# End Of Lease Returns Flooding Market



## socal59 (Oct 24, 2004)

So as we all suspected, BMW among others agave tightened up leasing because of this. I have, noticed sedan leases being more attractive than SUV's. 
http://www.latimes.com/business/autos/la-fi-hy-used-cars-20170526-story.html

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## 1968BMW2800 (Aug 13, 2016)

This is like a crack death spiral! Manufacturers will encourage purchasing over leasing but customers with trade-ins will be offered low trade-in allowances which will put pressure on dealers to find ways to decrease the acquisition costs for new and/or CPO used cars. Manufacturers will need to boost incentives and will need to offer subsidized below market financing.

Now, here's the real monster under the bed. The ACTUAL VALUE of a new car. The old saw is what a willing buyer will pay and what a willing seller will take is how true value is established.

So, we've been hooked on artificial sweetener ***8211; we've been leasing cars with $70,000 stickers for $700/month and little up front drive off cost. $700/month doesn't easily buy a $70,000 plus tax plus fees car if the customer is asked to pay real world interest rates for a reasonable length of time. And writing a big check for 70 plus thousand for a car is not usually the best use of $.

That $70,000 car, if well-maintained and if driven limited miles, is worth about $35,000 in just a few short years. That $70,000 car drops by 10 to 20% shortly after driven new off the dealer's lot. WHO IN HIS/HER RIGHT MIND WOULD BUY SOMETHING FOR 70 GRAND THAT'S GONNA BE WORTH 10 GRAND LESS IN A MONTH???

So, if leasing is discouraged, and trade-in values sink, BMW better have some very compelling reasons for customers to choose the brand in a world of too many nice cars chasing too few customers willing to pony up big bucks for a depreciating asset.


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## beware_phog (Mar 7, 2003)

I've never understood the "your car is worth % less the day you drive it off the lot?". The reason you buy a car is because you are going to drive it for 3-5 years (or longer). The price as you drive it off the lot is totally irrelevant. How many people sell there car within the first year? 2 years? The same argument could be made for a TV, a computer, a phone, etc....Why buy a new TV for a $1,000 when you can buy the same TV in a year for $600? Well, obviously, I want a TV now and not in a year.


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## ard (Jul 1, 2009)

1968BMW2800 said:


> This is like a crack death spiral! Manufacturers will encourage purchasing over leasing but customers with trade-ins will be offered low trade-in allowances which will put pressure on dealers to find ways to decrease the acquisition costs for new and/or CPO used cars. Manufacturers will need to boost incentives and will need to offer subsidized below market financing.
> 
> Now, here's the real monster under the bed. The ACTUAL VALUE of a new car. The old saw is what a willing buyer will pay and what a willing seller will take is how true value is established.
> 
> ...


Somone who will keep in 10-12 years and put 200k on it. Duh.



Otherwise I do agree with the thrust of your post.


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## 1968BMW2800 (Aug 13, 2016)

ard said:


> Somone who will keep in 10-12 years and put 200k on it. Duh.


Too true.

So, a Fester puts 20,000 miles/year on a $70,000 car. 10 years later he's got a 10 year old beater with 200K miles worth, lets say, $5,000. So his cost of ownership has been $65,000 plus maintenance, which includes a half dozen sets of tires, a few brake jobs, and, assuming nothing major took a dump, just routine upkeep (though when was the last time a modern high feature car went 200,000 miles without tranny or dif or electronics or, if driven in a somewhat spirited manner, well , let's just say 10 grand in maintenance and repairs over the 10 years, so our Fester is in the car $75,000 plus annual license and smog fees. i think it would likely be more, but let's say 10 grand. So he sinks $70,000 to buy plus $10,000 to maintain, and gets $5,000 trade-in at the end of 10 years, for $75,000 net cost of ownership, give or take a few grand.

That's not too bad, though the last 5 years the Fester is pushing around an outdated car with over 100,000 miles on it.

And let's say this Fester's neighbor leases a new Bimmer every 3 years. Never goes without the new car smell, never has a repair expense, maybe has to buy a new set of tires for each leased car, and pays maybe 3 or 4 grand more per lease cycle.

