By on August 1, 2011

Polk’s Tom Libby takes a penetrating look into the obvious and reveals that American luxury car buyers rarely actually buy their cars, reporting:

Industry-wide, leases comprise about a fifth of all new vehicle registrations, but within the luxury market, lease penetration is more than twice as high at 45%. Three premium makes: BMW, Infiniti and Mercedes-Benz, actually have national lease rates at or above 50%…

These extraordinarily high lease results lead to several conclusions. First, the price of the vehicle is not the be-all and end-all. Rather, the monthly lease payment is a crucial factor. The monthly payment is not completely linked to the price, as the OEM and dealer have several tools by which to manipulate the monthly payment; these include, among other things, artificially raising the forecasted residual amount and increasing/decreasing the up-front lease payment. Second, if your premium make is not in the leasing business, you need to get there right away. Lastly, your lease rates, residuals and drive-away costs need to be competitive.

While there’s a lesson about America’s ceaseless desire to live beyond its means in there somewhere, the real lesson here is this: with sales coming out tomorrow, be sure to remember that not all of them are actual sales. Also, this is the reason you never see those “Don’t Laugh, It’s Paid Off” stickers anymore…

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108 Comments on “Shocker: 45% Of Premium-Brand “Buyers” Actually Lease...”


  • avatar
    PintoFan

    Color me unsurprised. Not many people can afford bloated German marque prices, especially not when the quality of many of the products is decidedly questionable. And even those with the money aren’t willing to spend it on a car that will lose 90% of its value in five years.

    • 0 avatar
      jcap

      Premium Brands are extremely profitable.
      Buyers with the Money to buy a new Premium Car will want to drive the current Model, so they will want to upgrade after a few years.
      Leasing makes a lot of sense for them.

      Certified pre owned Programs are doing very well as a result.

      So, Premium Makes sell their Cars twice, first they lease it, then they sell it as a Certified pre owned to someone who wants to drive it into the ground.

    • 0 avatar

      They had a special offer for S-classes last month.

      Put down just $18,000 and you get the 2011 for just $1300 a month. That’s the cheapest I’ve ever seen it because usually it’s $10,000 down and $1600 a month.

  • avatar
    roamer

    Not shocking. Who on TTAC would want to own a 7-series or S-class for one day after the warranty expired?

    The people who can afford these vehicles aren’t stupid. They’ve made the decision to trade a constant monthly payment in exchange for a new car every two or three years which is fully covered. Even if the vehicle is a hangar queen, that only means that they’ll be driving the dealership’s high-end loaner vehicle more than usual.

    • 0 avatar
      highdesertcat

      And it has gotten to the point that no matter what brand you buy the problems always seem to start right after the warranty period expires. Luxury brands are no different than the lower brands. They all break down at some point – some sooner than others. Lease and rental vehicles are often flogged and abused. Anyone that buys them should keep in mind caveat emptor.

      What I have noticed is that many people who can, actually buy their vehicles outright and then trade them right before the warranty expires. Sorta like leasing from yourself. I don’t drive luxury but that has worked for me – keep’m for 3-5 years and then trade them for a new one. You still eat the depreciation, but there are no finance charges to digest.

      A lot more people these days are resigned to not owning their car and are willing to lease their ride instead of buying it, completely bypassing out of pocket expenses for repairs.

      If you can lease a Corolla, for instance, with no money down and $179 a month for 30 months, why wouldn’t you? Cheaper than buying. This may just work for many people. Not just luxury buyers. Similar deals for midsize and larger vehicles for the masses.

      • 0 avatar
        aristurtle

        Auto manufacturers, at one time, were run by engineers who took pride in their work. Every automaker that’s ever had any amount of success had this point in its history. Eventually, though, a bunch of people take charge who see “the vehicle lasts longer than the warranty period” as a “problem” to be “solved”.

        This changeover just happens to have hit BMW and Mercedes earlier than it hit Toyota and Honda, that’s all.

      • 0 avatar
        highdesertcat

        aristurtle, right you are and the automakers have been highly successful in solving that ‘problem’. Make no mistake, all the transplants have gone downhill when they started making them in the US and using the same part suppliers that supply the domestics.

        OTOH, the domestics have seen major quality improvements when they moved production to Mexico! Mazda took the hint, and is moving their production to Mexico as well.

  • avatar
    PlentyofCars

    I don’t think it has anything to do with living beyond your means.

    People rent luxury apartments with lots of services don’t they?

    It is all about a fixed cost for a nice car, with no surprises.

    Pay your monthly fee, and when the term ends, just get the a new one with all the latest gadgets. No hassles.

    They are fully warranted, so just oil changes. In the case of BMWs, no maintenance cost.

    For business people, this is definitely the way to go.

    • 0 avatar
      hreardon

      Actually, I think I agree with much of what PlentyofCars says here. Lots of people pay for managed services of many different types and they do it so they have a consistent, budgetable amount that rarely deviates much, if at all.

      We can debate all we want as to whether it makes financial sense to buy versus lease – but especially on the luxury end, where maintenance costs can be exorbitant and one major malfunction the price of a Kia, it’s not that big of a deal.

    • 0 avatar
      DenverMike

      We’re talking about Americans here. Remember the ‘Housing Bubble’? People that can truely afford luxury German cars pay cash… in which case they don’t! They pay cash for Fords/Toyotas instead. I know, I’m one of them. I’m far from rich but I know the value of ‘money’. Learned it from the rich people I’ve known. They mostly drive newer regular cars & pickups although fully loaded like KingRanch etc. Show me a Yuppie that lives within his/her means?

      • 0 avatar
        jmo

        People that can truely afford luxury German cars pay cash…

        That’s not the case at all – the key to wealth is to own a equity stake in a privately held business. If you are in such a position it’s highly likely that you can lease a vehicle through the business and realize some significant tax savings.

        To say “People that can truely afford luxury German cars pay cash” is just not accurate.

