informed decision. You can get in trouble when you focus only on the payment, just like a loan.

Know how you are being taxed. I have done leases for TX residents before, but I can't remember if they pay tax on the payment as you go, or the initial capitalized cost, or the sum of payments paid up front.

I would think that you would go through BMW Financial. An independent lease company or bank is probably not a good idea for you.

The residual is NOT negotiable (the bank sets their risk and that's that) but can be manipulated by purchasing miles. Use that to your advantage. Ask me more if you'd like.

The money factor can be marked-up by the dealer. So either ask to see the program sheet, or shop around. BMW Fin may charge the dealer .00200, but the dealer may be able to mark up the rate to .00280 with the difference paid to the dealer. This is no different than marking up a loan rate, which dealers do as well. Knowing the base rate (like knowing invoice on the car) will help keep them honest.

The acquisition fee may be marked up as well. BMW Fin may charge $499 but the dealer may charge $999, for example. So again, shop around or ask to see.

Capitalized cost is disclosed and this is the 'purchase price' on which your lease is based. This is absolutely negotiable and is the same as paying cash or having a traditional loan.

Anything that reduces capitalized cost must be disclosed as well, such as trade equity or cash down. If you'd like to negotiate your best deal, tell them to calculate your lease with your first payment, security deposit (if reqd), and up-front fees due up front, but NO CASH CAP REDUCTION (or trade). Then you have a baseline for reducing your lease payments with cash (or trade equity) and the math should be transparent. Nothing else should change.

A high residual value is a GOOD thing, as the lease company is taking the risk that it may be wrong (in your favor) at the end.

If you need ANY help, let me know.

BTW, I would never 'BUY' a new vehicle, ONLY lease. I can't think of a single scenario where buying is better than leasing unless the deal is different (i.e. 72 mos at 0% if you buy vs 8% lease, etc)

[onewhippedpuppy]

Originally Posted by kaisen

BTW, I would never 'BUY' a new vehicle, ONLY lease. I can't think of a single scenario where buying is better than leasing unless the deal is different (i.e. 72 mos at 0% if you buy vs 8% lease, etc)

What about paying cash?

[kaisen]

Originally Posted by onewhippedpuppy

What about paying cash?

Cash still has an opportunity cost. Having your cash tied up in a depreciating 'asset' might be a dumb move. And YOU take the risk of resale value AND all of the sales tax liability. And minimized write-off for business use.

Cash is used when you have no other use for your money. Why not borrow at 2-7% when your cash can help you make money? Leverage at someone else's expense.

Do not discount the guaranteed future value (residual). You can save thousands when the market falls away. If you paid cash (or bought it with a loan), you take the loss. When you leased, the lease company took the hit. 99% of leases allow the original leasee the first right to purchase for the residual. So if it's too low, buy it and you win. If it's too high, hand them the keys and say: "sucker!" Either way, you win.

[Eric Coffey]

IIRR, BMW has fairly tight mileage restrictions on their leases, like 10k/yr. That can bite you, especially if you don't track your mileage closely or use the car a lot (commuter/dd). I would certainly try and negotiate that as well.

[kaisen]

Originally Posted by Eric Coffey

IIRR, BMW has fairly tight mileage restrictions on their leases, like 10k/yr. That can bite you, especially if you don't track your mileage closely or use the car a lot (commuter/dd). I would certainly try and negotiate that as well.

YOU choose your mileage. Plans are 10K, 12K, 15K, or each individual mile thereafter. Buying them up front is simply x-cents/mile with an exact equal offset in residual. Paying as a 'penalty' at the end is ONLY if you do not buy the vehicle, and is much more expensive (but you deferred that cost interest-free and tax-free over 3-4yrs).

Again, YOU are in control. YOU choose how many miles to sign up for. If you consistently put 15K miles/year on your car, sign up for 15K. If you put on 25K miles/yr, sign up for 25K. It's that simple.

If you really screw up and sign up for 10K miles/yr and end up putting on 30K miles/yr what's the worst that can happen? Well, buy the car for the residual and there is zero penalty. You own the car. It's not much different than if you just bought the car in the first place. But you deferred the costs, tax, and final decision for 3-4 years.

Best-case scenario (with over-mileage) is that you happily pay a penalty (usually 20 cents/mile) because it was the lesser of evils than being stuck 'buying' YOUR car out for $20K when it's only worth $15K. And you saved the $5K loss, less your mileage 'penalty', still netted a winner.