Just depends on what one seeks when it comes to cars.

Choose wisely

.


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## Eagle11 (Oct 6, 2013)

socal59 said:


> So as we all suspected, BMW among others agave tightened up leasing because of this. I have, noticed sedan leases being more attractive than SUV's.
> http://www.latimes.com/business/autos/la-fi-hy-used-cars-20170526-story.html
> 
> Sent from my iPhone using Bimmerfest mobile app


Oh yeah, I'm in this boat right now, my 320i was purchased as a BMW Select, at the end of my term, the car is supposed to be worth 14K, HA! Just had it appraised at CarMax came back at 11K right now. I know people say their cars are in excellent shape mine is, no door dings, scratches, paint in excellent condition, leather interior is perfect no wear marks, tires are a year old, brakes are good for another 14K mile according to iDrive. But my car is worth 11K... My term is up 10-2018 I'll have another 10K miles on it by then (currently as 64K) and I'm sure my car won't be worth 11K more like 8-9K. Been working with a local BMW CA to get me out of t his car, but I'm upside down 10K, hard to swallow a payment of $610/m on a 45K BMW to get out of my current car. I'd have to say that leasing is the only real way to go until the gluten of cars is over with unless you plan on keeping your car 10+ years.


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## ard (Jul 1, 2009)

1968BMW2800 said:


> Too true.
> 
> So, a Fester puts 20,000 miles/year on a $70,000 car. 10 years later he's got a 10 year old beater with 200K miles worth, lets say, $5,000. So his cost of ownership has been $65,000 plus maintenance, which includes a half dozen sets of tires, a few brake jobs, and, assuming nothing major took a dump, just routine upkeep (though when was the last time a modern high feature car went 200,000 miles without tranny or dif or electronics or, if driven in a somewhat spirited manner, well , let's just say 10 grand in maintenance and repairs over the 10 years, so our Fester is in the car $75,000 plus annual license and smog fees. i think it would likely be more, but let's say 10 grand. So he sinks $70,000 to buy plus $10,000 to maintain, and gets $5,000 trade-in at the end of 10 years, for $75,000 net cost of ownership, give or take a few grand.
> 
> ...


You forgot to lay out the Festers NEIGHBORS costs...

That $70k car still has costs, no? So he leases it and drives only 12k a year. What, he rents a car for the other 8k???? Or leases a second car???

There's that.

But let's say this lease costs him, what, 800 a month? Moving off the unsustainable 1% a month numbers. 800 X 12x10= $96k.  And again, he only gets 12k miles a year.

To get close to apples to apples, in terms of miles driven- Let's say he pays the lease overages, (and like the buyer, doenst have a non-warranty claim when he is past the 4/50)..Is it 25 cents a mile? That's 2k a year's another $20,000 over 10 years.

So 96+20= $116,000 for 10 years. Plus the occasional tires or lease end return damages...

But yes, he gets to show the neighbors he is a baller.

:angel:


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## 1968BMW2800 (Aug 13, 2016)

ard said:


> You forgot to lay out the Festers NEIGHBORS costs...
> 
> That $70k car still has costs, no? So he leases it and drives only 12k a year. What, he rents a car for the other 8k???? Or leases a second car???
> 
> ...


Okay, I have no other life so I took some time to do this:

Mr.Slick Leases:

MSRP $75,000
Sale Price $70,000
MF .00150
Residual 58%
Allowed Miles	18,000/year-3years
Sales Tax Rate 7.75%
DMV $600
Lease Fee $925
Doc Fee $ 80
Monthly Pmt $977
Drive off = DMV+Lease Fee+Doc Fee+1st Pmt= $2,692
New tires $1,200

End of 3 year cost = $38,000 + annual license renewals
End of 9 year cost = $114,000 + annual license renewals

Mr. Smart Neighbor buys and drives the wheel off:

MSRP $75,000
Sale Price $70,000
DMV $600
Doc Fee $ 80
Sales Tax $5,425
New Tires $3,600
Annual Maint @ $1,000 year for 9 years = $9,000
Loss of income on capital if paid cash @ 3%/year opportunity cost = $2,280/year = $20,500
Recoverable Equity at end of year 9, estimated at $5,000

End of 9 year cost = $104, 200 + annual license renewals and smog IF not major repairs required.