      • 0 avatar
        Sam P

        “If you are in such a position it’s highly likely that you can lease a vehicle through the business and realize some significant tax savings.”

        Only if you use said vehicle for business purposes – for personal use, you technically can’t deduct payments you make toward a leased vehicle.

        http://www.irs.gov/publications/p463/ch04.html#en_US_2010_publink100034045

      • 0 avatar

        Why wouldn’t you lease or finance if you were rich? Lets say you had the money to buy a 7 series in cash. You can let that money sit in a very conservative investment and earn 7% a year (no problem) and pay a fairly low APR on a lease or finance rate. No matter what car you get, for most people you can do better at the end of the term by financing or leasing as long as you are properly managing your money otherwise.

        Rates are so cheap right now its silly not to. Its essentially free money.

      • 0 avatar
        mike978

        Paul – tell me where you can get 7% return on a conservative investment?

      • 0 avatar

        Municipal bonds (and those are tax free!). Franklin Total Return is another great example. It has been weak this year and is still around 6%.

      • 0 avatar
        MikeAR

        There is no such thing as a safe 7% return now. Muni bonds are a disaster waiting to happen (read up on them and the rating agencies and Google Meredith Whitney). Also your 7% return is tax equivalent return not actual return. It is what the yield would be if you had to pay taxes on that yield. The actual return is more like 4% or less.

    • 0 avatar
      eldard

      That’s the thing. They don’t know they’re living beyond their means.

      • 0 avatar
        vbofw

        MikeAR, your posts have always suggested you’re too smart to believe in the Meredith Whitney spin machine. Her call of “multiple” state defaults this year looks more and more ridiculous each passing day, and that is even with an uglier macro backdrop than most imagined entering the year.

  • avatar
    Pch101

    the monthly lease payment is a crucial factor. The monthly payment is not completely linked to the price, as the OEM and dealer have several tools by which to manipulate the monthly payment

    Substitute “lease” with “loan”, and this would also be accurate.

    • 0 avatar
      stuki

      In most non lease loan contracts, the lender does not exert much control over the collateral’s residual value at the end of term.

      Look at current 24 month residuals for the BMW Z4 for an example of a top 3 leased make sacrificing nominal earnings in favor of moving inventory or production concerns.

  • avatar
    mike978

    I was surprised that Lexus was around 40% and Infiniti was “leading” with near 60%. I had thought the Germans would have the highest lease rates and yet Audi is towards the bottom. Cadillac is also doing OK and holding its own.
    Interesting that more people (as a %) are buying a CTS than buy a IS or A4 – all of which easily beat the others in the compact market.
    I wonder why Audi is doing much better than BMW and Mercedes – maybe because their volume is a lot less?

    • 0 avatar
      carlisimo

      Aren’t Audi’s resale values relatively low, which makes their lease rates expensive?

      As for Lexus, a lot of them are bought by people who were happy about their old Toyotas’ reliability. There’s little fear that the car will be expensive out of warranty, or hard to sell.

      • 0 avatar
        hreardon

        Two reasons, actually, carlisimo: one, yes, the resale values are lower than the comparable BMW or Merc; but more importantly is two: Audi does not heavily subsidize its leases. Audi of America has made no bones about the fact that they want organic, profit-driven growth and have little interest in building volume at the expense of profitability.

        It’s a prudent, slow-growth approach and one of the reasons for the slow A3 sales. Dealers have been screaming for Audi to put cash into A3 leases, but Audi refused. Sales only picked up in the last two years with the simplification of the product line and the introduction of the TDI which has made the A3 an MSRP profit center for dealers and a marginally profitable product for AoA after several years of struggling with packaging. What’s selling it? Solid, organic demand for diesel along with a relatively limited supply.

  • avatar
    AJ

    I’m not surprised as whenever I see a guy driving an older Mercedes or BMW, etc., he just looks like he use to be a big shot but no longer is. Gotta pay to play…

    • 0 avatar
      hreardon

      AJ -

      I’m not sure if you meant that tongue-in-cheek or not.

      In my neck of the woods it’s very common to see older Bimmers, Mercs and especially Audi and Volvo wagons being driven by the millionaire-next-door blue bloods that keep their showmanship in check and their money in their wallets.

      When I see younger guys driving newer Mercs, Bimmers, Audis and Jags I wonder, “how deep in debt are they to afford that?”

    • 0 avatar

      I know a few people driving an out of warranty lux car, one of them did not drive his Lexus RX at night because one of the headlights needed replacement, $1800 at the dealer.
      I knew the lease rate is high but could not imagine it was that high, I just wonder what the the rest (the buyers) are doing when the warranty is over?

  • avatar
    John Horner

    There is nothing “shocking” about the fact that many of the people who drive off in brand new luxury brand vehicles use lease financing instead of purchase financing. These buyers are generally those who want a new fancy car every so many years, and leasing turns depreciation (which is huge on luxury cars) from a guessing game into a certainty for the buyer/lessor. Also, a goodly number of these drivers have their business paying the lease. Dr. Moneybags probably never drives anything more than three years, and Dr. Moneybags LLC (or whatever his or her practice is named) probably simply pays the monthly lease.

    If I were of a mind to get myself a shiny new $50k+ vehicle every 2-5 years then I would lease. I don’t think that way, so I don’t lease. But, that doesn’t mean that there is anything wrong with those who have the means and desire to do so to plunk down their bucks on a lease.

    In other news, buyers of >$1M homes generally finance and don’t every actually expect to pay off their mortgage! If home purchasing wasn’t perversely tax advantages compared to home leasing, we would see a lot more homes being rented out on medium to long term leases and fewer being “purchased”.

    The actual distinction between buying something using a loan and leasing that same item is more of an accounting fiction than it is a practical reality.

    • 0 avatar
      50fordbob

      My son bought a CPO 5 series wagon for the price of a new Camry. It had new tires and extended warrenty. Now the question is how long to keep it.

