MB37

Of course you can develop a strategy that limits the amount of depreciation that you will experience. Get a good lease deal, negotiate a good purchase price, buy 1 or 2 year old model, While the economic concept is basic, hedging against depreciation is achievable. Perhaps you are saying that you can strategize better with a lease. Maybe if you are a good negotiator of the lease. Generally speaking, just because you lease does not always mean you can hedge better or beat depreciation compared to making a purchase, cash or finance.

SW20S

You can limit that, but never hedge against it. You cannot negotiate away from depreciation. Buying a used car is a totally different thing, I don't buy used cars period. Even buying a 1-2 year old car doesn't hedge against depreciation. To hedge against something means you protect yourself from it. Can't be done.

You can NEVER do away with depreciation, you can only manage it. You would have to pay a 3 year depreciated price for a new car and then sell it at 3 years old to hedge against depreciation which is not possible.

MB37

I see that you don't fully understanding the meaning of hedging in terms of finance and investing. To save others time, I won't further respond to your comments regarding this topic.

SW20S

I absolutely do, you're the one that doesn't. When you hedge against something you protect yourself from the negative impact of that thing. You aren't protecting yourself against depreciation here because the depreciation is dramatically more than you can possibly negotiate off of the purchase price of the car.

This car depreciates 60-70% in 2 years. Unless you can negotiate 60-70% off of the price of the car you aren't hedging against the depreciation.

capt_slow

I agree with this. Your lease payments are LITERALLY the depreciation of the car, plus interest. However, since no one knows how much the car will actually depreciate at lease end, a speculation is used. Captive banks for German brands, like MBFS, are incentivized use rather optimistic residuals. There is no way my EQS would keep 67% of it's MSRP in 2yrs and 15K miles, but that's what MBFS put down for my lease. Accordingly, the "depreciation" you pay in a lease is incredibly subsidized by MBFS. Add some rebates, incentives, and good old fashioned negotiating and you soften that depreciation even more. But that party stops when the lease ends and you're faced with a fresh dose of reality: the payoff/residual is much higher than market value. Except...

The captive banks may give you a kickback to buy out the car at lease end to avoid a glut of inventory. During COVID, BMWFS was giving $6K credit against the contracted residuals to encourage owners to keep their leases. In some cases, it actually brought the payoff to be BELOW market value. Other possible tricks may trying to intercept the car at market value AFTER returning the lease, but your mileage may vary.

fantasy521

This is what I was thinking too. I heard MBFS negotiate with you about the residual if you want to keep the car. No need to intercept anything.

SW20S

Typically MBFS won’t negotiate with you from everything I have heard.

fantasy521

I think it was in the 223 forum. But someone said if the market value is too low than sometimes they do it.
However, now it is done through the dealer, not MBFS.
If they don't budge than buy a nicely used CPO for market value.

stealth.pilot

I would say that in the pre 7% interest rate environment buying was preferable because a hot car market meant long wait times, Market adjustments, high inflation and low depreciation.

however in the current market there is no doubt leasing is the way to go.

J_Boxer

It's quite a stark contrast to see so many vocal proponents for leasing on this forum. On other branded forums I’ve participated in, leasing is viewed much more negatively. Those who did lease rarely spoke up about it, for what I can only imagine was the backlash of those who only advocated for buying and who viewed leasing as the devil. Their obstinance was palpable, so to see so many advocates here is excellent! While I only ever lease personally, I recognize for others, their goals dictate other choices, such as buying! That’s not me and likely never will be. But that doesn't mean I will begrudge someone if they make that choice. For some, it might be the best for their goals. If someone were to ask my opinion if buying an EQS was an intelligent decision, I would offer my opinion, but I would never belittle someone over their choice to purchase. I would explain the high depreciation levels, the ever-advancing tech, maintenance concerns ( after the warranty expires), and so on. I’d offer my perspective on why leasing was my preferred choice, but while I believe it’s the smarter choice, that thought is relegated to my mind and expressed only if asked. I read a statistic recently that 3 of 4 Mercedes transactions were leases, I believe. It’s reasonable to think that other high-end luxury brands likely experience the same.

MB37

I think you see more people lease high end MB because they know that these car's value drop like dead flies in the first few years. Additionally, they care more about enjoying what is new, and then move on to the next big thing. A small percentage like the option to buy the car should it become a 'keeper" for whatever the reason. But unless the people have the expert knowledge of navigating a good lease deal like yourself, most people will lose big when leasing. That's probably true, too, for those that buy or finance and don't have the expert knowledge of negotiating.

The depreciation has always been the highest out of all the other segments. Because I keep my cars for much longer than typical lease terms, I get more for my money due to the decrease depreciation rate the longer I keep it. I like the long term commitment and acquiring the technical knowledge of the design and engineering of vehicle. Those techs are typically trickled down to the lower models years later when others are paying higher prices (overall price of the vehicle) for something I have been using several years before (and now not worth as much due to age and depreciation).

In the end, if you lease, you tend to worry more about depreciation and lost of value compared to if you buy and keep your cars for longer duration.

LAZARU5

The reasons I chose to purchase my EQS SUV in 2022 were that 1) the $7500 tax credit was available, 2) Pennsylvania adds a 3% vehicle lease tax on top of Sales Tax, 3) I average 2000 miles per month, and 4) I wanted the freedom to make modifications to the vehicle.