So, you***8217;re right. $10,000 opportunity cost, over 9 years, for Mr.Slick with his new every three years Bimmer, IF Mr. Smart Neighbor doesn***8217;t have major repairs and isn***8217;t totaled without GAP and is able to get 5 grand for his beater at the end of year 9, having enjoyed driving a car with high mileage for more than half of his 9 year, 160,000 mile ownership.

And, in Mr. Smart Neighbor***8217;s favor also, is that Mr. Slick may be looking at increasingly expensive replacement costs each time he goes back to re-lease and his lease money factors may climb ***8211; but then, loyalty bonuses and deeper discounts for returning again and again might offset any increases***8211; but the neighbor knows his costs for the 9 year stretch, unless his engine or tranny blows or his air conditioner dies in August.

Wanna save? Buy a Toyota for under 30 grand and drive it for 10 years and have it serviced at drive-thru lube for $29.95, get 50,000 miles from $400 per set tires, and run on regular gas.

Choose Wisely.


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## 1968BMW2800 (Aug 13, 2016)

1968BMW2800 said:


> Okay, I have no other life so I took some time to do this:
> 
> Mr.Slick Leases:
> 
> ...


Oh, but wait.... Mr. Slick takes his 70 grand and invests it at 3% annual return and, my goodness, looks like he gets the new car smell AND keeps his capital working and nets a couple grand a year on his investments. Ah, the simple beauty of capitalism and compound interest.


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## 1968BMW2800 (Aug 13, 2016)

1968BMW2800 said:


> Oh, but wait.... Mr. Slick takes his 70 grand and invests it at 3% annual return and, my goodness, looks like he gets the new car smell AND keeps his capital working and nets a couple grand a year on his investments. Ah, the simple beauty of capitalism and compound interest.


And Tommy Toyota shamelessly pushes his fancy Corolla for a decade at very low cost of ownership and retires early and richer than either Mr. Slick or Mr. Smart Neighbor, but that only works if one believes the guy who dies with the biggest bank account wins.

And what do they call the guy who dies with the biggest bank account? A corpse.


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## 1968BMW2800 (Aug 13, 2016)

Having totally hijacked this thread, I will say this, getting back to the OP. There will be some great deals on lightly used, low mileage, really nice lease returns. This could be a great opportunity for people new to the brand to experience a BMW at very manageable ownership cost. And, for Festers who understand how to evaluate and acquire the right BMW, the pickings should be quite good in the next year or two or three..

And, as has been and will forever be the case, there will always be great deals on new cars for those who know how, and are willing, to hunt them down.


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## Alpine300ZHP (Jan 31, 2007)

1968BMW2800 said:


> Too true.
> 
> So, a Fester puts 20,000 miles/year on a $70,000 car. 10 years later he's got a 10 year old beater with 200K miles worth, lets say, $5,000. So his cost of ownership has been $65,000 plus maintenance, which includes a half dozen sets of tires, a few brake jobs, and, assuming nothing major took a dump, just routine upkeep (though when was the last time a modern high feature car went 200,000 miles without tranny or dif or electronics or, if driven in a somewhat spirited manner, well , let's just say 10 grand in maintenance and repairs over the 10 years, so our Fester is in the car $75,000 plus annual license and smog fees. i think it would likely be more, but let's say 10 grand. So he sinks $70,000 to buy plus $10,000 to maintain, and gets $5,000 trade-in at the end of 10 years, for $75,000 net cost of ownership, give or take a few grand.
> 
> ...


Good points. And exactly why I no longer buy cars and I only lease. IMHO, buying only makes sense if you don't drive many miles or if you are buying a car with a purchase price under 30k.

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## socal59 (Oct 24, 2004)

1968BMW2800 said:


> And Tommy Toyota shamelessly pushes his fancy Corolla for a decade at very low cost of ownership and retires early and richer than either Mr. Slick or Mr. Smart Neighbor, but that only works if one believes the guy who dies with the biggest bank account wins.
> 
> And what do they call the guy who dies with the biggest bank account? A corpse.