    • 0 avatar
      PlentyofCars

      Agree. I know people with million dollar homes with million dollar mortgages. You cannot do it today, but they spent the past 20 years refinancing 3 year ARMs to keep getting the low teaser rate. The interest savings was many times the refinance costs.

      One never paid more than 3% when 30 year rates were 6-8%. That is a lot of dough on multi million plus jumbo.

    • 0 avatar
      jmo

      Dr. Moneybags probably never drives anything more than three years, and Dr. Moneybags LLC (or whatever his or her practice is named) probably simply pays the monthly lease.

      I would add to that Mr. Moneybags, C.P.A., Mr. Moneybags, esq. Mr. Moneybags of Moneybags + Partners etc. in an LLC or S Corp one can usually realize some significant tax savings by leasing.

      • 0 avatar
        DenverMike

        @jmo

        There’s more that one way of acquiring greater wealth. Having a privately held business is one of them. I learned the hard way that it’s not just about the cash register receipts but mostly what’s left over once the ‘dust’ settles. Since then I’ve owned everything outright. Equipment, realestate, right down to the copier ink. Run my household no different including autos. Drove some real beaters early on & now that I can finally afford luxury cars, I see them for what they really are. If I feel differently later on, I’ll pay cash and never look back. Tax writeoffs be damned!

      • 0 avatar
        jmo

        Tax writeoffs be damned!

        What sense does that make? Why not just go with the cheapest option?

        Sometimes it’s buying new, sometimes it’s buying used, sometimes it’s leasing. It all depends on the deal and your particular situation. Why make blanket statements when each particular situation is different?

      • 0 avatar
        DenverMike

        @jmo

        Tax breaks give you some of your moneys back but you’re also paying full price on your lease. I’m paying way under list depending on model, plus carrying pure liability insurance. Sure that’s a risk but then you manage it by how you drive, park & so forth but bottomline, why rent money?

      • 0 avatar
        jmo

        I’m paying way under list depending on model

        Yeh, and you can get a highly subsidized lease. You can’t tell me Nissan isn’t taking a bath on $299 0 down G25 leases.

        Why this fixation on any one option being the best, when it totally depends on the situation?

        why rent money?

        Because money invested in your business is generating a ROI higher than the money factor offered by the manufacturer?

      • 0 avatar
        DenverMike

        When cutting a check for a new Tahoe or F-150 in one lump sum was a big deal & would have compromised ability to invest in other worthwhile ventures, I kept driving the beater. Today it’s not an ‘either or’ proposition.

      • 0 avatar
        jmo

        Today it’s not an ‘either or’ proposition.

        It’s always either or….

  • avatar
    morbo

    I used to be firmly in the always buy camp. Then when interacting with a woman whom had never driven and was just learning to drive in her 30′s (a scary enough proposition), I realized her vehicle options in her price range ($150 – $250 monthly) would be a used Camcordima purchased or leasing a new Sentra / Lancer / Elantra. Given someone whom has never dealt with vehicles and trying to explain all the things that could go wrong, how to interact with repair shops, what to do when her car dies at 2AM on a dark country road. Versus leasing a car fully under warranty and just calling an 800 number. Leasing was easily the way to go.

  • avatar
    ihatetrees

    Luxury and peace of mind cost.

    I’d consider a lease on a 2-3 year old CPO Infinty G35 or 3 series. And after, I’d consider buying the vehicle if the car, the price, and the dealer were good to me…

  • avatar
    seth1065

    Only problem with leasing is the mileage amount and the fact you always have a payment :) is to low for sales people so they get way over their head and have to find a buyer to take the car with the miles or re lease and never get out of it, but that is the what you get for keeping with the Jones.

  • avatar
    Lokki

    I’m a 3-series leaser, who used to be a 3-series buyer. As PlentyofCars says above it’s not so much about the money per se as the convenience of leasing vs. buying.

    I don’t have any of my money tied up in the car and I don’t have any responsibility beyond putting gas in it. Everything else (except tires) is covered. If the car requires service, it (of its own accord) calls the dealer who calls me and tells me to bring it in for service. Since it costs me nothing, I don’t care. I drop it off, they hand me the keys to another one and a few hours later we trade back.

    Frankly, I don’t want to own a 3 series again that’s out of warranty. The reliability isn’t that good (although a CPO warranty can take care of that) and the maintenance is high – for example when you do the brakes every 25K miles, you also have to replace all the rotors). So, the car would be going away in 4 years anyhow and then I’d have to haggle about what it’s worth. Under the lease, I don’t even have to think about any of that.

    Honestly, I feel a little guilty sometime as my financial adviser says that smart people buy rather than lease but the difference in expenditure really doesn’t impact me enough to counter the convenience.

    So, I’d be driving a 3 series and getting a new one every 3 or 4 years anyhow….

    I think I’m pretty typical… or if not “typical” at least a common type.

    • 0 avatar
      FromaBuick6

      Don’t get me wrong, because I’ve toyed with leasing a 3 before. But it’s really sad that these cars are such a terrible value from a financial standpoint, that it makes more sense to lease. They’re too expensive new, the depreciation sucks, and they just aren’t reliable.

      So basically the only reason to have one is so you can tell everyone how great your BMW is to drive. Sad, really. No wonder everyone’s broke these days.

      But, again, I’m not totally above buying or leasing one at some point.

      • 0 avatar
        jmo

        So basically the only reason to have one is so you can tell everyone how great your BMW is to drive.

        Or do just have a car that you enjoy. It would all depend on what else you could be spending your disposable income on that would bring you more enjoyment.

        Some people spend their disposable income on travel or eating out or wine or wiskey or elaborate home improvement projects – no reason why some people can’t spend their money on a car they enjoy. It’s no more a waste of money than anything else people spend money on.

    • 0 avatar
      mike978

      I was a 3 series leaser and had no issues during my 3 years, 40,000 miles with it. I didn`t buy it because my wife had twins during the lease period and the BMW is many things but not really a people carrier! Otherwise I would have taken them up on the purchase option.

