On another car forum, I was having a debate with a fellow. Here's his take on buying a new car...

1. ALWAYS lease. It's obvious. Suppose you buy a new Mercedes. The financing payment is always higher. Thus, leasing is less, as the payment is less. Lower payment MUST mean lower cost. It's just so obvious.

2. Driving a car out of warranty, yes even a Toyota, Honda, or Mercedes, is sheer financial folly. Repair costs are always more than leasing a new car. Lease a new one every 3 years to minimize costs.

This debate has gone on for a couple days, and I feel like I'm losing my mind. Folks are seeing the "math" of the lower payment. This is nuts?

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John Shellenberg
1998 C230 "Black Betty" 240K

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The difference in total amount paid between leasing and purchasing has to be greater than the built up equity for said period. After the car is paid off I don't see how maintenance costs could be more than what you would pay per month on lease.

Explain to them that they're paying on the depreciation of the vehicle which the owner (leasing company) gets to charge you and then write off. Better yet, the leasing company gets to depreciate the car to zero in five years and with MB allowing leases on cars up to seven years, they're charging you to depreciate a car that already has no value. At least that's how it works with equipment.

If you purchase the car, you "pay" the depreciation to yourself, and even after five years, the car is still worth something after it's been paid off.

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You don't need a weatherman to know which way the wind blows - Robert A. Zimmerman

Kuan, I'm not arguing here and I think your explanation makes sense.

If what you want is a new car, then leasing is better, isn't it? Lease a couple of years and then turn it in (careful to keep mileage low, etc).

In order to make a car "pay" for itself you have to own it a long time, with low maintenance costs.

The worst combination would be a long-term lease in which you have an older vehicle of no value to you (but still worth something to the leasing company on resale) which you turn-in when it finally begins to "pay" for itself.

I put "pay" in quotation marks because a private-use vehicle is never actually gonna make you any money.

It's funny - I had this exact same discussion with a person on the golf course last week. He appeared to be smart, educated and he always enters into a 2 year lease on a new BWM.

He drives the car 2 years and then signs up for a new car for a new 2 year lease - he was convinced he was saving big $$$ over my approach of buying 4-5 year old used cars and driving them for 6-8 years.

Now if you want a new car every 2 years I could maybe see how a lease could work for you - but unless my used cars are going to rack up $1,000 repair bills every month I don't see how in the world I'm not way ahead.

I also know a sales manager from the local BMW dealership - he told me that 80% of the cars the move every month are lease deals.

Go figure.

I knew a few grad students who leased cars simply because they didn't want the hassle of paying for repairs and because they didn't want to be stuck to an aging car when they graduated.

Leasing is a tough one for me. I see BMW 325i cars advertised for a monthly lease payment that's half of what we're paying on our Benz, and leasing our same Benz would have been 2/3 the cost. We could've used the extra few hundred $$$ per month for more constructive things like paying off a mortgage while still enjoying a safe and solid car.

The answer (as usual) is "it depends"

If you have no factory incentives on a sale or lease, and the guys who figure the residuals have it right, moneywise there should be no difference. If you do a three year lease v. a three year purchase at the end of the term the guy who bought it should have an asset equal in value to what the lease guy saved on payments.

Of course there are incentives both ways and sometimes the residuals (resale values) are wrong.

What do ya'll think of this?

http://www.swapalease.com/VehicleSearch/VehicleSearch.asp?year=&make=Mercedes-Benz&model=E%20Class&category=%25&state=&zipcode=&begPayment=0&endPayment=5000&begPrice=&endPrice=&BegMonthsRemaining=0&EndMonthsRemaining=75&recent_list=&forSale=N&resultsPerPage=10&page=1

Bot

Here's how I took it...

A new (Canada...) Mazda3 Sport loaded is $25,185 plus $925 for PDI. The lease is 6.65% for 48 months with a payment (taxes in) of $402 and a residual of $13,560. The sum of the payments is $19,296.

Buying the car means financing it for 48mos at 2.9% with a payment of $642, taxes in. The sum of the payments is $30,821.

Where's where everyone STOPS. Yippee! We saved $11,521! Leasing WAS cheaper.

Wait a second! What about the car? We OWN the car in scenario #2. It's got a value, right?

Well, four year old Proteges typically sell for about $11K here. The Protege5 does better than the sedan, and fully equipped cars carry about a $1000 premium.

Suppose we can really sell the now four year old Mazda3 for $13,560? It sounds like a pretty realistic figure.

Now, the total cost of buying is $30,821 in payments and interest, LESS the money realized from the sale. Hence, the total cost was $17,261, of about $2500 less than buying. The residual has to be overstated by at least $2500 for leasing to come out ahead.

This is ONE example. If the car in question has an inflated residual, it makes sense to lease. If not, it makes sense to buy.

What about used cars? Here's an article I really like...

http://www.canadiandriver.com/articles/pb/usedcar.htm

It makes sense. Do I always buy used? No. Maybe it's not the most prudent thing, but sometimes, sometimes, I really like having a brand new car. It costs more, but, well, that's life...

