undecided

Well, I used to be an analyst once in my life, so I decided to figure it out for myself what the lease costs would be for the BMW 325xi and the IS250awd. Please keep in mind that I am not an aacountant or a financial analyst, so I may need your help in interpreting what I am finding here.

By the way, I am Canadian so the numbers here are in Canadian Dollars to lease from a Canadian dealer. No money down 24,000 km/year lease for 3 years. We will leave all taxes out of this analysis. We will assume all purchase are at MSRP. All info is from the manufacturer's Canadian web site.

OK, I am comparing:

1) BMW 325xi with premium package, leather seats, and auto transmission
2) is250awd with premium leather with moonroof package
3) IS250awd with luxury and navigation (since it is close to the 325xi price, but has more options)

Here is the analysis table:

......................................bmw.................lexus................lexus
......................................325xi................is.250.awd......is.250awd+
1)...msrp.......................$52,385.00....$46,800.00.....$53,700.00
2)...monthly.payment.......$798.00.....$858.84............$1,017.62
3)...residual..................$32,479.00....$25,272.00.....$27,387.00
4)...residual.percent................62%................54%.................51%
5)...amount.paid..........$28,728.00.....$30,918.24....$36,634.32
6)...msrp-residual.......$19,906.00.....$21,528.00.....$26,313.00
7)...profit........................$..8,822.00.....$..9,390.24.....$10,321.32


OK, the monthly payment sin line 2) show that the BMW is $60 a month less expensive, even though the MSRP is almost $5,600 more. So the price savings in the MSRP for the IS250awd is actually eaten up by the low residual. As you can see, the residual is significantly higher for the BMW percentage wise than the IS250awd. Even more unfortunate is piling on the options on the IS250awd lowers the residual percent. That's right, loading in an additional $6,900 in options garners only a $2,115 increase in the residual! This drop in the residual does not happen when you add options in the BMW.

OK, lets get down to what I have named in line 7) of the table as profit (it is really is just extra money taken out of your pocket). If the residual is the amount you can buy the car for at the end of the lease, and since leases are marketed as paying only for the portion of the car you use, then you should be paying the amount calculated as the MSRP in line 1) less the residual in line 3). For the BMW, MSRP less the residual is $52,385 - $32,479 = $19,906. OK, but the amount actually paid (the monthly payment x 36) is $28,728 (line 5)). I understand that you have to pay interest on the amount you are "borrowing". The BMW web site says the rate is 6.95%, but how can 6.95% interest calculate to $8,822? Indeed, the interest rate to finance that $19,906 "purchase" is actually 36%!!

OK, now my understanding on leases is that even though it looks like you are paying for only the portion that you use, the leasing company has to pay for the whole car. So even though you think that the payment on the lease is to pay for the $19906 of the car's value that you are using, the leasing company is borrowing money on the entire purchase of the vehicle. I redid the interest calculation so that the loan is based on the $52,385 MSRP, and at the end of 3 years, if the balance owing on that loan (at 6.95%) is the residual amount ($32,479). Even with this calculation, the interest rate appears to be 10.3%!!

So what am I missing here? Why don't the numbers work out?

So my guess is that BMW is actually just charging extra on the lease, and that extra to me is pure profit. So the row labelled profit may actually be labelled correctly as it would include the profit generated by the interest and the cash grab.

The IS250 is no different. The web site says 6.90% interest but it is calculates out to 10.36%. What am I missing? Is this just an extra amount charged to keep the payments high so only those who should really afford a Lexus or BMW can afford to buy it?

OK, back to the cost analysis. Let's consider the 325xi and the IS250awd comparable. That is, lets assume that the lack of features on the BMW is offset by other factors so you view the 325xi and the IS250awd as comparable cars. If you don't then don't bother with this analysis. If you can afford the payment, or don't care about the payment, then go with what you want. I just want to analyze the numbers.

Looking at the monthly payments, the Lexus is just seems to cost too much to lease. Indeed, the loaded $53,700 IS250awd will cost almost as much to lease as a $74,200 BMW 530xi (not shown in the table) at $1190 a month (premium package with auto transmission)! OK, the 530xi will not have navigation, but it is a $74,200 car!

Sorry if this is a bit confusing. I would have explained the above better, but the post is already too long. But remeber, this is just a cost analysis, not a value analysis.

krs71

so basically you have to make 150K a year to afford any of the vehicles mentioned.

MatadorIS

Remember that those are in Canadian dollars.

Also, those residuals are quite low for the IS. I thought they were around 60+% too, like the BMW.

