# Money down on finance?



## quackbury (Dec 17, 2005)

I will throw an idea out there.

WHAT IF ... the pandemic is going to create a massive paradigm shift in the way Americans work and travel? WHAT IF ... more and more Americans work from home in the future, greatly reducing the number of miles driven for commuting? WHAT IF .... we enter a deflationary period (the projection I saw this morning was 0.5% inflation for the next 5 years!). WHAT IF .... the massive backlog of used cars and lease returns sitting on Mannheim lots goes unsold for an extended period as consumers who are driving fewer miles annually (A.) decide they really don't need to replace their car as quickly as they used to, or (B.) decide they really can get by with just one car in their 2 car garage and want to unload the other(s)? WHAT IF ... new alternatives enter the market in the next 3 to 5 years, like an entrepreneur perfecting and automated, self-driving ride hailing service that works for 10% to 70% of Americans' local travel needs?

Wouldn't any or all of those cause a very significant decline in the value of a used car, 12, 36, 60 or even 84 months in the future? Auto loans which are underwater right up to the day they are paid off? 

Why wouldn't I want to shift 100% of that risk to the manufacturer or his captive leasing program?


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## 1968BMW2800 (Aug 13, 2016)

quackbury said:


> I will throw an idea out there.
> 
> WHAT IF ... the pandemic is going to create a massive paradigm shift in the way Americans work and travel? WHAT IF ... more and more Americans work from home in the future, greatly reducing the number of miles driven for commuting? WHAT IF .... we enter a deflationary period (the projection I saw this morning was 0.5% inflation for the next 5 years!). WHAT IF .... the massive backlog of used cars and lease returns sitting on Mannheim lots goes unsold for an extended period as consumers who are driving fewer miles annually (A.) decide they really don't need to replace their car as quickly as they used to, or (B.) decide they really can get by with just one car in their 2 car garage and want to unload the other(s)? WHAT IF ... new alternatives enter the market in the next 3 to 5 years, like an entrepreneur perfecting and automated, self-driving ride hailing service that works for 10% to 70% of Americans' local travel needs?
> 
> ...


+++


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## namelessman (Dec 23, 2004)

quackbury said:


> Why wouldn't I want to shift 100% of that risk to the manufacturer or his captive leasing program?


That is a possible scenario, and as such the leasing companies will adjust lease costs accordingly to mitigate risk, e.g. 20% RV. That may very well kill the lease volume, but as demonstrated in this thread, serial lessees will pay up for new car smell, right? 

And do recall your current lease does pay the steepest part of depreciation curve every 3 years, at current (possibly inflated) MSRP minus incentives, so there is no free lunch.

Another point to note, a working 10-year old and 100k+ miles bimmer can still fetch around $4k-$7k, and can stay in that range for a while. The accelerated depreciation may drop those numbers to 7 years/70k miles, but the car can still be trouble free for many years and miles ahead.


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## Autoputzer (Mar 16, 2014)

A good rule I learned a long time ago was to borrow money three times in life:

1. To pay for an economically relevant education (one that will get you a job with a better income).
2. An affordable home in a stable neighborhood.
3. A first, safe, reliable, affordable, appliance car. (That specifically means not a BMW.)

We financed Frau Putzer's X3. But, that was only because of the incentives and an interest rate less that the after-tax rate I could get on a CD. We got 1.9% for 60 months. MSRP was $56.3k. We paid $50k for the car and financed that. I paid the taxes with my BMW FS credit card. I look up the values of our cars on the anniversaries of their purchases. The KBB value of the car want down as fast as the loan balance. 

If you need gap insurance, you shouldn't be buying or leasing the car. in the first place. Gap insurance, like all insurance, is on average a losing proposition. If it wasn't, the insurance writers would be losing money.


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## Doug Huffman (Apr 25, 2015)

At breakfast this morning Milady Wife and bookkeeper announced the retirement of our BMWFS note, the last payment yesterday. Now the payments are earmarked for emergent repairs and consumables. We hope that this is our last final auto purchase.


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## 1968BMW2800 (Aug 13, 2016)

namelessman said:


> That is a possible scenario, and as such the leasing companies will adjust lease costs accordingly to mitigate risk, e.g. 20% RV. That may very well kill the lease volume, but as demonstrated in this thread, serial lessees will pay up for new car smell, right?
> 
> And do recall your current lease does pay the steepest part of depreciation curve every 3 years, at current (possibly inflated) MSRP minus incentives, so there is no free lunch.
> 
> Another point to note, a working 10-year old and 100k+ miles bimmer can still fetch around $4k-$7k, and can stay in that range for a while. The accelerated depreciation may drop those numbers to 7 years/70k miles, but the car can still be trouble free for many years and miles ahead.