  • avatar
    Robert Schwartz

    The Germans don’t build keepers anymore. You go new every 2 with your cellphone because you know that in 2 years it will be obsolete and broken. New German cars are the same thing.

    • 0 avatar
      highdesertcat

      It’s pretty much the same story with all the brands these days, not just the luxury brands. I know that all brands are much better today than 20, 30 years ago but they are also much more complex and require a lot more attention to keep things running right. Put in cheap gas and watch what happens.

      A friend with an RX350 had problems with irregular idle, surging and starting. Another friend with a Grand Cherokee had transmission problems and really bad gas mileage. A neighbor finally got rid of her Aspen because of all the nit-noy problems she experienced. And then there are all the recalls.

      It isn’t just the Germans who don’t build keepers anymore. I’m just lucky I haven’t had any problems with our two cars yet, but it would not surprise me if we do. And if something breaks after the warranty expires you are in deep financial doo-doo.

      • 0 avatar
        jmo

        require a lot more attention to keep things running right

        Um… no they don’t. You obviously are too young to remember the good old days of carburetors and distributors and any number of other balky mechanical components. You do know that within living memory it was a miracle if a car made it to 100k miles.

      • 0 avatar
        Sam P

        “I know that all brands are much better today than 20, 30 years ago but they are also much more complex and require a lot more attention to keep things running right.”

        Exactly. You can’t run a BMW 335i or Audi S4 like you would a 1990 Accord. They require a lot more attention than fresh oil every 3k-5k miles and a timing belt once in a while. Especially if you own one beyond the warranty period.

        Don’t believe me? Check out some marque specific forums…

      • 0 avatar
        highdesertcat

        jmo, I am 64 years of age, soon to be 65. I have toiled on cars all my life and been the mechanic for drag racing teams at Riverside Raceway during my youth.

        New cars these days are finicky, not in the same way that they were 20, 30 years ago. If points needed adjusting or went bad in old cars there were so many work-arounds that you could do right on the highway, but if the ECU goes bad or gets faulty sensor input on a new car you’re SOL. And that happens.

        Most carburetors could be taken apart with a screwdriver and the floats and butterfly-valves adjusted so you could at least get home. You could even time your engine by plugging the vacuum hoses and using a strobe and box-end wrench, so you could get home. There wasn’t much that couldn’t be fixed on the side of the road, and many of us have been there and done that.

        EGR and emission regulation have all but done away with the do-it-yourselver hot rod artist. Try putting cheap gas in your ride. See what happens. Want to alter your performance envelope? Buy a EEPROM chip! Not something that you can do on the side of the road.

        And yes, I grew up in the days of planned obsolescence and I remember my dad having to buy a new car every two years. When I was young and could least afford it I found that my domestic-brand cars let me down a lot, and I fixed them, because I had to.

        But without special tools, test/diagnostic equipment for the new cars, I would be hard-pressed to identify problems with an oxygen sensor, throttle-position sensor, throttle-body vacuum sensor or faulty fuel-injection fuel-flow pressure-limiting by-pass valve.

        And when it comes to timing or shaping the performance envelope? Forgettaboutit! You need a laptop and an EEPROM in place of the EMC. Things have changed.

      • 0 avatar
        jmo

        I grew up in the days of planned obsolescence and I remember my dad having to buy a new car every two years.

        OK…. then I’m not really understanding your point…. other than cars used to break down a lot more and didn’t last nearly as long but you could sometimes fix them?

        At 64 I’m sure you remember when cars would come from the factory already starting to rust…. what was so great about the old days again….?

      • 0 avatar
        highdesertcat

        jmo, my point was that things have changed from what they were in the 80s and 90s.

        There was a time when the foreign brands were much better than the domestic brands, like in the 80s, 90s. Now the domestics have made enormous improvement in their vehicles to where they are at the same level that the foreigners were in the 80′s and 90s.

        But at the same time all car makers seem to be sliding back on reliability and durability, which is evident in more and more recalls for all brands. The feds mandated much of the improvements that we see in the domestics but the foreigners have also driven the domestics to adopt many of their QC standards and material specifications.

        The consumers should be the big winners, but more are finding that what is on the market now is not a keeper. That’s why so many people lease them instead of buy them. Or they buy them outright and trade them after 3-5 years.

        I am planning to trade my vehicles after 3-5 years, and they haven’t given me any problems (yet). If they do, out they go.

      • 0 avatar
        jmo

        But at the same time all car makers seem to be sliding back on reliability and durability

        The 80s? Do you not recall the 80s? If you live in snow country it was still the heyday of the 4 year old rust bucket.

      • 0 avatar
        highdesertcat

        I don’t know how you feel about Sault Ste Marie but all cars there were rust buckets within two years, even with Ziebart undercoating.

        My Olds Custom Cruiser got nasty and had to have the gas tank and the lower rear quarter panels replaced with welded on sheet metal, all within two years. Air Force guys driving Volvo had the same problems. It wasn’t limited to any brand.

      • 0 avatar
        jmo

        I don’t know how you feel about Sault Ste Marie but all cars there were rust buckets within two years, even with Ziebart undercoating.

        So then you agree that cars are much more durable and reliable than they used to be?

      • 0 avatar
        Toad

        I have never understood admitting that older cars were terribly unreliable but seeing a virtue in the idea that at least you could fix them yourself (frequently). Maybe some people value self-sufficiency over vastly improved reliability.

        Sure pre-1990 cars guzzled fuel, polluted like hell, had low power to fuel use ratios, had garbage interiors, rode like a waterbed or skateboard (depending on model), had hit or miss brakes, and almost no safety protection…BUT at least you can change the distributor points on the side of the road and/or spend your Saturday rebuilding the carburetor in the driveway. I don’t get it…

      • 0 avatar
        highdesertcat

        jmo, second line of my first post in this thread.

        Toad, when newer cars break down, it often requires professional help in most cases to repair them, at a significant cost, unless the vehicle is still under warranty.