Toyota_F1

iTrader: (1)

Your lease payments are made up of 3 things, the average depreciation of the car over the term you are leasing (figured by the term and the residual), the rent charge (the amount the leasing company is charging you to lease the car), and tax (unfortunately we all know what taxes are). As far as the IS I haven't looked at the lease numbers on this car as I don't work in that part of the business but I can take a closer look at it when I go back to work on Monday and let you know since I work for Toyota/Lexus Financial. I too, was under the impression the residual was 62% base, 60% with nav. I can't imagine it would be different in Canada but I guess stranger things have happened.

undecided

I agree that the charge is made up of depreciation, rent and taxes. I excluded taxes from my calculation (after all, it can be added to the monthly payment), but perhaps I should consider it (but since it is deductable to the Leasing Company, it shouldn't add that much to the total cost).

It seems, at least for Canada, that we go from bad and worse when it comes to the Lexus residuals. Does no one want a used Lexus in Canada? Perhaps when the initial demand wears off, the selling price will drop dramatically on the IS, then the residual as a percent will be much better. But at MSRP, Lexus is making a killing!

diablo1

I don't know why the residual would be so low. Here the base residual is 64% and they take off 2% for nav and 2% for 15k rather than 12k miles per year. So for example, I have an IS350 with nav and 12k miles per year, and my residual is 62%.

Wakesetter

Can somebody explain residual value for me. I understand what it is and how it's used but why do I see most people on this forum saying they got between 60%-62% and when I went to the dealership they came back with 50%?

undecided

When you are leasing, at the end of the lease, you can walk away from your lease obligations, or you can exercise an option to purchase the car. The price at which you can exercise that option to purchase is the residual amount. For example, if a car is valued at $40,000 brand new, and the residual is 50%, then you have an option at the end of the lease to walk away or to purchase that car for $20,000.

The reidual value is supposed to estimate the value of the car at the end of the lease. That is, if you went to purchase that $40,000 car 3 years later, you would buy it for the residual price. Since the leasing company generally doesn't want to be saddled with used leased cars, they set the residual value at a price lower than the market value. In our example, if your option to purchase is $20,000, but you could sell it on the market for $25,000, you may decide to buy the car.

Of course, the lower residual sounds great since it is will cost less to exercise the option, but your lease payments were higher just to get to that residual number (so there is no real discount). You are better off having as high a residual as possible as that will help lower your monthly payments.

As a rule of thumb, It will cost less money in total to buy the car from the beginning, than it is to lease and then buy the car using the purchase option. If you decide to lease, you should just keep leasing instead of exercising the purchase option (unless you think you can flip the car for a profit).

Wakesetter

That is exactly where I'm going with this. I DONT want to purchase the vehicle at the end (I'm sure I will be bored after 3 or 4 years). That is why I was so disappointed to hear that the dealership was running the numbers at 50% residual when the majority of other people were posting at 60% or better. I just don't see how there can be that big of discrepency from one dealer to the next. I don't know how they determine that and they won't give me the answer. Thanks for your explaination though. I would gladly take a higher residual if they would offer it to me.

undecided

Just an update. I found a lease calculation spreadsheet at a BMW forum that I am told mirrors the BMWFS web site lease calculator. I thought I would use this calculation on the numbers for the leases in my first post.

I can't day that I understand the reasoning behind all the calculations (especially steps 4) through 6) below), but here is a simplified explanation of the lease calculations:
Anyways, the calculator can be summarized as follows:

(A) first calculate the portion of the payment that is the depreciation

1) take the capital cost (assume MSRP for now)
2) subtract the residual
3) divide the total by the number of months gives monthly depreciation payment

(B) then calculate the interest (or the "rent")

4) take the capital cost
5) add the residual cost
6) multiply the total by the money factor gives monthly interest payment
......OR...........
6) multiply the total by the interest rate and divide by 24 gives monthly interest payment

(C) then calculate the monthly payment

7) add 3) and 6) above for the payment.


OK, from the first post in the thread:

Lets use the numbers for the BMW 325xi lease:

1) $52,385.00
2) - $32,479.70 = $19,906.30
3) $19,906.30 / 36 = $552.95

4) $52,385.00
5) + $32,479.70 = $84,864.70
6) $84,864.70 * 6.95% / 24 = $245.75

7) Total payment is $552.95 + $245.75 = $798.70

and $798.70 is the monthly payment shown in the table above (so BMW US and BMW Canada are using the same formula).


Now for the Lexus IS250 awd:

1) $46,800.00
2) - $25,272.00 = $21,528.00
3) $21,528.00 / 36 = $598.00

4) $46,800.00
2) + $25,272.00 = $72,072.00
6) $72,072.00* 6.90% / 24 = $207.21

7) Total payment is $598.00 + $207.21 = $805.21

But $805.21is $53.63 a month less than the $858.84 Lexus FS is asking for on the Canadian Web site (a total of $1,930.68 over the term of the lease).


Sorry for all the math, but like I said in my first post, the lease payments just seem too high. I know that I am using a BMW calculation in this post, but that is all I can find.

Is there anyone out there that can explain these Canadian Lexus lease numbers?

markulele

confusing!

either way, leasing is usually for american people who spend money now, worry later.