# Joined the Club!



## kyleschultz (May 29, 2003)

Took advantage of the special 3-series lease rates ending Saturday and ink'd the deal on a '03 330i today. Stepping out of a Chevy Silverado pickup (don't even ask...) but have owned 4 Mercedes in the past. German cars are wonderful.

Looking forward to sharing stories with everyone.


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## WILLIA///M (Apr 15, 2002)

Welcome aboard.:hi: 

What was the color combo?


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## rwg (May 10, 2002)

:hi: 

Good to see another convert. Now we just have to get you to a driving school.


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## kyleschultz (May 29, 2003)

Black Sapphire/Black
Premium, Sport, Auto, Xenon, Alarm, Mats. Pretty standard.

Black interior wasn't my first choice but it was the only 330i they had on the lot w/ the Sport package. Looks elegant and salesman convinced me that black hides wear better than the lighter leather colors. Frankly, all cars are hot in Texas during the summer- black or not.

3 year/45k mile lease @ $539/mo (10 MSD). Nothing else down.

I still have 3 months to go on my truck lease but I thought the special lease rates were so good that I was money ahead to lease now. I project I'll actually need a little more than 45k miles over the next 3 years. So, I'll park the 330i for the next few months and "bank" the mileage for later.

First question... you guys all run 91 octane? I've heard many experts say it's a waste of money.


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## WILLIA///M (Apr 15, 2002)

You got in under the wire for the 10 MSD deal, that's slick. As for the fuel I always use 93 octane. I think you'll find that most all of the other people here do as well.


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## tgravo2 (Dec 7, 2002)

Congrats on your car. I wish I had the same lease rates, my 325 is almost that much  I always run 93 octane also. I haven't heard anyone on this board that runs less than 91 :thumbup:


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## drmwvr (Feb 21, 2003)

Nice car :thumbup: Your manual should say that the required fuel is Premium Unleaded Gasoline, min. 91 AKI (Anti Knock Index). I would not go below BMW's recomendation. Just be thankfull that you live in Texas where fuel prices are historically cheaper than other parts of the USA


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## BGReddy00 (May 28, 2003)

Welcome your gonna love the car!


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## mwette (Sep 16, 2002)

Welcome. I converted from a Ford Explorer to 330Ci. Love it.


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## mbr129 (Aug 23, 2002)

I Massachusets (for the most part) we only get 87, 89, and 93 octanes. So of those choices, 93 is the only one that works. I suppose you could do half and half of 89 and 93 but that would only save you a nickle per gallon (if that) and it's just silly. I mention this because I know a guy that does this.:tsk:


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## kyyuan (Jul 14, 2002)

congratulations and welcome.


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## LeucX3 (Dec 26, 2001)

kyleschultz said:


> *
> 3 year/45k mile lease @ $539/mo (10 MSD). Nothing else down.
> *


Welcome.

Isn't that kinda high for lease pmt? My monthly payment is just a little more than that and i purchased it. :dunno:


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## Lonni24 (May 6, 2003)

Hi. Wanted to ask how much is the fuel in the U.S.? I use 95.


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## Mr. Sparkle (Dec 4, 2002)

Chevy Silverado to a 330. Nice move. :thumbup:


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## tgravo2 (Dec 7, 2002)

Lonni24 said:


> *Hi. Wanted to ask how much is the fuel in the U.S.? I use 95. *


I use 93 octane and it's $1.54 here, it varies across the country


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## ayn (Dec 19, 2001)

kyleschultz said:


> *
> First question... you guys all run 91 octane? I've heard many experts say it's a waste of money. *


Gas is so cheap here in Texas, get the best grade out there... it does make a difference...

Hope to meet u and your car at TWS in the future! A few ppl from this board will be there this weekend!

--Andrew


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## kyleschultz (May 29, 2003)

Leuc330Ci said:


> *Welcome.
> 
> Isn't that kinda high for lease pmt? My monthly payment is just a little more than that and i purchased it. :dunno: *


We must not be comparing apples to apples. Let's look at the numbers.

$42,495 MSRP
$39,971 Sales Price (I estimate that's $1042 over cost)
$ 2,653 TT&L plus doc fee
$42,634 Drive Out

Now while I put down 10 security deposits ($6,000 in total), I will get that money back at the end of the lease. So for our comparison, I'm going to ignore that "investment". More on this later.

