True, it will be awhile before I can drop $65K in cash that would not be better used elsewhere. I cannot risk not having atleast twice that readily available if an opportunity arises. Owning an E60 to take straight line depreciation for 5 years is just not that important to me.

I did not really miss your point. Situations vary. If it was a car I was keeping for 10 years I would pay cash. BTW I have never borrowed to buy a car. I just assumed you were comparing financing to leasing.

 

$5k annually...what, why? I understand normal maintenance cost. I even understand unexpected costs because of all the technology, but where does 5k come from. I had a 3series out of warranty, and I only paid for inspection II and normal oil change/service for the car. The engine and tranny are supposed to be reliable. Where does 5k come from.

I think Leasing v. buying is a personal choice, just like buying the E60 is. There are other cars that cost less, but you do what you feel is best for you. Leasing v. buying is a personal decision. I have done both, and I did not like my leasing experience, nor did I enjoy the mileage limitation. I don't like to buy cars very often, so I buy. When I did lease, I sold my car before the lease end, and I was OK, but I wouldn't want to go through that again. Some people KNOW they will buy a car every 2 or three years. If the miles work out, why not lease. It is better than paying the higher payment, and it beats trying to trade your car in or sell it. As a matter of fact, to come out on top, you'll most likely have to sell it so that you don't take a loss.

Anyway, it depends on the circumstances. I will buy. I expect the car to perform well over my ownership. I expect to keep my maintenance up to date, and after warranty, I expect to budget money for repairs/continued maintenance, but I don't expect that amount to be equivalent to another car payment.

 

I agree. Circumstances vary.

5K? Had front struts, airconditioner serviced and compressor replaced and 60K major service on a Honda Odyssey. dropped $3k within 2 months.

Just the tires and brakes on the E60 will run twice that. Let alone the clutch or god forbid the electronic components that are currently being swapped out left right and center under warranty. This is a different ball game than your old 3 series.

 

I currenty drive a 2000 740il and should have sold it before the warranty ran out. Just spent 800 for a radiator, 1450 for new rotors and brakes, and my 50,000 mile check is coming due. Before signing a lease, I always check their residual value. A $750/month lease for 3 years will leave the dealer holding a car in the red. If by some miracle the 545 resale market is as hot as the e55, then buy the car @ the end of the lease.

 

Your analysis is incomplete -- you should ask yourself what profit is there for the auto manufacturer to lease a car to you versus just selling the car to you?? If the auto manufacturer did not make any profit in leasing, they would not offer you the opportunity to "rent" the car for an extended duration (say 2/3/4/5 years) as opposed to buying the car. As you know, the auto manufacturer makes profit both ways (either leasing or a sale).

A more complete analysis would factor in the up-front lease acquisition costs, mileage costs, and excess wear/tear & repair costs upon expiration of the lease, among other costs/risks that are called for or shifted to you in your leasing contract (i.e., you pay the sales tax, title, annual registration and license fees for a car you do not yet, and may not, eventually own, etc.). Aside from certain obvious advantages of ownership (like no mileage limitations), a lease is nothing more than a long term multi-year auto rental with an option to buy the rented car at the end of the term (e.g., you don't get this purchase option when you rent from Hertz).

From a purely theoretical perspective, the auto manufacturer makes profit twice when you lease versus buying (i.e., the manufacturer's leasing company has to buy the car from the manufacturer since they are not guaranteed that you will buy at the end of the lease, thereby paying the manufacturer profit for the sale, and then rents it to you on the leasing contract, where the leasing company makes profit on the lease), so it would not appear that there can be any advantage to you (the consumer) to lease versus buying since you must pay two guys in the food chain profit for the lease versus only one guy in the sale (you can ignore the dealer's profit since the dealer gets it either way, whether you lease or buy).

In my view, the only way it makes economic sense to lease is if (i) you cannot afford to actually purchase the vehicle (i.e., you do not have enough $$ or qualify for a sufficient loan to buy the car you want), but you do not want to drive a lesser vehicle than you can actually afford; (ii) there is a significant tax advantage to leasing (i.e., you can expense the cost against a business); or (iii) you can invest and appreciate the $$ you would have used to buy the car in some other way, rather than suffer the depreciation after purchase -- a full analysis would offset the actual appreciation, if any, against the increased costs of leasing (e.g., instead of spending the ~$68K, which includes tax, title, registration & license, to purchase, assume you pay about $8K up front to lease after the down payment, tax, title, license, registration, so you now have $60K for some other use).
[/quote]

The guest says your analysis is incomplete but then justifies leasing in his last two points. Cars depreciate, if you can expense the monthly cost of driving it then leasing makes sense. Also as this board will testify as desirable the E60 is , it is not a car you want to be owning out of warranty. I owned my last car for 14 years. I now run my own business and do not want the sudden costs maintenance. I also do not want to borrow at high rates (corporate auto loan) to depreciate the vehicle and then have the stress and hassle of selling it. Leasing brings me the advantage of predictable cost and I can drive a pink E60 with a 4 speed manual and don't have to worry about selling it.