So, of course, one of the attractive aspects of leasing is the subvented aspect. Artificially inflated residuals, hopefully coupled with below market money rent, spiced up with incentives, mixed together with a negotiated well-below MSRP cap cost.

Even with all that, the cars are still worth less than what is owed the minute they are driven off the lot.

So, as long as the price of heroin, I mean leasing, is low enough, I'll feed the addiction.

But, no, if/when residuals come down to reality and if dealers cease deep discounts from MSRP, I'll be the first one in line for one of the gazillions of CPOS that are, or will soon be, out there. I've done it before and, without a doubt, it can work out well.

Just depends on where one is on life's trajectory.


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## namelessman (Dec 23, 2004)

1968BMW2800 said:


> But, no, if/when residuals come down to reality and if dealers cease deep discounts from MSRP, I'll be the first one in line for one of the gazillions of CPOS that are, or will soon be, out there. I've done it before and, without a doubt, it can work out well.
> 
> Just depends on where one is on life's trajectory.


Yes that is a prudent strategy. In fact even 1-year old car can be a great, e.g. a fester posted that his 3-month old (leased) Volvo S90 with 800 miles MSRP $45k now is $20k, that will be a great ride at any stage in life's trajectory.


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## namelessman (Dec 23, 2004)

Autoputzer said:


> A good rule I learned a long time ago was to borrow money three times in life:
> 
> 1. To pay for an economically relevant education (one that will get you a job with a better income).
> 2. An affordable home in a stable neighborhood.
> 3. A first, safe, reliable, affordable, appliance car. (That specifically means not a BMW.)


My strategies for #1 were to stack up on work-study and stipends from schools, just like BMW incentives, and it worked out. 

Also took advantage of local companies reimbursing and got extra hot skills from local schools while employed.

#2 was done too, but mainly to replace rent.

#3 was never done, admittedly the first beater was relatively reliable and lasted a few years.


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## Autoputzer (Mar 16, 2014)

I'm waxing my 6.5 year old 535i today. 

I've only driven it about 4800 miles so far in 2020. If I'd been leasing, I would have got hammered. I normally drive about 11,000 miles/year. With that annual mileage, owning and leasing come out about even if you own a BMW six years. 

For the first six years, my ownership costs (depreciation, maintenance, capital cost) was $867/month. That's about what a 3-year lease would be. But, for the 7th, 8th, and 9th years, my ownership costs should be around $450 month (mostly maintenance). Depending on my annual mileage over the next few years, I might keep it a 10th year. That might be about the time the replacement for the G30 comes out. I prefer not to get the first year of any BMW platform. So, who knows... I might keep mine eleven years. I'll have the choice.


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## namelessman (Dec 23, 2004)

Autoputzer said:


> I've only driven it about 4800 miles so far in 2020. If I'd been leasing, I would have got hammered. I normally drive about 11,000 miles/year. With that annual mileage, owning and leasing come out about even if you own a BMW six years.


What is breakeven point with 4500 miles a year?

My 8-yr old F30 is going strong amidst COVID, currently it is around $13k trade(carvana), or $16k(low private) to $19k(dealer clean retail)


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## namelessman (Dec 23, 2004)

1968BMW2800 said:


> So, of course, one of the attractive aspects of leasing is the subvented aspect. Artificially inflated residuals, hopefully coupled with below market money rent, spiced up with incentives, mixed together with a negotiated well-below MSRP cap cost.


2020 (and maybe first half of 2021) is not good for leasing.

In contrast, amidst COVID, buy-and-hold is preferred to save money and preserves resale with low inventory and reduced mileage.


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## Autoputzer (Mar 16, 2014)

namelessman said:


> What is breakeven point with 4500 miles a year?
> 
> My 8-yr old F30 is going strong amidst COVID, currently it is around $13k trade(carvana), or $16k(low private) to $19k(dealer clean retail)


Cars depreciate with time and mileage. There probably isn't as breakeven point at that low annual mileage. The breakeven point would go down as annual mileage goes up.

The shortest BMW FS lease period now is 30 months, and the minimum annual mileage on most BMW leases is 10,000. Even at that short of a period, buying would probably still be cheaper. Besides, you'd still be under free maintenance for three years and under warranty for four years.

