My AT finally arrived at the dealer and I'm picking it up this weekend. This week I got to "negotiate" the financing with MB.

1. Option 1 -- lease for 3 years/10k miles per year. MSRP is $77k and using my $2500 deposit when I ordered the AT as a down payment. Financing everything else and the lease came out to $1531/month. Money factor is .00297 (7.128%) and MB was not budging.
2. Option 2 -- finance with MB, 4 year loan, $20k down. Monthly payment is $1543 and the interest rate works out to about 7%.
3. Option 3 -- use my own bank for the financing, which was offering a rate of 2.24% for 48 months. But if I use another bank for the financing, the dealer was going to charge a $5k market adjustment (which was waived for a lease or financing through MB).

Bottom line, if you are getting a new MB now, they will get their market adjustment from you, whether in the form of interest or straight ADM. I'm going with the lease. Realize it is not the most economical choice but I prefer to lease.

 

Based on financing $64,000. Based on your monthly payment. You still would have been better off with your own financing.
So, at the end of 3 years, you will have paid $57,000 and they still own the car. I would have kept your existing car. If it was a 3 year lease, you still have a year of warranty left. That’s why I don’t lease.
The dealer isn’t waiving the market adjustment. It’s in the interest. One other option is to take their financing. Then as soon as you can refinance at your own bank.

 

Yeah if there's no prepayment penalty and there usually isn't, you can just take their financing and pay it off with your own financing. Penfed is at 2% for up to 60 months but I'm sure there's others out there that might be slightly cheaper. If you're doing the lease, throw in the pre-paid maintenance. Everyone says that the package just increases MSRP, but you have a residual so you're just paying the difference between the residual even though the pre-paid maintenance has no value at the end of the lease if you've used them.

https://www.penfed.org/auto/rates

 

That MF seems really marked up at .00297

 

Those numbers are ridiculous. I agree take the MB finance option and immediately refinance.

 

Your dealer is marking up the interest rate: this is an extra profit center for them. Dealers are permitted to mark up the interest rate on both a lease and a loan. On a lease the residual is set by MBFS.

My 2019 E450 has come off lease and I decided to buy it. I decided to buy it and finance it through MBFS. One dear wanted a $1500 “fee” for processing the loan. Another dealer added $2000 to the residual.

I finally got through to MBFS: loan is for residual, no markup, no fee other than the $150 as per my lease agreement. I had the choice of either 36 or 48 months at 2.64%. I took 36 months.

My monthly payment will be $1254 about the same as a 36 month, 10K miles per year, zero down lease on a 2022 E450. My car has only 22,000 miles and warranty good through end of December. If I decide to take an extended warranty, about $2300, by buying in three years I will own a 2019 E450 with about 45,000 miles. I anticipate it will be worth $20/25,000 vs. leasing a new one (with less equipment because of the chip shortage) which at the end of three years I will return.

Hope my experience with MBFS is of help to you

 

$5000 market adjustment for securing your own finance? Thats a pretty dishonest dealer. I guess the days of those sweet German car leases are over. I was very luck to dealt with a good dealer which matched my credit union APR with no market adjustment, but I did not buy new, my car was a CPO, terms will be different.

 

I'll have to double check, but I believe tier one rates through MBF right now for 4 years on an E is 3.99%, they're clearly trying to grab the markup from you there.

 

One other consideration is the 'rebate' that is sometimes paid to dealers when you finance a car through the company owned finance arm. When we bought my son a new Jetta a couple of years ago, they would finance it with VW Finance at 1.9% for 36 months, at price X; if we paid cash, it would be price X++. When I inquired about that difference, the dealer explained they received a rebate from VW Finance when their financing was used, and that offset the additional 'mark-up' on the price, (read as additional dealer profit). So we financed with VW for two months, and then paid the loan off with no penalty, thereby obtaining price X. So in every transaction, there are costs, as well as alternatives. In my sales career in the construction equipment world, that type of captive finance transaction was common, encompassing term contracts as well as leases.

 

I bought my car last month and was offer 3.99% from MB financing. The OP’s dealer ran it up to 7%, I wonder how much of that APR mark up goes to the dealer.
I had the same happened once, dealer wanted $700 more if I pay cash.