I am already planning my next ED with the 550i in 2007 or 8
[/quote]


For business use you can deduct depreciation and interest expense on a purchased car too, subject to a max depreciation amount. Very similar to leasing if less conveneint from a record keeping standpoint. I'm due to chat with my tax person about advantages of having my business own a 5er car outright. Maybe a bigger depreciation deduction. Wonder how the IRS feels about business owners and BMWs. LOL

IMHO, the key decision factors are the inherent financing rate for both leasing and buying, the residual/used car price, how often you want a new car, mileage and your monthly payment. For a two year period, the high residual for a BMW makes leasing decidely more attractive than buying. In general, leasing helps you afford more car and often helps dealers get rid of slow sellng cars. Like manual 525s with those small tires and zero options. As many already know, having a new car (leasing or buying) every two years is very expensive. The biggest depreciation hits are the first two years. I've read where one could save $300,000 in one's lifetime (savings plus accumulated income from the savings being re-invested) if they brought and held a ($30,000) new car every ten years versus the person who brought or leased a newest model every two years. Ah yes, the eternal trade-off.



CVT Benhogan

 

As I have pointed out previously, if you do not have a business that you can expense the lease against, this entire analysis does not apply. CVTBenhogan should discuss the depreciation with his tax accountant as I have explained in an earlier post.

However, the lease versus purchase decision (without a business deduction) is analogous to deciding whether to buy or rent (to own) furniture for your home (i.e., non business use). Most people with the financial means buy their furniture because they do not want to pay additional profit to a furniture rental company for a rent to own plan.

As mentioned earlier, there is no free lunch here -- auto manufacturers lease cars because they can make profit twice in the transaction (once when they sell the car to the leasing company and again under the terms of the lease) just as the furniture rental companies. When all is said and done, you will have to consider whether you want to pay profit twice to two middlemen as part of a lease deal because you have a better use for the $$ you are not using to buy the car.

 

As I have pointed out previously, if you do not have a business that you can expense the lease against, this entire analysis does not apply. CVTBenhogan should discuss the depreciation with his tax accountant as I have explained in an earlier post.

However, the lease versus purchase decision (without a business deduction) is analogous to deciding whether to buy or rent (to own) furniture for your home (i.e., non business use). Most people with the financial means buy their furniture because they do not want to pay additional profit to a furniture rental company for a rent to own plan.

As mentioned earlier, there is no free lunch here -- auto manufacturers lease cars because they can make profit twice in the transaction (once when they sell the car to the leasing company and again under the terms of the lease) just as the furniture rental companies. When all is said and done, you will have to consider whether you want to pay profit twice to two middlemen as part of a lease deal because you have a better use for the $$ you are not using to buy the car.
[/quote]


In a lease, your buying 2 years of depreciation and plus the interest cost of this depreciation. While there are extra fees the automaker earns on leases, the main benefits are different than you mention. For example, BMW can record a full sale immediately on its books and show higher sales revenue, despite the fact that the car is leased. Second, the finance arm of BMW, now the official owner of the car, gets to depreciate it and thus can lower taxable income for BMW on consolidated basis using the most aggresive depreciation schedule available. The strategy here is realizing tax deduction as fast and as large as possible. "Its called uisng the present value of the tax shield in business jargon." Other benefits include getting your product on the road and in the hands of consumers. The BMWs on the road are a great form of advertising and short term leases means future cars for customers of both new and used cars.

CVT Benhogan

 

Guest,
I think your analysis is flawed. You keep comparing leasing vs. outright buying. The reality is that leasing is really just another form of financing. If you were going to buy a car for cash, your real ownership cost is

TCO=purchase price - expected selling price + opportunity cost of having the funds tied up in a depreciating asset.

Note that if you calculate the expected selling price as blue book value of a car after X years, you are fooling yourself. Selling an expensive car privately is not simple, and many do not want to deal with it (or think they do, but not when push comes to shove).

If you are financing or leasing you have to add the cost of financing to that. The major difference between leasing and financing is that the selling price (residual) is known upfront. Captive leasing arms often subsidize the residual cost, artificially inflating it, which often makes leasing more attractive.

Buttom line is you have to calculate the TCO for each method.

TCO for financing is the same as TCO for cash purchase plus the interest expense.

With both financing and cash purchase you are taking the depreciation risk.

TCO for leasing is monthly payment * lease term if you are not keeping the car, and ((payment * lease term)+purchase option).

Additionally, in many states you only pay sales tax on the payment rather than the entire amount. And in some, like NJ, you only pay tax on the depreciation portion of the lease payment!

Just a few more things to think about.

Thanks,
Dave

 

I concur. Especially on cars with high residuals, leasing makes sound financial sense for many people.
Also the whole assertion that the car company "makes a profit twice" ergo leasing is bad, is very flawed. Along those lines, financing a car is also bad, because two entities make a profit, the manufacturer -- and the bank.

 

As I have said before, the auto manufacturer would not lease cars if they could not make a profit. BMW records the sale because an actual sale has occurred -- the car is sold to BMW's finance company (whose lease profits roll up into BMW's balance sheet) by the dealer, who also gets a profit from the sale of the car to BMW's finance company. BMW's finance company makes profit on the lease contract itself (arbitrage on the cost of $$, lease fees, and profit on the resale of the used car at the end of the lease if not purchased by the lessee) -- and yes, some of these profits are subsidized by the gov't as a depreciation deduction sa you point out above.

In the end, there is no way for you, the consumer, to avoid paying two profits (one to BMW and one to its finance company) in a lease transaction.