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High End Luxury Cars

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  • ljflxljflx Posts: 4,687
    Pablo - excellent post. They indeed know it thus the move away from one or two engine options (the LS has only had one engine each model year) and the move to the bolder sportier designs in the LFS vintage. Don't underestimate what the hybrid is going to do to this market either. Plus the new engine developments and technology shifts will favor the well capitalized. I'll also bet many people already lease Lexus. Most Lexus people I know lease simply because they want a new car every three years. Most use to lease MB's in the 90's.
  • designmandesignman Posts: 2,129
    I think hybrid could turn out to be the biggest innovation in the auto industry since the auto itself.
  • oacoac Posts: 1,594
    For example, a market that tips over into the leasing end of the business might not reward quality process and utter commitment to reliability as much as the current, murkier own-vs-lease landscape does

     

    Personally, I don't see how Audi/Lexus/BMW/MB will design/engineer mainstream luxury cars for such a narrow interest - lease-based - as a business model for their products. For niche cars like the AMG/M/S cars, maybe. These days, far too many people can AFFORD luxury cars than in the past in our parents era. And with the economy, real estate appreciation and baby boomer generation we have today, earning power will continue to go up, as wealth continues to build in many households here in America. Hence, buying and owning a luxury car will only increase not decrease, imo. A good friend of mine, by no means a rich fellow, decided to take a little $$ off the top of his house (equity), and paid in CASH $47K for an MB M350 for himself, $35K in CASH for his wife's G35. This guy could have leased the truck and the G, but he wants pride of ownership. I will suspect there are many people that feel this way with owning luxury cars.
  • brightness04brightness04 Posts: 3,151
    A good friend of mine, by no means a rich fellow, decided to take a little $$ off the top of his house (equity), and paid in CASH $47K for an MB M350 for himself, $35K in CASH for his wife's G35. This guy could have leased the truck and the G, but he wants pride of ownership.

     

    Not sure what you are saying. How does one take a little $$ off the top of his house (equity)?? Did he divide his land and sell a parcel? or did he condominiumized his house and sold some of the condoes? Or did you mean he went into hock and took a second mortgage on his house to pay for cars?
  • kdshapirokdshapiro Posts: 5,751
    "Or did you mean he went into hock and took a second mortgage on his house to pay for cars?"

     

    That is what my friend does. Two houses both fully paid for, no bills. When he wants a car, he goes into hock and takes out an equity line. When you bought your house for $100K and it's worth $700K/$800K and you earn a couple/few hundred thousand a year, what's $70K in an equity line?
  • pablo_lpablo_l Posts: 491
    Just because you have $70k does not mean that going forward it makes sense to buy your own car. Pride of ownership? As someone who's owned every car he's ever had, I am here to attest to the fact that can turn into hassle of ownership very quickly. *I* for one will probably lease my next car, because I am convinced to the core that the car business model has tipped and manufacturers do not build their higher end cars to provide their owners with 10 years of hassle free, low cost maintenance ownership. If on top of buying a car cash you wind up paying >3k of yearly service cost, the ownership model makes little financial sense, and "pride of ownership" becomes something people grow out of when they look at the numbers and realize the car they own will not only be old, but on top if it extremely expensive to maintain. My wife and I bought our cars cash because we could, because we like to own, and because I am one that hates to load up the monthly bill cycle. The latter consideration however is thrown out of the window when repair costs for a car exceed a certain amount per year, as has been the case with our Mercedes. In a leasing model, I would not need to be worried about that, since the warranty will always cover expensive stuff, and the predictability of the expense represents an advantage. It means we can consider any car we just like without worrying much about long term reliability, and in theory could easily consider Mercedes. But we won't because we've received bad advice, no goodwill and experienced a very questionable business practise unworthy of their brand, just like my final bad Jaguar experience made me turn my back on them several years ago. As far as my future choices go, both Jaguar and Mercedes have made me a very wary consumer, and they only have themselves to blame for the loss of potential business that may represent to them.