Or maybe Mr. Slick(er) buys a Lexus GS for $50k drives the heck out of it and leases something like Boxter or Z4 to have fun in. Or perhaps just buys the Boxter or Z4? So many choices, wisely or not.

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## 1968BMW2800 (Aug 13, 2016)

socal59 said:


> So many choices, wisely or not.
> Sent from my iPhone using Bimmerfest mobile app


EXACTLY!!

In any transaction, car purchase, home purchase, or even a mattress purchase, _it is always a conspiracy against the person who brings the money to the deal _-- the game is to make the buyer feel as dis-empowered as possible without pushing that potential buyer out of doing the deal.

It is wise to always remember that we have choices. And with all these lease returns coming in, dealers will be doing all they can to distract buyers from understanding just how many cars are chasing after their wallets.

And wiser to remember that business is where a person with money meets a person with experience. The person with the money gains experience, and the person with experience gains the money


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## Der_Kommissar (Aug 16, 2016)

1968BMW2800 said:


> Having totally hijacked this thread, I will say this, getting back to the OP. There will be some great deals on lightly used, low mileage, really nice lease returns. This could be a great opportunity for people new to the brand to experience a BMW at very manageable ownership cost. And, for Festers who understand how to evaluate and acquire the right BMW, the pickings should be quite good in the next year or two or three..
> 
> And, as has been and will forever be the case, there will always be great deals on new cars for those who know how, and are willing, to hunt them down.


Now, I figured this has been BMWs plan all long, to basically sell every car twice- once as a lease, and a second time as a CPO. To see them back off of the leasing part suggests they either got the economics wrong or they got cold feet in a market where sedans are struggling. Either way, just as leases are getting worse, the same will happen to the CPO market in a few years. A market accustomed to buying a CPO 328-330 in the 24k range is not going to move up into the 30k's easily.


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## HPIA4v2 (Mar 30, 2006)

I don't pretend I know what BMW marketing strategy was or is, but selling more cars always more profitable than selling fewer cars.

To me lease is the future of car buying, though I never lease myself:bigpimp:
It makes luxury car more less affordable and put the lesse on the rope once the lease is up, unless he/she wants to take the bus next. But now the cost of lease returns with depress used car price put a dent on that policy

Corporate always have to balance their short term goals and long term goals


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## jjrandorin (May 8, 2013)

HPIA4v2 said:


> I don't pretend I know what BMW marketing strategy was or is, *but selling more cars always more profitable than selling fewer cars.
> *
> To me lease is the future of car buying, though I never lease myself:bigpimp:
> It makes luxury car more less affordable and put the lesse on the rope once the lease is up, unless he/she wants to take the bus next. But now the cost of lease returns with depress used car price put a dent on that policy
> ...


Its not that simple. I am not an economics major, but anyone could see that selling 5 cars and making 3k per car would be more profitable than selling 10 cars and making 300 per car.

Selling "more" doesnt necessarily equal profit. Look at porsche for example. High margins, etc but certainly not a volume leader.


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## socal59 (Oct 24, 2004)

jjrandorin said:


> Its not that simple. I am not an economics major, but anyone could see that selling 5 cars and making 3k per car would be more profitable than selling 10 cars and making 300 per car.
> 
> Selling "more" doesnt necessarily equal profit. Look at porsche for example. High margins, etc but certainly not a volume leader.


But Porsche, infrastructure is not set up like BMW's, they are set up to sell lower numbers of units. BMW has invested and been already structured to sell higher number of vehicles. Unless they want to cut back and lay off employees at the factory and close dealers, to get where Porsche sales are they are stuck where they are. From an optics point of view, that may not look good. I think BMW will see their sales go down, reality will hit and they will have to beef up lease sales again. The same thing happened about 10 years ago, headlines in the LA Times read, "BMW and others inflate residuals" and get stuck at lease end. Well, that didn't last long and good deals flowed like water.