        When I was young and didn’t have any money to spare ’til the end of each month I had to be self-sufficient, and I valued the relative ease with which I was able to repair my own cars much of the time. I was in the Air Force then and moved often. I had several breakdowns while on the highway with a U-Haul in tow. Pretty scary when you have the wife and babies along.

        Were my Tundra or my wife’s Highlander to break down, there is very little I can do at home or on the road to get it going again, since most of the failures involve sensors and electronics. And they do break down. The dreaded “Check Engine” light should not be ignored, but many people do.

        Over the years I have picked up several people on US70 in the middle of the desert between White Sands Missile Range and the National Monument. Not a fun thing to have happen. It happens even more often on US54 between El Paso and where I live. Several people told me, “Yeah, the Check Engine light came on several times, but it went off again…”. That’s why they were sitting in the passenger seat of my truck.

      • 0 avatar
        George B

        It’s rare for a somewhat maintained not severely abused car to just die today. The check engine light may come on and it might cost a small fortune to pass emissions inspection, but cars rarely leave you stranded like they used to. Reading OBDII codes is cheap, free at AutoZone, and a quick Google search will give clues to what the code means. In addition, aftermarket and junkyard parts are fairly easy to come by for high volume cars.

        Part of what makes luxury cars expensive to maintain is they are low volume cars with much more limited options for cheap parts. Exclusivity is expensive.

        A major exception to cars getting better vs. time is Toyota and Honda seem to be squeezing cost out of formerly overbuilt models. The new ones easily outlast the warranty, but they’re not overbuilt to last twice as long as their improved competition.

      • 0 avatar
        highdesertcat

        George B, when my brothers take in a car that’s out of warranty at their dealerships, they have one of their maintenance people go over it with a checklist, and slap on a sticker that says “AS IS – NO WARRANTY”.

        While the foreign brands were pretty darn good in the past when they were imported, they started on a downhill slide when they started making them in America and using the same part suppliers that supply the domestic brands. Mercedes, BMW, Toyondasan, all of them have gone downhill in quality.

        They all need to take a cue from Mazda, and pack up their plants and move them to Mexico. It did wonders for the quality and profitability of the domestic manufacturers.

  • avatar
    MrIncognito

    I leased my A4 after some quick math showed that leasing the car and then buying it off lease was actually cheaper than financing. Plus, I get to test drive it for 3 years and dump it if I decide to go a different way. Of course, it helped that I found a dealer with an A4 with a 6-speed manual trans. and an inch of dust on his lot.

    As a nice aside, I could sell my old Honda and pocket the entire private party value of a well-maintained, reliable car with no tax penalty.

  • avatar
    lilpoindexter

    A really beautiful chick at work was talking to me about her leased IS250, how fast and luxurious it was, etc…She asked which car I drove, and when I said “the banged up ’99 protege with the peeling clearcoat” her face suddenly looked like she had bad gas from an undercooked microwaveable burrito…I thought the recession was supposed to make tight wads like me fashionable!?

    • 0 avatar
      jmo

      Well, what are you spending the money on instead?

      • 0 avatar
        FromaBuick6

        I know it sounds crazy, but some people actually save their money, for houses, their children’s educations, retirement, or one of those curveballs that life tends to throw at you when you least expect it.

      • 0 avatar
        jmo

        for houses

        No better investment than that!

        That said, from your argument I take it that you spend nothing that isn’t 100% required for you to continue living. No AC, no cable, no eating out, no vacations, nothing. Or, do you spend some money on extras – just not cars?

    • 0 avatar
      Steven02

      LOL, and IS250 is fast… LOL

    • 0 avatar
      Sam P

      That IS250 gal will get a wakeup call when she finds out she has no retirement savings.

      • 0 avatar
        tekdemon

        Who knows, maybe her plan as a really beautiful chick is to have someone else take care of that.
        But seriously guys, just because it’s cheaper to buy a beater doesn’t mean everyone has to do it. If you have all well off friends and co-workers you’ll feel kinda weird pulling into the parking lot if everyone else is driving their stupid leased E class and you’re the only one driving a beater. Though, I will say that I had a pretty good laugh when I saw someone pulling into work in a lowered E-class with dubs who took like 10 minutes going over the speed bumps while I drive right past him in my old car.

  • avatar

    An article by Capt.Obvious. Thanks.

    Its all about the tax code. The same reason you see over 6000 lb GVWR trucks with nav and leather and moveable pedals with power hatch closing for mom.

    You can’t deduct much of a car, about $3k per year if memory serves. This lets the power company buy Aveos and write them off, but if you want more than basic, basic transportation, you have to lease the car for the write off, or if you buy, you have to buy the huge truck (I’m unhappy my MDX had a GVWR of 5900 lbs. This has been “fixed” on the new ones,so they are deductible on a purchase.)

    Any business owner, no matter the subject, quickly realizes there are pre and post tax dollars, and keeps strict count of each one. Pre tax dollars are “worth” 35% to 50% more than post tax dollars, so consider a write off through a business is effectively that much “less” than buying the car with W2 income.

    The system works against you buying, unless, again, you get that Escalalde/Range Rover/X5/Cayenne. Also, at some level, you are so busy that the cost of the car is less than the cost of having to mess with it and keep it running-give it to the dealer to fix and get that loaner…and go back to work.

    I am amazed that the TAX CODE pushes luxury car buyers into a truck way bigger and less efficient than anyone needs.

  • avatar
    phreshone

    Let’s see: Implied lease financing rate 0%-2% on luxury car (with high residual)— current dividend yield on many municipal bond funds >7% tax free…. if you have money and credit… you still lease…

    • 0 avatar
      Alexdi

      This, and you’ve got more leeway to push down the MSRP in the lease contract than you would buying the car outright. It doesn’t take much effort to narrow the spread to where the lease makes more financial sense.

    • 0 avatar

      BINGO

      • 0 avatar
        frozenman

        I had the cash for my recent new car purchase but instead took the low interest lease,put the cash into commodities market instead. If I’m wrong its a tax write off, if things go well over a year or two I make enough profit to pay the lease and lease end buyout. more fun than the casino!

