rorywquin

There is a term in economics which is "opportunity costs"! it refers to what you forfeit by making one choice or another.

e.g.

1) Buying a brand new car you pay a higher price but have the advantage & pleasure of ordering a car, to your exact spec ,when you want it and being the first owner driving it out of a showroom (with the free bottle of Champagne) and that new car smell in a beautiful unmarked, current model car with the latest and greatest features. Opportunity cost - higher price (or not benefiting on depreciation), that cash could have been used as an invest meant etc......

2) Buying a 4 year car you gain the advantage of getting a cheaper car but lose on some of the other aspects e.g. exact spec, time , pre-owned older model car etc.

I've owned a mixture of both but almost always paid cash except when I was just getting started in life.

Wolfman

Please read what I wrote before commenting...

bob55

Well Wolf, you shouldn't be surprised by the pushback and confusuon....

While you acknowledged the SL's depreciation, you ignored it completely in your 'cost calculation', as if the rental or 'money factor' you mentioned were the only costs that mattered and the only reason for doing the calculation!.

The $300/month number was a bit misleading' to say the very least, with regards to what the Buyer will actually pay the Dealer for an SL under an MB Lease arrangement. That significance of that $300 per month 'rent' calculation was not immediately obvious to me, and hence the 'confusion', and 'pushback' in my response to your post....

However, I now see that when you separate out Wolfman;s 'rent charge', (or 'money factor amount'), from the total lease payment, what remains is the number to really focus on!,...(i.e. it's the monthly depreciation amount that is being paid as part of your lease). You, (Wolfman), just didn't bother doing the math for us. If indeed that was the real point all along, it certainly was't obvious since we all know an actual SL lease payment is 'way more' than the $300 per month figure you quoted.

In fact, a new SL Lease Payment is actually going to be at least 5-times the $300 per month figure you calculated as the 'rent' or 'money factor' charge'.

While this Wolfman 'rent charge' doesn't seem like it should matter all that much, it certainly is relevant when you subtract it from the actual Lease Paymnet Amount which in the example shown below is $1,500 per month..

In other words, If someone leases a new SL with a Lease payment of $1,500 per month, and you then subtraact Wofman's $300 'rent' (money factor) from the Total Lease Amount, and you are left with $1,200 per month which is THE AMOUNT YOU ARE PAYING EACH MONTH FOR DEPRECIATION! And yes, the SL's depreciation really does comprise a whopping 80% of your total SL Lease payment!...

(Just let the above depreciation number and percentage 'sink in' for a second)

So perhaps thatiwas the more significant point to be taken from the Wolfman's Post #18 in this thread, even if it wasn't immediately very obvious to many of us!

Such 'huge depreciation' is reason why I never buy, (or lease), 'brand new' SL's anymore. I much prefer to let 'someone else' take that huge initial depreciation hit. I am quite happy and have been very successful in locating and buying beautiful, clean, low mileage, used SL's for around 1/3 of their 'brand new price' just a few years, (and miles), down the road!....

Wolfman

I have not. Must be selective reading on your end.

There are only two costs to a lease. The depreciation and the rent. There is no more to it. Registration, taxes and other fees are identical to a sale (or better as some states only charge sales tax on the leased portion of the car, not the sales price).

I clearly discussed the depreciation costs in my example and I have to assume that everyone understands depreciation costs. This exists monthly based on an upfront agreed calculation for a lease. On a sale, the depreciation is finalized upon sale or trade-in but can be looked up anytime. It's the ACV (actual cash value) of the car vs purchase price.
The depreciation on a purchased car will almost always be higher than the set rate of the lease, so the risk for loss is higher on a purchase.

The second is the discussed rent charge.

Nowhere did I mention that you end up only paying one part. Since we are all adults here I assumed that by discussing the deprecation costs in detail, that it isn't free.

nuketopia

We can get all analytical about how leases work, money factor, residuals, purchase costs. I totally understand that the company that leases it to you must purchase the car from the dealer, pay for the money used to do that, then turn around and charge the customer a monthly payment that covers all their capital expense, administration costs and accounts for the risk of having all that money out there on the road.

The deal I got was very good. I drove a nicely equipped SL with a sticker of about $106k for 3 years with a 36k mile allowance and it cost me $39k total with all the taxes and inital registration fees. Got a discount on the car and a discount on the lease terms from the corporate fleet plan. I could have simply bought it at the discounted price and it would have been a really good deal too. I actually turned it in with fewer than expected miles, by a significant amount.

Now, the big part that doesn't fit on most lease cost breakdowns is risk. Through no fault of my own, I got rear-ended hard enough to need a ride to the hospital. (I will say, I'm a huge believer in the safety of the SL!!!!!). The other risk is that at the end of the lease term, the car will be worth less than the predicted value.

So, in leasing the car, I was protected from the financial risk of diminished value, both in terms of depreciation and the result of a collision.

It is cheaper nearly always to buy a car and drive the wheels off of it than to lease it. Even more so a used car where the depreciation curve has flattened out. That's where I went after turning in my car. I would never, ever advise leasing a car you were not completely able to pay cash for.

But - the owner bears all risks. Leasing an expensive new car makes some sense in that you don't drop money into up front, then put all that money at risk on the road. The road is indeed, pretty risky. You also have no idea of the car market 3 years down the road. It may be in demand, or it may languish unsold for months at a discount.

So figure that in to the formula somehow in the lease vs. buy argument, the risk value of money. How much is it worth to be excluded from that risk?

I can tell you, that in spite of a very high quality repair, the leasing company took a big hit on my lease. I did my part, fixed it right, made all payments on time, turned it in with new tires and clean and under miles and all maintenance operations done on time.

eddieo45

so if I factor in my CLK's depreciation I MADE money owning it, lol......

Wolfman

If there is one thing I learned with cars is that every owner will loose on it; some more, some less. Depreciation flattens out over time but never stops. The amounts get smaller but the principle stays the same
But who cares? We enjoy the cars, wether new or used, short-term or long-term...

eddieo45

not EVERY one:

https://www.bizjournals.com/boston/n...15-62m-at.html