500AMG

I have one question, which I asked before but I will ask again. WIth a lease, don't you pay the depreciated amount of the car during the term of the lease? Meaning, if a new CLK loses 18,000 of it's value in the first three years, isn't a lease tailored so that amount will be paid along with a lease premium (6-8% annually)? I could be way off base but it seems there are people who know the answer and I would be very intersted in learning more. If what I said above is correct, the initial cash saved will have to earn in the low double digit area in interest to make up for the lease premium (after-tax return). That sort of return was much easier to make in the 90s...but may not be so in the future (5-7 years). The added risk in leverage may not be wise for everyone. However, if the lease premium is smaller, say 3-4% annually, leasing would be a no brainer. You could easily make the premium back plus some thereby making back some of that lost value.

bmms8

i dont think so

500AMG

I went on MBUSA's website and crunched some numbers. Without getting too specific and making a huge post, I assumed a 7% rate of return on the funds saved. Then I looked at the total lease cost (down payment + payments - interest earned on the saved money) vs. the residual value of a 3 year old CLK with price as close as possible. Buying and then selling would have resulted in about a $3,000 gain versus the lease. This is only w/ a 7% return...if one applied the 12-15% returns of the 90s, leasing would be an excellent way to minimize losses. Even a 9-10% return would be worthwhile because you would save the headache of selling your car. But if the Oracle of Omaha is correct w/ our safe 6-7% returns over the next 10 years, leasing may not be the best choice with a high residual car like a CLK.

500AMG

Oh I should mention that financing is probably never a good idea. My whole analysis is based on someone who has the funds sitting around to either fully purchase or invest. I would personally always lease vs. finance.

karl k

500AMG:
Tnx for the thoughtful analysis. Art is hot!

Too bad, that the new SL does not qualify as ART, even though it's an aesthetic triumph.

Blocktrader

I don't understand the point of bringing up the depreciation with leasing or buying. Either way you are paying for the same depreciation. The only upside regarding depretiation with the lease is if they get the number wrong(too high), or if the car is going to be tough to sell. It's not like MBUSA picks up the tab for the depreciation if you lease. Leasing just allows you to keep your funds available for other investments. Of course your paying interest on that money though. The other issue is taxes. Leasing can be beneficial there. I think it depends on your personal needs and anyone raising the question should be asking someone that knows their specific financial/tax objectives.

500AMG

I could not agree with you more. I would also add it HIGHLY depends on the car as well as the amount of the lease premium (well it all depends on the premium ).

I was looking at this this way -- How much cash will I have left if I buy and then sell 3 years later vs. How much cash will I have if I lease for 3 years at 12,000 miles and get a 7% return on the money I have saved. This assumes you have $60,000 sitting in the bank either to purchase or invest and that the lease payments come from that $60,000 pool. My conclusion was as stated. If you can negotiate a reallly good lease, then doing it really is a no-brainer. However, I just wanted people to realize that with our *safe* returns now much lower than in the 90s, leasing may or may not yield a lower loss than buying then selling. I hope I've made sense.

karl k

With the financial markets in free fall, the only *safe* are in the 2-4 % range: CDs.

Another option are TIPS: Treasury Inflation-Indexed Securities.

http://www.publicdebt.treas.gov/sec/seciis.htm

Most of the Silicon Valley Tech/Financial Wizzards and their brilliant investors/groupies lost 90 % or ALL during the last 2 1/2 years. This coupled with corporate corruption, real estate bubbles and a global recession make for low returns in the future.

Guru Greenspan sees a lot of horizontal movement for the next couple of years!

SCwolf

although every car is different and individuals vary in their financial condition, generally, you should finance if the following is true:

1. you plan to keep the car for ten years or more and not buy a replacement until that car is run into the ground (150,000 miles?); this would be equivalent to about 3 lease terms. If you add up the cost of ownership during those 10 years between a financed car and 3 lease terms' worth of payments (monthly payments and disposition fees), the financed car would clearly be ahead by a signficant amount (at least 50%). Or let's take it to an extreme, in your adult life (say 36 years left) if you have only one very very good car (MB S500) every 12 years, you'd spend $280,000 (3 x $93,000, which includes interest on a 36 month financing term); a lease of $1200 per month for an S500 equivalent over 36 years would be $518,400. The difference is $238,400 saved over 36 years. Yes, you pay more per month financing, but that's only for the first 36 months of the financing term, after that you're clear ($2300 for first 36 months of each term you buy a new car vs. $1200 per month for 432 months). The issue then, is that since by leasing you save $1100 per month for 3 years, do you have a better place to put that $1100 saved each month for the first 3 years of each 12 year new car term so that over the span of 36 years, you will come out ahead of the $238,400 you would save by financing? Which leads to the next point...

2. money in hand v. money in "car equity": previous posts endorsed leasing because the money you save leasing each month is "money better spent elsewhere"; however, this position assumes that you KNOW where to spend it. If you have an investment you know is returning over 15% annually, then clearly it is better to lease because rather than have a substantial sum locked in the depreciating equity of the car , you have it in your investments (stock market, real estate, whatever); but that assumes you are investing in an appreciating asset somewhere else. Unfortunately, the average Joe who makes $35,000 a year most likely will not know where to invest his money saved from leasing, and if he had put it in the S&P 500 Index (general stock market) from 2001 to now, he would have done much worse than if he was just financing his car. For many people who make over $150,000 a year, they probably are educated and sophisticated enough to know "better" places to put their money, and that's why they can lease. But again, for the average Joe who doesnt know what to do with the money in hand, financing would be the safer route.

3. you drive more than 14,000 miles a year; this is a no brainer, a lease will kill you with penalties (.20 a mile) for every mile over the annually allotted 12,000.

These few points are why it's so important to assess your own financial health, and not rely on other's opinion too much, because we dont know what your personal situation is. A lease is great, for certain individuals (financially sophisticated individuals), but for the "average Joe", financing is the safer route with less hidden risks.

I'm not a financial advisor, but I do play one at home

MarcusBenz

SCwolf,


I agree with points 1&2, simply on thier merit, but point #3 I disagree. The reason being that the banks (MBCC & Chase Manhattan) most MBZ dealers deal with have standard 15k a yr lease programs. Meaning that the standard residual value is for 15k miles per year, only if you drive less than that amount can you choose to write the lease at 10k or 12k per year. If you do drive less than 15k you can add residual points to the value the car will be worth at the end. Example, you lease a car through MBCC (Mercedes-Benz Credit Corp.) and the residual at 36 months is 57%. Now, if you only drive 12k miles per year your new residual would be 59%. The lending company is taking into consideration that if the car has less miles on it at the end, it will logically be worth more as well. Now, MBCC is one of the few banks that will allow you to drop to 10k per year and that will add 3% to the standard residual. My point being if you drive 15k miles per year, this is not an issue not to lease the car!!!

SCwolf

I didnt realize that 15k annual mileage can be calculate into the depreciation beforehand, so let me amend my point by saying that if you drive significantly more than the 15k annual maximum, then it would benefit you to finance rather than suffer the penalties