  • avatar
    mcw

    Not at all surprised to see this. How else could all these folks afford these cars.

    But if the money rate is great, it makes sense to lease and buy off lease. I did that with a 2004 Audi A4. Bought it off lease and resold for a $1500 profit. (Audi made it a bitch to do it however as the residual was only valid if bought by the lessee. They would not sell at that price to the dealer or a third party. I had to buy the car and resell it within ten days to avoid sales tax in California)

    Audi has really fallen by the wayside on lease deals and is completely non-competitive with Mercedes and BMW on lease deals. I would never buy a BMW or Mercedes right now, makes no sense with the lease deals they push. Same with Jaguar. Audi makes little sense to lease.

  • avatar
    stuki

    What I want to know is; who is it that is buying all these 750 and S class lease returns, fresh out of warranty?

    • 0 avatar
      jmo

      I’d like to know. I see that a 5 year old S500 4-matic is only $25K but new shocks (just as an example) are $800 each…. I know someone with an older 7-series and in the past year he’s spent $6k keeping it on the road. You’d think they’d be better off with a new C300….

    • 0 avatar
      ellomdian

      Me, actually. I love me a used 7. It’s a buyers market for the most part. Get a complete service history, be able to do most of the non-computer repairs yourself, keep up to date on forums. Of course, it helps to find low mileage cars, and you can tell in about 5 mins who drove it before you. One trick I picked up, look for the wear in the driver’s seat track. You want a single wear point, preferably as close to the front as possible. Avoid the multimedia upgrades – they have 2-3 major options packages, you want stock. and the back seats / carpet should be pretty much untouched. Also, look for golf bag wear in the trunk. It helps if you have friends at the dealer looking out for you, and especially if you can get inside info you technically aren’t supposed to.

      I’m not kidding – by far and large, if you avoid certain model boogeymen, you can find a great deal on a very nice car at about half what you would be paying for lease. Also, never own for more than 3 years or ~40k miles. 2nd owners usually make off like bandits, especially if you can manage a CPO or extended warranty. It’s the 3rd owners who get the BIG shafting.

      • 0 avatar
        maxnharry

        ^This

        If you have a business, can write off your lease and want to outsource all responsibility for maintenance and repairs-then leasing is the way.

        Otherwise, you can get in to a very nice off-lease vehicle for much, much less money.

        I am also not convinced that you need to get rid of the car in 3yrs/40K. If you are prepared to do some of your own wrenching and are aware of your model’s issues, alot of these premium brand vehicles will keep going for a long time.

  • avatar
    MrWhopee

    The notion that “buying is better than leasing” is based on paying off a car in 3,4 years or whatever, then keeping the car for many years (10 years or more). It might well be the best option to minimize your financial outlay on cars, but not everyone wants to do this. Many people wants to have a new/different car every 3 years anyway, so even if they buy the car they’d sell it after it’s paid off, and get a new car. If that’s the case, maybe lease is better for them. They don’t have to deal with having to sell their previous car (and maybe saddened from the lowball offer the dealers give them given what he’s paid for the car, or having to deal with oddball/scary characters if selling it himself.) Life is not all about maximizing your ‘financial performance’. If you have the means and wants to enjoy it, why not? You only live once. Same thing for those who does not really have the means and wants to live right at the limit of their financial ability. It’s their life! And who’d know if you’d worked hard and lived thriftily building a nice nest eggs, only to get hit by a bus and killed a year before your retirement…

    • 0 avatar
      LeeK

      +1! For a car enthusiast, the prospect of being financially savvy at the expense of denying oneself the pleasures of a different variety of automobiles is ultimately a lifestyle choice. Sure, one can buy bombs and keep them running for years and even decades. Where is the fun in that? So you can look at how big your bank account balance is?

      The Service Manager of the local Ford dealership told me (ten years ago) that he had owned 98 cars in his life. I’m sure the number is significantly higher than that now. As long as his family obligations are met, his retirement funded, and his credit rating intact, what is the problem? He likes cars. He gets interested in a certain car, drives it for a few months, and then sells it. It is obviously a money-losing proposition, but he doesn’t care. It’s his hobby, and it brings him pleasure. His family is ok with it.

      Leasing of cars allows one to do similar things. Drive a 5 series BMW for a couple of years, then go lease a Jaguar. Then maybe a Miata. Again, what’s the harm if you budget your priorities accordingly?

      Sometimes I think the majority of TTAC readers are automotive curmudgeons that don’t like cars at all.

      • 0 avatar
        jmo

        Sometimes I think the majority of TTAC readers are automotive curmudgeons that don’t like cars at all.

        +10000

        I have a buddy who spend $6k to go hunting in Alaska with his buddies. Some would prefer to spend $500 a month on a 3 series – what difference does it make?

    • 0 avatar

      Maybe because some of us don’t like debt and the obligations that it creates. I love cars, but I hate debt more.

  • avatar
    vento97

    It only goes to show:

    “There are two types of people in the world – those who are, and those who wanna-be…”

    There seems to be too many wanna-bes around these days…

    • 0 avatar
      Sundowner

      Speaking as someone who’s had cars both ways, I like leasing better. A properly constructed lease (with no money down, don’t be a moron and do that!) costs about the same per month as outright buying the car. Assuming you’ve done your negotiating and homework right, at the end of the lease term (let’s say 36 months) the residual on the car should be the same as the principal you’d have left if you bought the car over a longer period of time.

      For example, my 2008 Passat wagon cost $25k after negotiation. The money factor was near nil. I leased it with no money down for 36 months at 15k miles per year for 350/month. The residual was $13000. do the math, and you’ll see at the end of the term, the residual was about the same as $25,000 – 36 months x $350. I paid almost nothing in terms of interest or fees to drive that car, and at the end of the term, I could have bought it outright or walked away from it.

      so to recap, I paid almost no interest to drive a car with no obligations after the lease period, and I kept the rest of my money in the bank earning money on investments while the “smart people with real money” paid cash for thier cars. Right. No wonder this country is in the crapper, basic math has slyly eluded the masses once again.