A friend of mine was a serial leaser, but only driving about 4000 miles/year. He finally figured out he was going broke doing that. So, he bought his current car, an M4. But, it's parked in sunlight all day and he runs it through an automatic car wash weekly. Another friend was thinking about getting him to buy his leased car back and selling it to him for a small profit, back when lessees could haggle with dealers on that. But, the trashed paint put an end to that deal.

There was a guy on the G30 board selling a six year F30 328i with only 9000 miles on it. It was his "LA car" when he was out there working, and it was garaged during the day. He couldn't understand why it was only worth about $18k. After dealing with the scammers, he sold to Carvana or somebody for $13k. The N20/N26 timing chain thing was also working against him. He's a militant leaser now, saying that he could have leased two cars in a row for just $50/month more than the ownership costs over six years (~$500/month). But, he ignored the third alternative, which would have been to "refresh" the car (new tires, battery, NAV update, wiper blades) and keep it another six years. That would have put him at maybe $300/month going forward. But, he wanted a newer and bigger car (G30).


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## namelessman (Dec 23, 2004)

Autoputzer said:


> There was a guy on the G30 board selling a six year F30 328i with only 9000 miles on it. It was his "LA car" when he was out there working, and it was garaged during the day. He couldn't understand why it was only worth about $18k. After dealing with the scammers, he sold to Carvana or somebody for $13k. The N20/N26 timing chain thing was also working against him. He's a militant leaser now, saying that he could have leased two cars in a row for just $50/month more than the ownership costs over six years (~$500/month). But, he ignored the third alternative, which would have been to "refresh" the car (new tires, battery, NAV update, wiper blades) and keep it another six years. That would have put him at maybe $300/month going forward. But, he wanted a newer and bigger car (G30).


The N20/N26 class action settlement probably helps N20/N26 resale, as my 8 yrs/76k miles N26 is also [email protected], which 2 yrs ago the offer was $11.5k.

My N26 is still pulling strong with minimal high pitch whine, so maybe it will last till 100k miles and beyond.


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## Andpi (Nov 23, 2020)

It's exactly what is going to happen. I mean look at all those fields that are going downhill because of the pandemic, for real though, show me a field that wasn't affected enough, besides the app development one, cause this one is going strong. Look at this top that I found 9 Best Selling Apps to Make Money Selling Stuff Online (& In Person) - I Like To Dabble with all the best selling apps and just thing how techonology is currently involved in every single domain, and how with the coronavirus pandemic it was just an opportunity to develop loads of useful apps for this situation. All the other fields have nothing to do, just to live to it and step back a bit.


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## Autoputzer (Mar 16, 2014)

namelessman said:


> The N20/N26 class action settlement probably helps N20/N26 resale, as my 8 yrs/76k miles N26 is also [email protected], which 2 yrs ago the offer was $11.5k.
> 
> My N26 is still pulling strong with minimal high pitch whine, so maybe it will last till 100k miles and beyond.


I haven't been following the N20/N26 saga closely. But, California's government mandated emission warranty (including the engine) saved a lot of Californian BMW owners.

Part of the bump in your car's value is the current used car market. A lot of people are keeping their current cars instead of trading this year, and a lot of people are buying a used car to avoid mass transit.

My beater (2007 Chevy Cobalt SS) was scheduled to be replaced with a new GM car (I get big discounts on their crap) this year. But, the lockdown-smack down put a stop to that. I've only driven about 5k miles this year. I still need a beater, since BMW vandalism is bad here in Bubbaville Beach. So, I'll replace the seven year old tires on the Cobalt next year (still with 5/32" of tread on them), and keep on for another year or two. By then, we'll either be out of Bubbaville Beach, or I'll cut back to one car (a 330i). There's enough 3's around that one would blend in better than my 535i.


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## Judy G (Jan 27, 2011)

Things are changing for sure. There is going to be a lot more people working from home at least part time. My daughter and family have downsized to 1 car for now. Her husband works at home and will be for the foreseeable future. My husband retired from his day job, but does consulting. That is another at home job. We turned in our X5 at the end of the lease, but decided 1 car is not going to work for us at this time so have a new X5 currently waiting to get processed and sent off to the dealer.If it had been the 540 that went back we may have waited a bit longer, but I drive our 2 dogs to agility training several times a week and need more space for all the stuff I haul with me. In the mean time we are a single car family. We are a bit spoiled though and another car payment is not a big deal. This car is going to be a purchase rather than a lease.Our plan is to keep it for more than 3 years.