 

Wow, under your scenario, almost doubling the effective rate, I would simply push away from the table, and call MBFC back, while in the dealer finance guys office, some folks are just not that pleasant to do business with.

 

I agree, the back end of the car sales business has always been my least favorite, Car dealer finance managers have for years try to double or triple their profit selling add ons.
In the old days, there was scams like the $700 prep fee, now it has become a $5000 market adjustment fee, I guess the dealers have to do whats necessary to keep the lights on but I would walk off the deal much like you, unless the OP absolutely has to buy a car now.

 

A new AT is not absolutely necessary for me right now, and the smartest option would probably be to buy out the lease on my 2019 E450 wagon. But I like new cars and a $5k markup (or equivalent interest rate bump) is not bad in today's car market.

 

When I leased my 2019 E450 I got 12% off of MSRP, $8000. With a $5000 mark up that is a price swing of $13,000.

I sincerely believe anyone who buys today who can put off their purchase will be extremely disappointed in a few years.

 

I doubt it if we'll ever see the days of 12% off MSRP again...the dealers are enjoying all the extra margins and the manufacturers are enjoying not having to spend on incentives per vehicle, which in turn helps their margins as well. I doubt it if the ADMs will last but deep discounts are a thing of the past.

 

Everyone is entitled to an opinion.

However what you are suggesting would require a complete reversal in the automotive industry Like nearly every industry each manufacturer strives for market share which in turn requires more production each year not less. The more cars a manufacturer produces, the larger the overall profit - assuming the product mix meets current demand.

The lack of present production and lack of profits is not the result of decisions made by the manufacturers to limit production, but is the result of a shortage of computer chips. Once that shortage of chips is resolved, manufacturing of cars will be at levels equal to or higher than before the chip shortage.

Unless you assume that the chip shortage is permanent, which I do not, there is no logical reason to assume that the pricing that existed before the chip shortage will not return.

Just my $.02.

 

​​​​​​​I understand your thinking in regards to economies of scale making the most sense. But think about Mercedes as an individual brand on a global scale (Let's not include Chevy or Ford in this conversation). Mercedes has been successfully selling vehicles on a pre-order basis for decades in mostly all of its major sales markets including China and Germany without the major discounting as in the American market. COVID sent a shock wave in the American market and the margins are too good for the franchised dealers or MBUSA to pass. MBUSA wants to move towards a pre-order bases, which gives the dealers less incentives for discounts without idle inventory sitting on the lot racking up interest (Dealer stock is usually financed with dealers paying interest until the vehicle is sold). Economies of scale makes less sense when the per unit margin is higher and with ever increasing raw material costs such as steel etc., margins matter.

My dealer is the best selling Mercedes dealer in the country and sells more Benzes than many countries at 12k-14k units per year. The sales manager told me that their plan is to continue the pre-order sales model as in Europe, etc. Majority of their incoming vehicles are Pre-Sold and are all being sold at MSRP or higher.

 

It will be years before we will see those 15% or 20% off msrp pricing again or the low lease rates. Supply is low, demand is high right now. Next year, experts are predicting supply to increase but demand is also predicted to increase. i do not expect much discount next year on car pricing.

 

I received my car last July. A 5 month wait. I had prearranged financing at Chase bank for 2.99%. When we did the paperwork , I was surprised to see 2.54% from Chase. $2,000 discount off list, Negotiated after I had placed my order in March. How times have changed. Of course, it’s only a C 300 cabriolet.
.

 

From my many years of travel to Europe and in particular Italy I think comparing the dealership model in Europe to America is like comparing apples to bricks - not even oranges. (I have no knowledge of the selling model in China)

The vehicle mix is totally different. Mercedes like other premium brands sells econo boxes to bare bones taxis in Europe that are not available in the US. Cars sold in US, by European standards are fully loaded premium models. Each car sold by Mercedes to the individual dealer in the US earns a huge profit.

I have been to dealerships in Italy and if three are 3 or 4 cars on the floor that would be lot. Europeans place an order, wait for delivery and generally expect to pay close to MSRP.

