Quote:
Originally Posted by clemsonkev
So leasing this car is now a good idea?
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Errr, no. What PKumar was saying is that (in his opinion) a 47% residual is a realistic value for a 3 year old, 30k mile M2.
I'm not sure I agree with him, but I do agree that BMW lease residuals have historically been over-valued. BMW has treated leasing almost like a form of incentive.
The thing to keep in mind is that leasing is like buying a car with a pre-arranged sale date 3 years in to the future. In concept, it could be said that the leasing company is agreeing to buy the car back at a fixed price in 3 years. In order to give you that fixed price, you have to agree to a specific mileage and condition. If you go over on mileage, or if you trash the car, the lease contract spells out how you'll compensate the buyer.
In reality, they're not "buying the car back", because you never own it. They just do the math on the difference in price, amortize that amount, and charge you a financing fee.
So, once you understand all this, it's easy to evaluate whether a lease is a good deal. The base M2 is around $53k. With a residual of 47%, the leasing company is agreeing to buy the car back at around $25k. If you think that M2 values will be higher than $25k in three years, you have two options:
Purchase) Do a purchase finance agreement at lower rate and sell the car privately when you're done.
Lease) Do the lease deal anyway, and buy the car at the end-of-lease with the intent to sell it privately.
There are a couple of considerations for the lease option:
1) You'll pay quite a bit more in finance fees. Leasing finance fees are always higher than purchase finance fees. The upside is that you're only financing a portion of the car's value (the difference in residual and the negotiated cost of the car), so you're actually paying about the same in some scenarios. You have to do the math on the loan vs the lease finance fees. Keep in mind that you'll need to include lease inception and termination fees in those calculations.
2) You could consider this a hedge. If you think M2 values will be
lower than 47% of the residual, you can use the lease as a hedge against declining future values. You'd still have the option to purchase the car and sell it privately, but you're going to pay a couple grand more in finance fees for the lease. These will need to be overcome for this scenario to make sense.
My opinion is that 47% is on the low side for the M2. The M2 has some carry over luster from the 1M, and it has received overwhelmingly positive reviews. Supply has not exactly been overflowing, either. It's not a limited run car, but it doesn't appear that BMW are producing the M2 in huge numbers. Add all this up, and I think 3-year, 30k-mile residuals will easily beat 47%.
I would take advantage of the lower finance rates on purchase financing and sell the car privately when I grew tired of it. The low residual value and higher fees makes the lease option a bad hedge bet.