People, we pay for the miles we put on a car whether we paid cash or financed or leased. My 2007 F250 with 110K miles is worth less than the same truck with 35K. Duh. How much less is totally market dependent. But in a lease it is guaranteed not to cost more than x-cents per mile, or whatever your contract states.

Leasing is almost a no-brainer if you are in business. And not much different as a private party.

[Zeke]

kaisen has nailed it, so I won't tell anyone I know how this works. However, I sold cars at a dealership for all of 2 months, but I learned all the inside tricks. Well, maybe not all.

I leased the Boxster before I bought it. BIG mistake. If you intend to keep the thing, buy it.

Anyway, my process for getting a good lease was to let them set the numbers upfront. I countered with the payment and drive off I was thinking was a good deal for me. They wiggled for a week and then told me to come down and sign the papers.

I'm not going to tell you I could back out the money factor exactly, but I did get it down by better than a point by letting them adjust the numbers to make it work. I'm sure there was money left on the table, but it took them a WEEK to find it. Or so it seemed.

[Steve Carlton]

The best leases are the below-market "subvented" programs through the manufacturers. No one else has a reason to offer the money at below market. However, if there's dealer cash or a rebate alternative, sometimes going to a non-factory lease can be better. I'd think chances are good that BMW has the best program. Also, factory leases tend to be the most consumer friendly. They're less likely to chisel you at the end over damage to the car.

My suggestion would be to call a few local dealers and ask for the fleet manager. He should be able to handle a lease for you without the nonsense you'll get from a salesman, as he should be authorized to make his own deals. (I'm speaking from experience in CA). Cut to the chase and ask him what price relative to invoice will he lease the car at the "buy rate" (their cost on the money). Ask what the buy rate is. You'll almost certainly get a better payment if you pay a few hundred more for the car and lease it at the buy rate than for less at a marked up rate. If he has to mark it up, ask him by how much. A quarter point is fairly acceptable. More starts to suck. Whatever the lease factor is, multiply it by 2400 to get an approximate APR equivalent. Ask if multiple security deposits lowers the lease factor. I've seen generous reductions in this regard.

[kaisen]

Good advice Steve, and spot on

[onewhippedpuppy]

Originally Posted by kaisen

Cash still has an opportunity cost. Having your cash tied up in a depreciating 'asset' might be a dumb move. And YOU take the risk of resale value AND all of the sales tax liability. And minimized write-off for business use.

Cash is used when you have no other use for your money. Why not borrow at 2-7% when your cash can help you make money? Leverage at someone else's expense.

Do not discount the guaranteed future value (residual). You can save thousands when the market falls away. If you paid cash (or bought it with a loan), you take the loss. When you leased, the lease company took the hit. 99% of leases allow the original leasee the first right to purchase for the residual. So if it's too low, buy it and you win. If it's too high, hand them the keys and say: "sucker!" Either way, you win.

A few counterpoints. Purchasing a new car outright can be used as an expense to reduce net income for tax purposes, my in-laws do it nearly every year with their business.

Maybe it's conservative, but I don't agree with borrowing to invest. That's essentially what you're doing by leasing the car, borrowing the money for the car so you can invest the cash elsewhere. That mentality has led to a lot of problems over the last few years. Remember, you should never invest money that you can't afford to lose.

[red-beard]

I am sure that the tax laws don't work that way. You can buy the car, but you only get to depreciate it against income.

I'm also looking at that, for the truck I need to buy. The drop in value on the trucks is much faster than the cars. It would be better to buy a 3 yr old truck, and then do the depreciation, than to lease a new truck.

[kaisen]

Originally Posted by red-beard

I am sure that the tax laws don't work that way. You can buy the car, but you only get to depreciate it against income.

I'm also looking at that, for the truck I need to buy. The drop in value on the trucks is much faster than the cars. It would be better to buy a 3 yr old truck, and then do the depreciation, than to lease a new truck.

Over 6000 GVWR you can depreciate the entire vehicle in one year, unless they changed the law which was happening soon. Then you also take your actual expenses for fuel, maint, ins, etc. But NO interest

Or you can take miles which is now $0.52/mi IIRC

Or you can deduct your lease payment plus actual expenses.
Since your lease payment includes interest and tax, that gets written off too.
Want a bigger write off? Buy lots of miles. Your lease payment is higher, and 100% of that increase in payment is applied to lowering the buyout.

A BMW depreciates faster than a truck, so that logic is flawed.