      • 0 avatar
        buzzdsm

        Sounds like you got a decent deal but if I go out to cars.com and look at 2008 Passat Wagons within 500 miles of me I see that they are all more than $16,000 and some are near $20,000. So worst case scenario if you would have purchased instead of leased.

        If you would have paid $25K and then sold it for worse case $16K it would have cost you $9K compared to the $12,600 that you paid by leasing. So what did that $3,600 get you? If you would have invested that $25K instead would it now be worth $3,600 more assuming you bought this in 2008?

  • avatar
    buzzdsm

    I’ve bought a lot of cars, both used and new, and nearly every time I consider a lease and every time the numbers just don’t work. Regardless of how long I’m going to keep the car the numbers just do not work. I have a feeling that 90% of the people who lease do so because they couldn’t afford the real payment that comes with the car.

    I’d like someone to give me an example of where it makes financial sense to lease a BMW 3 series or Infiniti G37 over buying the same car?

    As far as my last purchase, 2008 G35X sedan with 25K miles for $25K and Infiniti Certified.

    • 0 avatar
      don1967

      I`d like someone to give me an example of where it makes financial sense to add $50,000 of debt (including taxes financed) to one`s balance sheet and then carry negative equity for 4 or 5 years before trading in the car. Especially if it is a business-use car.

      Yes, paying cash for a cream puff used car and keeping it 20 years while doing your own transmission overhauls under the oak tree in the back yard can save quite a few bucks in the long-run. But financial decisions cannot be made in a vacuum… they have to consider the whole person.

      • 0 avatar
        buzzdsm

        I think we’ve already established that it never makes financial sense to buy or lease a new car. I want you to explain how leasing makes more financial sense than purchasing one outright.

        Paying $28,800 for a 3 year lease also seems a little insane.

      • 0 avatar
        jmo

        I think we’ve already established that it never makes financial sense to buy or lease a new car.

        Depending on the deal it can be cheaper to buy a new Civic or Accord vs. buying something 3 years old.

    • 0 avatar
      Pch101

      BMW leases are often heavily subsidized, while the cars that are sold aren’t usually provided with the same degree of incentive. The benefit of the lease comes from the manufacturer’s willingness to give you a better deal on one than the other.

      Of course, that “better” assumes that you want to rotate through new cars on a regular basis and would otherwise sell it in 2-3 years and replace it with a new model if you didn’t lease. But then again, that describes the buying patterns of a lot of their customers.

  • avatar
    200k-min

    I’ve noticed that it’s quite rare to see an old luxury vehicle on the road. Sure, on occasion you’ll see one, usually a Lexus, but by in large 10+ year old luxury vehicles are absent the roads. Meanwhile I see all kinds of Camry’s, Accord’s and even the occasional Taurus from the mid-90′s. I presume leasing has something to do with this.

    Luxury vehicles have hardly impressed me because any schmuck can get a lease and drive a Bimmer or Benz these days. The snob appeal isn’t what it used to be. Besides, KIA’s now have options that only a couple years ago were only available on luxury vehicles. You don’t get much more in the luxury market as far as bells and whistles go so what’s the point (excluding driving dynamics)?

    I’d bet most people who lease luxury makes are more interested in their own vanity than the actual driving dynamics of the car. My ex was that way. All she cared about what the luxury brand, little else. Sigh.

  • avatar
    patman

    When does the European brands’ leasing model collapse? They can’t continue on leasing them at such low rates forever when the cars are worth so little when they come off of lease, can they?

    • 0 avatar
      Pch101

      When does the European brands’ leasing model collapse? They can’t continue on leasing them at such low rates forever when the cars are worth so little when they come off of lease, can they?

      I’m not sure where you’re getting your information on residuals, but BMW has high residuals, and it’s the leasing program that helps to support those residuals. Their strategy is to sell a lot of their inventory twice (first as a lease, then as a CPO if the car’s history isn’t too risky), which helps them to control the used market to a point. The free maintenance program allows them to monitor the cars, which reduces their risk for the CPO vehicles.

      It isn’t a conventional sales model, but it makes sense for that target market. Their continued success or failure will be built on their ability to churn customers through dealerships on a regular basis. They need customers who are willing to have a perpetual car payment.

      • 0 avatar
        patman

        At some point though, if they’re as unreliable and expensive to maintain as everyone says they are, then they’re not going to be as appealing to the second buyers as their value at the end of the maintenance program plummets. I guess they can keep it up as long as there’s enough suckers willing to buy price-inflated CPO cars that are price-deflated after a few years.

      • 0 avatar
        200k-min

        How much does the manufacturer make off a typical lease + CPO sale? Residuals on luxury cars after 3 years isn’t great compared to the MSRP price, but those are inflated.

      • 0 avatar
        Pch101

        if they’re as unreliable and expensive to maintain as everyone says they are, then they’re not going to be as appealing to the second buyers as their value at the end of the maintenance program plummets.

        If that was enough of a problem, then the residuals would be affected already.

        I suspect that it isn’t much of a problem because BMW is a low-volume, high price seller that caters to a niche. Companies that sell a lot of cars in the lower price ranges can’t afford to sell unreliable cars, but the luxury marques use service and features to remain competitive.

        How much does the manufacturer make off a typical lease + CPO sale?

        I’m not sure (and the calculation may not be straightforward, anyway.) But just glancing at BMW’s financial statements and comparing them to companies such as Honda and Ford, the overall result is competitive.

        Because BMW doesn’t have low-priced cars to sell, it has to figure out a way to make these cars affordable to their target market. The subsidized lease/resale strategy allows them to achieve that. Without it, they would surely have lower sales volumes.

      • 0 avatar
        eldard

        Because BMW doesn’t have low-priced cars to sell, it has to figure out a way to make these cars affordable to their target market.

        That’s where decontenting comes in.