Now fast forward to Long Island where I live where we have multi million dollar dealerships employing hundreds of salesmen making mid to high 6 figure incomes. These dealerships, including Bentley, Ferrari, Lamborghini Porsche and of course BMW, Audi and Mercedes stock hundreds of cars for immediate delivery plus the option of ordering your car to your speciations.

These dealerships cannot exist if Mercedes would go to orders only.

The fact is to premium auto makers the US is the only market that they can sell in volume their most expensive models which generate per unit the greatest profit and to do this they need the dealership model of stocking cars. This is true whether it is a Mercedes or a Bentley or Lamborghini.

I usually order my car several months before lease end. But I and others who order are in a small minority. Nearly everyone I know who buys a car, does not order, but in one day shops several cars decides on a model, finds the best price and buys the car.

Presently with no inventory dealers are losing money and I suspect many on the “fringes “ will close. When you are selling 1/10 the numbers of cars you did before the chip shortage you cannot make up the loss of profits by selling at MSRP plus ADM. The dealership infrastructure in America is predicated on volume.

 

You'd have a point if it was true that Mercedes sold 90% fewer cars than they did before the pandemic. But it's more like an 8% drop vs the previous non pandemic car sale year of 2019 and actually recovered a little more for 2021. They basically sold out of the cars normally kept on the lot and then just kept selling every car before it had a chance to sit on the lot so it looks like they had nothing to sell, but they were still selling, just not sitting on the lot.

https://www.goodcarbadcar.net/mercedes-benz-us-figures/

 

Excellent article and thanks for post.

Yes Mercedes’ sales in 2021 were more or less the same. In normal pre chip shortage times as cars were sold from inventory they were replaced. What has happened now of course is the inventory has been sold, hence sales remain constant. But now and going forward there is no inventory and build slots for future delivery are scarce. Each Mercedes salesmen, because there is no inventory and build slots have been dramatically reduced, is selling a fraction of the number that he previously sold.

Another fact that must be considered is the financial commitment each dealer had to make: previously a Mercedes’ dealer could sell in the same location multiple brands. My local dealer sold both BMW and Mercedes under the same roof. About 15/20 years ago is when Mercedes said only Mercedes could be sold. My dealer had to build a new facility for BMW. On Long Island every Mercedes dealer was required to “upgrade” their facility to reflect the Mercedes’ luxury experience.

The capital expended by dealerships can only be supported by volume which requires inventory. If the model changes to “order” dealers will not have the volume to remain in business. If a dealership was selling 100 cars a month and discounting only 5%, assuming profit of 13% including hold backs incentives etc, based on an average selling price of $70,000 per, that is $5,600 per car, $560,000. If the dealer is now selling only 20 cars per month plus mark up of $5000, that is $9,100 profit (13% of $70,000) plus dealer mark up of $5,000 total $14,100 per X 20 cars, $282;00, about half of what he previously made

 

You still have a few assumptions that are off. First many dealerships got rid of a lot of salespeople so maybe there are only 1/2 to 1/3 of the previous number. Also as you can see from the sales, it didn't decrease 80% as your 20% claims to be, it just decreased 8%. Easy to solve by getting rid of extra salespeople. Also if their business had gone down 80%, many would be closing. None of my local MB dealers have closed. But it's true that the big one that used to have 500-1000 cars sometimes list around 50 cars and maybe only 2-3 E class cars where before you had 20+ to choose from. You are basically confusing cars on the lot with sales volume. They're basically selling every car that comes into the lot so they still have volume, you just don't see it so you assume it's down 80% when in reality it's 8%. And that 8% was easy to make up by charging MSRP or above.

 

Talking to my Mercedes salesman a month ago, the pre-pandemic inventory they had sold out about a year ago, there were very few cars coming in but they were working mostly on pre-orders and CPO to keep the sales department afloat. A lot of sales people quit due to varies reasons and its currently hard to find quality sales associates.

 

I'll chime in as a lowly metal mover for MB-

Mercedes-Benz has quietly announced that they will be cutting production by approximately 15% with no immediate plans to return to pre-Covid volumes.

That's pretty accurate. We went from a dealership of 14 or 15 sales associates to 8 of us with time off encouraged. 85% of all incoming vehicles are now orders or pre-sold units. My very anecdotal experience as far as sales numbers, I typically moved 10-12 cars per month, now that is pretty consistently 8-10.