Now if you financed $42,624 over 60 months @ ZERO% APR, your monthly payment would be $799.15. My lease payment is $538.75 per month. For you to match my lease payment @ ZERO% APR, you would have to had bought the same car for $28,735 all in. I don't think even Jon could make that deal.

Let's talk about lease economics at little more.

BMW set the residual @ 59%. That's 6 to 8 points higher than what the banks/leasing companies are using. Higher residuals mean lower theoretical depreciation which means a lower lease payment.

BMW's finance charge for '03 325i/330i through May was 2.88% APR. They actually express it in terms of money factor, which is the APR in % divided by 2400. 2.88% APR translates to a money factor of 0.0012. In leasing calculations, the money factor is used to calculate the "interest" to be paid via the monthly payment.

To qualify for the standard 0.0012 money factor rate, you must put down 1 security deposit at closing. BMW has a not well known and even less well understood program which allows lease buyers to put down up to 9 additional security deposits. Each additional security deposit lowers the money factor by 0.0001. So by putting down 9 additional security deposits, my money factor was lowered to 0.0003. That's 0.7% APR.

Multiple security deposits (MSD) are akin to a 3 year bond. I'm "loaning" BMW $5400. In 3 years, they are going to give me my money back. In return, I earn interest on my "investment" in the form of a lower lease payment each month.

You might ask, "Okay, what interest rate is BMW paying me for the use of that money?". Would you believe more than 14.8% APR! And this is an after-tax return. Assuming a 36% marginal tax bracket, the pre-tax ROR is really 23.1% per year! This is why effective July 1 BMW is modifying the MSD program to limit the maximum number of security deposits over the required number to 5 and to reduce the money factor reduction to 0.00005 (half the previous rate).

So, bottomline, is leasing better than buying?

Depends. Let's compare the two.

Because we have money changing hands at different times, I like to look at things in terms of present value; or, more descriptively for this exercise, present cost. I'm going to use 5% APR as my discount factor because that's what I think I can earn on my money in a relativly risk-free investment.

So what does the lease cost?

Well, I'm paying $6000 down in security deposits at closing but I'll be getting all of that money back in 3 years. In terms of present value, $6000 in 3 years isn't worth as much as $6000 today, so there is a "cost" related to the time value of money. At 5% APR, the cost is $856. Then we have 36 monthly payments @ $538.75 per month. Just like the deposit, the $538.75 paid in month 36 isn't worth as much as the $358.75 paid in month one because of the time value of money. Again using the 5% discount factor, my 36 monthly payments, which total $19,395 really only "cost" me $18,051 in present value dollars. The last factor to consider is that BMW will charge me $350 at the end of the lease to process the lease return. That $350 will only cost $300 in today's dollars. So in total, my 3-year lease is going to "cost" me $18,907 or $0.42 pr mile. The only other "hidden" cost is a fee BMW charges to assign the lease to me. Generally that fee is about $500 but in this case BMWFS charged $725. That fee is buried in the lease payment but you need to know it if you try to plug these numbers into a lease calculator to check their math.

You'll remember, the drive out price for my car was $42,624. Let's assume I finance that amount for 60 months at 4.9% APR. The actual APR depends upon your credit quality but I think that's a pretty reasonable interest rate for today's market. Let's also assume we put the same $6000 down as a down payment. Your monthly payment would be $687 which is $148 per month higher than the lease. Now, let's look at the present value cost of purchasing.

We have the $6000 we're putting down at close. 36 months at $687 per month adds up to $24,732 but in terms of present value, the cost is only $23,006. Finally, there is the equity which we have accumulated. After the 36th payment, you would still owe $15,732 on the loan. To compare Buying to Leasing, at the end of 3 years, you would sell the car and pay off the note. In this calculation, I used a 51% residual factor and not the 59% used by BMW in the lease calculation becuase that's what the banks and leasing companies are projecting. BMW has "inflated" the residual to make their lease more attractive. 51% residual means the car would sell for $21,672 which means you would have $5,941 in equity at the end of 3 years. But again, as you won't be getting that money till month 36, the equity is only worth $5,094. Adding it all up, the purchase option would cost $23,913 or $0.53 per mile based on 45k. In term of absolute dollars, the extra cost to purchase id $5,006. That's a significant increment over the cost to lease.

I also looked at the purchase case @ 5 years/75K miles because that's how long I felt I would likely own the car. Based on an estimated residual value of 38%, the present value cost was $30,043 or $0.40 per mile. The cents per mile is slightly less than than that of the 36-month lease but the comparison may not be accurate. That's because as the car gets older there is increased maintenance and I haven't factored in any increased expenses in years 4 and 5. You would certainly be out of the warranty period and the free scheduled/unscheduled maintenance coverage that it includes.