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## Autoputzer (Mar 16, 2014)

1968BMW2800 said:


> Oh, but wait.... Mr. Slick takes his 70 grand and invests it at 3% annual return and, my goodness, looks like he gets the new car smell AND keeps his capital working and nets a couple grand a year on his investments. Ah, the simple beauty of capitalism and compound interest.


Let me guess, you lease.

People who lease love to throw in opportunity costs when doing their lease vs. buy analysis. The application of opportunity cost is where your analysis goes south in a big way.

Opportunity cost should only be applied to the average depreciated book value of the car in any particular year. You charged opportunity cost on the purchase price over the entire service life of the car.

I track the costs of operating my vehicles. I look up the KBB value of my cars on the anniversaries of their purchases. This give me a realistic of what the depreciation has been in each year. Some cars are better than others. But, a good rule of thumb is 25% the first year; 20% the years they go out of warranty, become seven model years old, and go over 100k miles; and 15% the remaining years. Luxury cars have higher deprecation. Pick-up trucks and Japanese econo-boxes have lower depreciation.

Here is the actual cost data and projected cost data for my 2014 535i. The F10's depreciate more than average (as do most non-M large BMW's), and my car is highly optioned: $17k of options on top of the $55k base MSRP. An important metric is MDI&P (Maintenance, Depreciation, Interest (opportunity cost and loan interest), and property tax (which can be significant in some states and localities).

For the first three years and 37.5k miles, my MDI&P has been $1.18/mile. I own my car. If it was only going to keep a car three years, yeah, leasing would be a no-brainer. The lease vs. buy curves generally cross (are equal) somewhere between four and five years. But, after tracking my costs over decades, I've learned to keep cars to roughly 100k miles. My overage for a car bought new is currently 108k miles.

For my projections, I'm budgeting $2k/year in maintenance and repair costs in the out years (fifth through eighth years). That's more than I spent on my previous BMW which I kept to 115k miles and twelve years. Using these assumptions, my MDI&P in those out years (fifth through eighth) is less than half what it will be in the first four years, ~$0.50/mile vs. about $1.10/mile for the first four years.

One of the serial leasers in a 3 Series board threw in a opportunity cost of 9% when he was demonstrating to all of us how smart he is for leasing. If he can consistently make 9% after-tax return in his investments, congratulations to him. But, that doesn't mean that his opportunity cost rate is 9%. If I dialed up my opportunity cost rate from 1.5% to 9.0% in my analysis, yeah, leasing is cheaper than buying a car and keeping it eight years. If I was making 9%* after taxes *on *all* my investments I'd still buy a car. But I'd go get a 4.5% eight year car loan. I wouldn't have one penny of equity in the car, which means no opportunity costs, until the sixth year.


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## 1968BMW2800 (Aug 13, 2016)

Autoputzer said:


> Let me guess, you lease.
> 
> People who lease love to throw in opportunity costs when doing their lease vs. buy analysis. The application of opportunity cost is where your analysis goes south in a big way.
> 
> ...


Great analysis.

I've done it all the ways -- driven the wheels off a car for over a decade, done 2-year leases and 3-year leases, bought near-new CPO's. Turns out the cheapest thing I ever did was buy a brand new $1,600 Toyota when I was 18 years old, which I drove for about 11 years and a quarter of a million miles with very low repair/maintenance costs. I did not learn from that great experience.

Instead I discovered I like nice cars -- cars with soul and personality and beauty and performance and, and, and, I pay.

Without a doubt, the low mileage, near new CPO lease return I purchased for a fraction of the MSRP that came with scheduled maintenance was a great value. I traded it in just prior to the expiration of the warranty period, got excellent trade in valuation, and didn't put a dime into repairs or tires or brakes -- but all of those expenses were coming soon and became the responsibility of someone else.

Each person's situation is unique, and circumstances evolve as one moves through life. I have found that leasing is a low hassle way to enjoy the new car smell. It's not always the cheapest way to own a car. But yes, I keep my capital working productively elsewhere, which offsets the opportunity costs of leasing -- and, I guess I'm the kind of guy that enjoys arm wrestling with car dealers every two or three years to get the right deal on the next new, new thing I want to put in my garage.


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