ILoveNY

And SUV always depreciate less than the sedan counterpart?

nath_h

I could have written this post myself...agree w/ the sentiment here. I plan to keep both of my EQ cars for many years, so the rapid decline of value is meaningless to me. The worries about depreciation only apply to those who want to be swapping out cars every few years, at which time you will take a beating on almost any car--ev or ice. Maybe +/- more than another car, but if you are playing in this end of the field, you are probably doing pretty well financially, and it won't matter a ton. If you want to stop the financial beating cycle, hold on to it for longer. Buy an extended warranty to freeze car part/labor price inflation. I have a hard time believing the tech in an EQS Pinnacle will be hopelessly outdated in 4 years. Maybe Level 3 will finally really be available in a truly helpful iteration (hands off wheel, highway speed, rare disengagement) in five years, but I doubt it, because it has been 'available five years from now' for the past 10 years. There are probably those who really want the latest and greatest every year or two, but I'd argue we're talking about shades of awesomeness that won't make a huge difference in your life. Another factor for me personally about leasing in my state--the extra hoops to jump through with the DMV make it unpleasant. I may not be good at negotiating leases, but I've never felt like I did any better than buying, and I'm hemmed in with mileage, and the return fee stinks plus I've usually ended up buying the next owner a new set of tires. Haven't leased for ten years or so and won't be doing that again.

BenjaminKohl

This is all very interesting to me because in theory, leasing for 3 years versus buying, owning for three years, and selling should usually end up costing just about the same amount. It's not like leasing is some magic scheme that most people don't realize and actually saves you a ton of money, you're just paying the depreciation instead of paying for the whole car and then selling for the opposite of depreciation. To me I see the benefits as such:

Leasing:
-Ease
-Lower costs during the lease

Buying:
-Flexibility (keep the car after the 3 years for a few months or many years, or drive more)
-Equity at the end

The big difference here with the EQS is the optimistic (less so now then 6 moths ago but still inflated) resideual values and the extra $7,500 incentive that isn't available for purchasing. So now, you may be able to buy an EQS for 20Z% off and sell it for 30% of it's value after 3 years, meaning you between what you paid and what you got back you paid 50% of the origional MSRP, while leasing with the extra inceitive may get you 25% off MSRP and the inflated residual on a three year may be 50%, meaning you only spent 25% of the MSRP over the three year lease, so yeah there it makes sense to lease. But for a normal car with a correct residual and no additional incentoves, leasing just lowers your monthly payment at the expense of flexibility and equity.

MBNUT1

I preferring owning so that I can manage the costs when my wife "modifies" our car.

J_Boxer

HA, I see what you did there! I hope she doesn't read this

SW20S

The tax credit is actually a big reason why I leased our new Pacifica PHEV, I make too
much money to get the tax credit but when you lease your income doesn’t matter since it comes as a rebate from the manufacturer.

Many EQS buyers make too much money to get the credit unless they lease, so that actually is a reason to lease for most. I believe it’s $300k for a family or $175k individually?

As for people looking down on leasing…quite frankly they’re morons, and they can be wrong all they want lol. Sorry but it’s true, I’ve done the math every which way to Sunday and buying a car like this makes no sense unless you are going to keep it 6+ years. Many of us also own businesses which makes it make even less sense to buy. Uncle Sam pays half of my lease payment.

ILoveNY

Uncle Sam pyas half of the lease payment means the monthly lease payment is not taxed?

LAZARU5

I think SW20S is assuming a 50% tax rate in making this calculation. It also assumes that the lessee does not report any personal use of the vehicle.

holeydonut

The US Auto landscape is vast with many discrepancies between regions, brands, models, and demographics. There is no reasonable "one size fits all" approach. Some states have very high adoption for leases, while others see a lot of resistance to leases.

For example, here's a chart from Experian showing Q2 lease/buy in each state.


IMO, the only "right" approach is for anyone interested in a new car to weigh the pros/cons of leasing/financing/buying and act accordingly to their interests and likely outcomes. Someone else will have a completely different sent of priorities and requirements and could select a completely different option for their unique circumstances.

MBNUT1

one nice thing about a lease is that you only pay tax on the lease rather than the whole car which for here would be $7800 per $100K

Crito

Money is the root of all that is good and holy. Don't believe the conspiracy theories on the Interwebzes that claim otherwise! And if you sell me your soul today I'll give you a great deal on a lease. Sure, there'll be a misunderstanding about one payment and we'll tow your vehicle right before you have to go in for major surgery resulting in you popping a vein in your forehead, but all that stress and death was worth the low interest rate. Have a nice day!

J_Boxer

Wow, that satirical piece you wrote about the pitfalls of greed and materialism was absolutely brilliant! The way you used hyperbole to show just how much value we place on money and how we see it as the root of all things good and holy was pure genius. But what really stood out to me was how you called out those shady businesses that exploit people for their own selfish gain. Your comparison of selling one's soul for a car lease was a stroke of genius that really drove home just how fleeting material possessions can be. It was a hilarious reminder that temporary pleasure can never replace the promise of eternal salvation. Honestly, even the devil himself would be impressed by that offer, especially if it came with low-interest rates and free roadside assistance! Your perspective really got me thinking about the dangers of consumerism and how important it is to be mindful of our spending habits. I absolutely loved it and can't wait to read more of your work!

LAZARU5

Leasing in Pennsylvania is a little less nice than most other States. Here the State gets an extra 3% above the regular Sales Tax rate on the value of the lease payments.