In summary, I believe one would would not see a benefit to ownership until years 6 and beyond. In my personal situation, I would rather own a newer vehicle and not have to worry about unexpected repair bills.

Anyone who would like a copy of the spreadsheet I put together to look at all of this can e-mail me. I live in Texas and so it may not match your situation exactly but you shoud be able to modify it pretty simply.


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## kyleschultz (May 29, 2003)

I forgot to mention that the 14.8% ROR on the extra security deposits is after federal income tax. We don't have state or city tax in Texas. If you're in the 36% marginal (I can't rememeber the exact %, may be higher or lower) tax bracket, your 14.8% investment looks like it is yielding 23.1% per year.

So, BMW leases me a loaded 330i based on a discount to sticker that only leaves the dealer about a $1k profit; whose payment is based on a residual that is between 11 to 16% higer than anyone else and upon financing 100% of the purchase price, taxes and fees @ 2.88% APR; and then offers me the chance to invest up to $5400 in a 3-year note that pays me 23% per year!

When I figured all this out at 10:30 PM last Wednesday night, I was so pumped that I couldn't fall asleep till 4am the next morning and I was at the salesman's desk at 11 AM when he arrived.

Note: I edited this post after calculating what I belive to be the true ROR for the MSD and adding that info to my previous, longer post.


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## kyyuan (Jul 14, 2002)

kyleschultz,

Which dealer did you use? Thanks.

Ken


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## jw (Dec 21, 2001)

Great explaination kyle. I wish I had known about MSD when I got my vehicle. Too bad it's being cut back so drastically.


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## SupraRZ (Apr 16, 2003)

Kyle, very well said. You must be an investment banker / accountant 

I might have to add that there are several benefits to leasing vs purchasing if you're a small business owner or work in a commission based environment. Your business can lease a vehicle for you to use, which is significantly cheaper than if you use post-tax personal payroll money to lease.

The above applies to a non-SUV vehicle, as small business owners are able to write off the entire cost of a SUV on the first year plus any expenses attached to the vehicle, such as gas. See article at http://www.imakenews.com/autospies/e_article000154682.cfm

Unfortunately, now we'll have to factor in the 5MSD and .0005 reduction into our equations.

Peter


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## kyleschultz (May 29, 2003)

Peter...

Thank for your compliment. Actually, I'm an engineer but I've worked with those guys a lot in the past. Engineers are smarter!  

Also, it's now my understanding that the new MSD program doesn't take effect till July 1. That being the case, I believe the compelling economics of the MSD program are still intact for June. What is uncertain (but should be known today) are the June residuals and money factors. You may not be able to get the 59% residual or the 2.88% APR finance rate but it still should be an attractive deal. The key to the MSD program is the 0.0001 reduction in the money factor for each deposit made. Because the amount of the deposit is based (roughly) on the monthly lease payment, if the residuals go down and the money rate goes up, your monthly payment and hence your deposit will increase. As the money factor reduction (your return) is unchanged you ROR will go down. So, depending upon the June numbers, your return may only be 15% APR instead of 23%. What as shame. 

As soon as we hear the June residual/money factor, I'll post what I think the ROR potential is for the MSD program.


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## ayn (Dec 19, 2001)

wow, great writeup and explanation! Thanks!

--Andrew


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## LeucX3 (Dec 26, 2001)

Great explanation. I know nothing about leasing, so maybe it wasn't fair for me to do that kind of comparison. But i definitely learned something about leasing with your Leasing 101 primer. :thumbup:


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## Patrick (Dec 23, 2001)

Lonni24 said:


> *Hi. Wanted to ask how much is the fuel in the U.S.? I use 95. *


Put 98 E in your E30!

I just filled up today: 60 EUR at 1.05 EUR/liter, or about 270 Forint per liter.


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## The Other Tom (Sep 28, 2002)

kyleschultz said:


> *
> .... Actually, I'm an engineer but I've worked with those guys a lot in the past. Engineers are smarter!
> *


:thumbup: :thumbup: :thumbup: Yeah !!!
Good write up. Please email me your spreadsheet. thanks


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## blkonblk330i (May 14, 2003)

Excellent write up. I'd also like a copy of your spreadsheet. Thanks.


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