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John Shellenberg
1998 C230 "Black Betty" 240K

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There is one more thing to add in here (maybe not as bad in Alberta), but taxes come into play here too. When you buy the car you have to pay the tax on it (provincial sales tax and GST total 15% in Ontario) that's not a big deal if you are buying a $10,000 car, but if you are buying an $80,000 - $150,000 new Mercedes it adds up fast. If your residual leaves you with 50-60% of the cars value, on only pay 40-50% of the tax on the car.

In my case, My E420 lease will be up the end of this year. I can buy the car for $16,000. I will also have to pay tax on that amount. My total cost will be $18,400 for a now 10 year old car that will also be completely out of warranty. Suppose I finance this car over three years. At 4.75% that works out to $550 per month. That is just $50 per month less than my lease now. So in three years I own the car outright. I can sell it at that point for how much? $10,000 if I keep it pristine, which probably means a paint job between now and then, more likely I could sell for $5-$8k. There are some problems I know about. Some rust on drivers door, small now but quoted $850 to repair and paint). Its about time to replace most of the bushings in the rear suspension and the front control arms, that almost $2,000. So there are just the things I know about. I have had to spend over $8,000 in a single year to keep my last Benz on the road, and the stress worrying about it and time in the shop was hard to put a price on. My point is that it wouldn't take much to eat up that equity after three years and leave me with net $0.

On the other hand, my lease is a closed-end deal, so I can walk away from it. I can get into another, newer car (already priced a '99 E430 I can get for the same monthly lease with 0 down with signature class (starmark in US) warranty. So for the next three years I can drive a newer car with no care for repair costs for almost the same monthly as buying my current.

Where am I three years from now. I think net $0 in both cases. Where buying the current car becomes attractive is if I think I can drive it payment free for at least another 3-5 years after than. I am pretty sure repair costs would average less per month than my current payments over that period. I may prefer to be in a new car at that point.

Financially, I think you can make arguments for and against leasing. I think the same goes for buying. I think I'd rather have the '99 for the next three years and a 2004 the three years after that, and so on.

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Jason Priest
1999 E430
1995 E420 - retired
1986 420SEL - retired

John, you are a very persistant fellow. I personally do not have the patience to educate folks as thick headed as the one you've described. Especially when they are not receptive to said education.

One very significant downside to leasing is that it removes your ability to choose when to purchase your next car. Manufacturer leases are structured to steer you toward another new vehicle at the end of the lease period. This can become a very unattractive feature if your financial situation (and cash flow to fund the payment) changes. Think job loss, illness, wife home with baby, etc.

I've had friends who had to go out and purchase a car while in the middle of a long-term unemployment stint because they chose to lease while times were good.

- JimY

Jason,

In the case of your 1995 E420, I have to admit I would probably be hesitant to buy out that car for the $16,000 residual.

You might try negotitating with MBCC (if that's who you leased it through) and see if they're willing to wiggle, or REALLY wiggle on the price.

The thing that I might be concerned about is the lease-end charges. I understand that MBCC is very fair, but you might get hit with some serious charges on a car that age. I've seen friends with Fords and others get eaten alive at the end of the lease.

I've seen Signature Class W210 E320's and E430's for some pretty decent prices lately. A 2000 (the updated body/interior) might be worth waiting for...

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John Shellenberg
1998 C230 "Black Betty" 240K

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When you buy the car out you are often hit with sales tax as well in order to transfer the title.

IMO traditional leases suck, on the other hand I lease my truck @ 0.0% with a 1 dollar buyout now that lease does not suck, because I get all of the tax advantages of a lease while the company owns it and then I personally buy the lease out for $1, the company gets the tax break and I get a truck, it's a beautiful thing.

But lets say with your current job you travel 100 miles a week and the next thing you know your job is in India and now you have to travel beyond the miles you agreed to in your lease, now your screwed.

That's interesting. I had the same discussion with the local MB dealership a year back, and he said almost all their new car sales are private sellers paying cash. Whether they had an independent leasing agent or some other private arrangement, we didn't know.

Ken Silver
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~1993 SL500, glistening triple black, xenons: http://www.kensilver.com/SL
~1999 SLK 230 Kompressor, silver/black leather, CD, immaculate (my wife's)
~1991 Daimler, shiny grey/grey leather, best in country!
~ex 350SL, 230E, 280E, MX5 and a lot of other makes not nearly as nice.

You're both right, popular financing terms differ from location to location.

Around here, it depends heavily on the car.

About 50% of C-Class cars are leased/financed. Many are "second" cars for rich folk that pay cash. They usually have a bunch of other cars.

About 75-80% of E-Class cars are leased/financed. Seems many more people are "income earning" buyers.

With the SL, over half are leased. Many people STRETCH to buy an SL, and a shocking number are bought by upper-middle class people with jobs.

The majority of S-Class cars are bought by business people, and most are cash purchases. Other buyers include folks like doctors and lawyers, and some lease them.

The entry-level CL-Coupes (CL230 and CL320) are almost all leased/financed.

The far-from-entry level CL500/600 cars are ($180,000...) bought only by the most well-heeled of the well-heeled. This includes the richest of the rich from the entrepreneurial world and sports stars. Most pay cash.

ML's are heavily leased/financed.

Some interesting stats? The average income of a C-Class buyer is $156,000. For the SL it's $160,000. Average age for both is 57.

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John Shellenberg
1998 C230 "Black Betty" 240K

http://img31.exs.cx/img31/4050/tophat6.gif