      • 0 avatar
        eldard

        DEcontent and make a killing overcharging the gullible with options. That’s the Germans’ forte. That’s what you get for buying a car made with overpriced German union labor.

  • avatar
    Ubermensch

    I considered leasing a 328i Wagon with Euro Delivery pricing to save even more money. But even with ED pricing and my very low mileage requirements the numbers just don’t make sense. The problem is after the lease you are left with nothing and have to start over.

    The biggest problem is that most of the European cars are just overpriced for what you get.

    • 0 avatar
      highdesertcat

      The people I know who lease have more than the lease vehicle. A local business owner I have known for many years leases a 5-series BMW (which his wife drives daily) but also owns an old F150 and a Dodge Caravan.

      An old Air Force buddy of mine has a 1992 S-10 truck and a 1987 Camry, but they’ve been leasing Lexus cars for many years.

      In the case of the business owner, his business writes off the lease costs as an expense along with gas, while my Air Force buddy looks at his leased Lexus as a semi-permanent rental. It works for each of them.

  • avatar
    SimonAlberta

    A couple of thoughts on this article:

    1. Part of the article reads thus:

    “….reveals that American luxury car buyers rarely actually buy their cars, reporting:

    Industry-wide, leases comprise about a fifth of all new vehicle registrations, but within the luxury market, lease penetration is more than twice as high at 45%. Three premium makes: BMW, Infiniti and Mercedes-Benz, actually have national lease rates at or above 50%…

    These extraordinarily high lease results lead to several conclusions. ”

    “Rarely actually buy”? The FACTS show that more than half buy so how is that “rarely”? Feeble writing TTAC.

    “Extraordinarily high lease results”” Extraordinary? Over sensationalized language again TTAC.

    2. Then the whole article is really about nothing at all. The way it reads seems to suggest that LEASING versus BUYING is like CHALK & CHEESE whereas in reality it is more like DIFFERENT FLAVORED CHEESE.

    When you BUY on a 3 year term your payments are fairly high but you have some equity in the vehicle so you can then choose to KEEP IT or TRADE/SELL it.

    When you LEASE for 3 years your payments are lower and at the end of the term you can choose to KEEP IT (extend the terms or borrow from the bank or pay cash) or TRADE IT (well, hand it back but same basic process).

    Really not dramatically different. Just differing ways of achieving the same goal.

    What I am trying to say is that the article posted by TTAC is really a non-story not worth getting agitated about.

    Just my humble opinion.

  • avatar
    Rod Panhard

    There’s a critical part of this story that is missing. For some self-employed people, there is no cost difference on April 15th between leasing and buying. So a lot of self-employed people find it’s beneficial to lease. They tie-up less money in a car and use it for other things.

  • avatar
    mcw

    Sometimes it makes sense to do a no money down lease, sometimes it makes sense to buy. I have done both and it depends on the interest rates and how well supported the leases are.

    These days Audi leases are terrible deals for the most part, but I would lease if I were going Mercedes or BMW. This article explains how I see so many luxury cars on my daily Northern California commute.

    I leased a 2004 Audi A4 quattro back in the day with a super low money rate, something like zero down with payments of around $370. The subsidized lease made it less expensive to lease and buy off lease rather than purchase outright new when at the time purchase interest rates were running 5% plus. I then bought and resold at the end of the lease and pocketed around $1500. (Although Audi made it a pain to do so because they only honor the residual price if the lessee buys the car. When I tried to have the dealer or a third party do the lease buyout Audi jacked up the buyout by 2k. I ended up buying in cash and reselling within ten days to avoid paying taxes on the purchase).

    In 2007 I bought a loaded CR-V. Paid around 25k. It’s worth around 19k now because of inflated used car prices. So almost five years in I am out financing costs of a couple thousand and the 6k in depreciation. Way better deal having bought rather than leased that one.

  • avatar
    340-4

    I wouldn’t own any of these listed marques out of warranty except for the Lexus – and possibly the Infiniti.

    My Nissan has needed exactly one MAF in 123k over ten years, BTW.

    What does a Mercedes eat up in a decade and 120k?

  • avatar
    sco

    Whenever i see someone in a $50K+ car i assume its leased and that their business is covering the cost. But here’s the question from someone clearly outside of this system – are corporate types being given a car allowance (or using their business to buy the lease) and then on top of that getting a tax break for leasing the car? Maybe the most relevant question is, what percentage of that lease payment comes out the driver’s pocket in real money? My sense is that it must be not much.

  • avatar
    HiFlite999

    Leases make it easy to charge your company for the ride and get the tax bennies. (Which really says the normal taxpayers subsidize it). The other point is that luxury cars aren’t really acquired for their mechanical function, they are obtained for the effect they have on others. As such, they must be new. A guy driving a 1-3 yo S class comes across as rich; a guy in a 10 year old one comes across as a pretender.

  • avatar
    zerofoo

    Sure people are living beyond their means, or simply do not care about that eternal monthly car payment.

    The dumbest thing I ever did was buy a brand new 2007 G35X. My wife and I both make decent money, so I figured why not buy a “luxury” car.

    It didn’t run right, Nissan didn’t care, and I took a $10,000 bath on the trade in when I got out of it.

    If you drive your cars into the ground – buy used and run it till the wheels fall off.

    If you want a new car every 2-3 years, why not lease? Let the manufacturer worry about residuals and maintenance.

    Buying a new luxury car outright is just plain stupid.

    -ted

    • 0 avatar
      Ubermensch

      Even if you get rid of your car every 3 years, it still usually makes more sense to buy it. Yeah your monthly payment is higher but at least you get something for your trade at the end instead of nothing.

  • avatar
    Disaster

    It comes down to people wanting to know the actual cost, and the convenience of not having to buy and sell cars. This IS the reason the Germans get away with such horrid quality and such expensive repairs. The people who lease these cars don’t pay for the repairs so, as long as they aren’t inconvenienced to badly (they get loaners) they don’t care. They do make a mental note NOT to buy though.


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