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## dkreidel (Aug 24, 2005)

I hadn't bought a used car in, oh, 40 or 50 years...until last August. We needed a car to keep in SoCal, and as much as I wanted to order to my spec and buy new (X5M, M550xi, M850xi ) I decided to let someone else take the "Big D" hit, and bought a 20K mile CPO 440xi 6-speed lease return. We had a 2019 GMC Acadia Denali with 13K miles that was surplus, and sold it to Carmax for more than I paid for 440Xi 

It's a crazy automotive world out there kids!


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## namelessman (Dec 23, 2004)

Autoputzer said:


> I haven't been following the N20/N26 saga closely. But, California's government mandated emission warranty (including the engine) saved a lot of Californian BMW owners.
> 
> Part of the bump in your car's value is the current used car market. A lot of people are keeping their current cars instead of trading this year, and a lot of people are buying a used car to avoid mass transit.


Yes my original plan back in 2012 was to get a F30 335i 6MT(and could have skipped the N20/N26 saga), but the 15 years/150000 miles emission warranty caught my attention.

And since PZEV was same price as non-PZEV(even for same 328i N26 vs N20), it was obvious the non-PZEV buyers subsidized PZEV ones(same as MT buyers subsidized AT ones), so the choice became clear.

It is yet to be seen if BMWNA is confident enough to update PZEV emission parts list and include MY2012-2015 N26 TC and turbo actuator(those are already covered for MY2016).


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## quackbury (Dec 17, 2005)

quackbury said:


> I will throw an idea out there.
> 
> WHAT IF ... the pandemic is going to create a massive paradigm shift in the way Americans work and travel? WHAT IF ... more and more Americans work from home in the future, greatly reducing the number of miles driven for commuting? WHAT IF .... we enter a deflationary period (the projection I saw this morning was 0.5% inflation for the next 5 years!). WHAT IF .... the massive backlog of used cars and lease returns sitting on Mannheim lots goes unsold for an extended period as consumers who are driving fewer miles annually (A.) decide they really don't need to replace their car as quickly as they used to, or (B.) decide they really can get by with just one car in their 2 car garage and want to unload the other(s)? WHAT IF ... new alternatives enter the market in the next 3 to 5 years, like an entrepreneur perfecting and automated, self-driving ride hailing service that works for 10% to 70% of Americans' local travel needs?
> 
> ...


Usually I am not a fan of folks who resurrect old threads like this one. But this is actually a good lesson on why it is so hard to make accurate long-term predictions. When I made the above post a year ago, I thought the logic was impeccable. I just didn't foresee that the factories would face an extended shut down for COVID, nor did I foresee that a fire in Texas would lead to a shortage of computer chips, leading to a global logistics chain morass, and resulting pressure put on used car sales. (And who could EVER have foreseen the way our economy would bounce back so incredibly fast?)

Here's another real world example of the law of unintended consequences. I took Quack, Jr.'s 135 to the mechanic today to prepare for an upcoming HPDE. I PLANNED to take an Uber or Lyft home. Guess again. The legions of Ubers and Lyfts that patrolled out suburban town have vaporized. Hypothesis: the demographic of potential Uber drivers is making more money sitting home, collecting unemployment, and watching Ellen or Pornhub, it makes no sense for them to ferry paying passengers. Never saw that one coming; did you? 


dkreidel said:


> It's a crazy automotive world out there kids!


Preach, deacon, preach!


duremars said:


> The pandemic helped only those who had a clear plan of action for such risky situations


Completely disagree. The pandemic helped those who had the *agility *and *intestinal fortitude* to make snap decisions and stick with them. Those with "a clear plan of action" likely wouldn't have bet on FANG stocks or been agile enough to pivot quickly to the Zoom paradigm. I don't think anyone had a "plan" to have a visually presentable home office / studio, with webcams, Blue mic's and studio quality lighting ready. And even if they did, "No plan survives contact with the enemy (a quote often mis-attributed to Ike, but actually coined by Moltke the Elder).

Of course, woe is the person with neither plans nor agility to adapt, like our Northern neighbors who failed to acquire vaccines, and are now paying the consequences. Neither country had "plans", but one had agility.


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## 1968BMW2800 (Aug 13, 2016)

Quack, I liked what you said when you first put it out there a year ago and I still think it was impressive prognostication. Doesn't matter that everything isn't unfolding precisely as you suggested it might, but, rather, I appreciated (and still appreciate) the thoughtfulness of your well-constructed arguments in that April, 2020 post.


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## cloeknox (Oct 4, 2021)

I feel you duremars. The same siruation


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