The Detroit 3 aren't the only automakers feeling the hurt from lease vehicles coming back worth much less than expected. Leases account for 60% of BMW's sales in the U.S. compared to just 20% of sales in the industry as a whole. As such, BMW will begin offering incentives like never before to encourage customers to buy a vehicle instead and reduce the number of leases it has on the books. In some cases the German brand is offering loans with finance rates as low as 0.9% over five years, and of course these incentives will be aided by a commensurate raise in lease prices, as well. Nearly all luxury makers are in the same boat as BMW, as Bloomberg reports that leases also comprise 55% of sales at Mercedes-Benz, 43% at Lexus and 42% at Cadillac. While the residual value of luxury vehicles isn't falling quite as fast as SUVs and full-size trucks, the market's shift in preference to smaller, more fuel efficient vehicles means that there is less demand for vehicles that tend to conspicuously consume copious amounts of fuel. Thanks for the tip, Rich!
[Source: Bloomberg]
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Reader Comments (Page 1 of 3)
icu812ru469 @ Aug 1st 2008 1:45PM
Why would I want to buy a $60K vehicle that depreciates over 30% in 3 years, when I can buy lease. Also, while it's depreciating, it's also falling apart (in the case of BMW and MB).
tankd0g @ Aug 1st 2008 2:08PM
Don't worry, the lease rates will soon be adjusted accordingly so that you can't afford either option.
jg @ Aug 1st 2008 2:57PM
'Why would I want to buy a $60K vehicle that depreciates over 30% in 3 years, when I can buy lease. Also, while it's depreciating, it's also falling apart (in the case of BMW and MB).'
That's why I bought a used bimmer. I don't worry about depreciation or the hassle of leasing a car I can't afford to buy (or don't want to buy new).
And it's far from falling apart. No one who gets in my 330Ci believes me when I tell them it was built in nowember 2000. If I get it detailed it would look showroom new. Starts everytime, runs like a champ and handles like it just came off the factory line. Most worry free used car I've ever bought.
That said, suckers lease. $800 a month to rent a car? No thanks.
BlackCanary @ Aug 1st 2008 3:17PM
I just heard an advert on the radio for CPO BMWs going with a 100k mile warranty. Can't beat that!
Rick @ Aug 1st 2008 6:53PM
That's why you buy CPO! The cars come back from leases are in great shape, you take no hit on new value, factory warranty still left and they add an extended warranty on top of it.
Ligor @ Aug 1st 2008 4:14PM
Exaclty - run the numbers up
Car to buy = $30k
to lease = $4.5k/year - so you can lease for 6 years and 8 months before you make the $30k price
But on the car you bought you paied $3k interest, $900 for some tires, fix any issues once warranty runs out and once you figure all this out;
you need to keep a car about 7-9 years to break even with a lease, of course when you lease you'de have a new car pretty much all the time, and usually people that cna afford luxury have a need to keep up with the jones adn having a 9yr old car doesn't show you off like you would have liked.
now when you consider a $60-70K car with a lease you'd probably need more like 12years before you can break even, so why buy???
Now, if you drive over 12k miles a year, then leasing would not be your best options as you'd end up runnin out of warranty, needeing to pay for new tires, and may even have to do repair work out of pocket.
but, i do agree, if youcan't aford to buy a car, don't lease that one, just lease one you can afford to buy that way you don't end up in dept
DKB_SATX @ Aug 1st 2008 4:29PM
Liqor: Careful with those numbers. Remember that when you lease, you generally pay an up-front amount at lease inception. In the case of a 3-series Touring from BMW, it looks like their current offer is a 36-month lease with a $489/month lease payment (that's 5868/year, by the way, not 4500) with a $3k cash payment due at signing IN ADDITION to that first month's lease payment.
You should also keep in mind that when you buy a car, though you do indeed suffer depreciation, you have some value left in the car when you're ready to get rid of it. When you lease one, you just give it back to them and start from scratch. So, to drive a 3-series Touring on a lease for 6 years, you'll have to have a NEW lease inception fee. Assuming it'll be the same in 2011 as it is today, that 6 years in the leased BMWs would cost you $41,208 and you'd own nothing at the end.
TANSTAAFL.
Zane @ Aug 1st 2008 1:46PM
Well, they can't really expect people to BUY a $100K 7 series, can they? Most people who shop in this segment feel the need to keep up with their peers/social circle anyway.
Besides, the statement about luxury cars depreciating by a lot less than their SUV counterparts isn't exactly true. I was looking around for a beater TL the other day and it was fascinating to see how many 04/05s are available for $15K-ish, which represents a depreciation of over 20K in just 4 years. Need more proof? I've seen CLK55 AMGs for a shade above 30K, when a new one costs close to $70K.
DKB_SATX @ Aug 1st 2008 2:57PM
My oldest friend is a Mercedes tech. There's a REASON that it's cheap to buy older Mercedes, and it's that they're expensive to maintain. At least the older TL (if it's been reasonably well cared-for) will probably be affordable to own, so you're just passing up the new-car smell.
evlfred @ Aug 1st 2008 1:56PM
Audi isn't in that boat, they don't subvene leases by artificially raising the residual like BMW does.
Dude @ Aug 1st 2008 1:58PM
Where's the picture of a rusted BMW logo?
azzo45 @ Aug 1st 2008 2:27PM
^Thank you. Agree 100%
Mike D @ Aug 1st 2008 2:31PM
I am dying to see if and by how much sales dropped in July for BMW, when they jacked up their lease rates.
Todd @ Aug 1st 2008 1:59PM
lol good luck with that BMW/Merc. Everyone I know with a BMW leases it and if they had to buy it they wouldn't be driving a BMW right now.
John R @ Aug 1st 2008 1:59PM
"finance rates as low as 0.9%"
With a FICO score of 17,000...
Seminole @ Aug 1st 2008 5:30PM
I was able to get it and I'm only 22. Now given I had my dad be a co-signer so I could get the rate, but I'm paying everything myself. I got a 328i w/ Premium Package at $200 below invoice and the 0.9% for 60 months. After trading in my old car my monthly payments are only $410. Great deal considering I normally wouldn't be able to afford a BMW.
Brian @ Aug 1st 2008 2:02PM
Sounds like robbing Peter to pay Paul to me, but whatever. I think they will lose a lot of sales. The benefits of leasing are what drives BMW sales, obviously. Few people want to deal with a BMW that is out of warranty/ outside of the maintenence agreement.
This is not just my opinion- this is summarizing real world feedback from the owners of BMW's that I'm appraising. (considering Toyotas)
JZeke @ Aug 1st 2008 2:03PM
This could seriously hurt the luxury establishment, given that most people lease cars they otherwise could not afford. Additionally, the cost of long-term ownership on these cars makes them less desirable to finance over several years.
Depreciation, high insurance and high maintenance bills are likely going to send the biggest players scrambling to re-think their design and engineering if they want to stay competitive.
AC @ Aug 1st 2008 2:11PM
I never realised how ridiculous/pathetic the credit situation was in the US, 40% leases!?! Everyone i know who drives a BMW, owns a BMW, same with every other premium brand. There needs to be a serious attitude change for these consumers, rather than everybody relying on inflated valuations to drive a brand of car that maybe they haven't earned yet.
AC @ Aug 1st 2008 2:12PM
i meant 60%, even worse!