     

    But as to owning vs leasing - I have spent about $250k since '96 buying new cars, and at the end of the day the "pride of ownership" doesn't tilt the balance. I'll lease in the future. It's hassle-free, predictable and ultimately likely to always be the more enjoyable experience, in my opinion (and experience).
  • brightness04brightness04 Posts: 3,151
    It's pretty sad, for someone who makes "a couple/few hundred thousand a year," there isn't $70k cash somewhere. With all the low interest incentives going around with cars, it's hard to imagine an equity line can beat a car loan or lease incentive nowadays in terms of interest rate. Unless you are selling the house, or parts of it as in land sub-division/condominiumization, there is simply no money to take out of the house. Equity line and other banker-speak are just their way of tacking a tax on every dollar you earn/spend. If you borrow $70k at 5% over 5 years, you have just signed yourself yourself for an additional 12%+ income tax on $70k of your income. Borrowing is borrowing, your friend no longer owns the house free and clear the moment he exercise the line of credit; even if he is not in any danger of losing the house, he still pays the interest. The money is not free.
  • brightness04brightness04 Posts: 3,151
    It's all dependent on if car makers continue to subsidize their lease residue through their lending arm. At the residue value of MB in the past few years, I would never buy an MB even if money equivalent to the car cost is burning a hole in my pocket. Lease it, then re-negotiate lease buy-out at the end. Of course, you have to watch out for mileage.

     

    If the carmakers stop subsidizing lease residues, leasing may well become a very expensive insurance policy.
  • kdshapirokdshapiro Posts: 5,751
    "It's pretty sad, for someone who makes "a couple/few hundred thousand a year," there isn't $70k cash somewhere."

     

    I never said that and you're making assumptions. You don't know the total picture as to why one would pick one way over the other of financing a vehicle. Maybe he has a few million dollars tied up in trusts for the kids that he has no intention of looting for a car?
  • patpat Posts: 10,421
    And maybe one would choose that option because the interest on a mortgage is deductible...
  • kgarykgary Posts: 180
    If you can't afford to pay cash for a car, you can't afford the car. If someone needs to take an equity loan, they should buy a cheaper car.
  • ljflxljflx Posts: 4,687
    Why is that the case? There may be a better need for cash. The issue isn't taking on a loan - it's whether you have the capital assets to payoff that loan or the income to meet the stream of payments. If you took that attitude up a notch no one would ever buy a house or any major capital item and then our whole economy would be in shambles. As well sometimes you want money kept free for bigger and riskier investment activities.
  • I walked all around my car, and looked very carefully. I failed to see the scarlet "L" anywhere. No one has ever said "Nice car..Oh , it's only leased".
  • kgarykgary Posts: 180
    While I am still in my thirties, maybe I am old school. I don't pay interest to a bank. I use the "interest" money to invest.

     

    I do not have a mortgage on my house. I do not have notes on my cars. I do not lease things. I have no credit card debt. I have no personal loans.

     

    My oldest child is only 8, but I have fully funded each of my children's college funds so that if they started college today there is already 4 years of college, and then some, paid for each one. I have funded my 401K so that if I stopped contributing today, it would provide me with a six figure income, in 2005 dollars, for 40 years of retirement. I have been able to do this because I refuse to fall into the trap of paying debt service.

     

    Simply put, I buy what I can afford. When I ordered a car last month, I ordered a 2005 A6 4.2, I did not order a Ferrari. When I bought my house on Long Island's north shore, I did not buy a house on the water.

     

    Why would someone want to be a slave to their possessions? Why would someone want to have to continue to work and generate a cash flow to keep their stuff? Why would someone want to have to sell some of their capital (other stuff) to pay for new stuff.

     

    As I said, if you can't buy something for cash, don't buy it. Buy what you can afford.
  • garyh1garyh1 Posts: 386
    This is upsetting to me. To me, buying a luxury car and holding it for a long time was my favorite strategy. It made me feel like I was using my capital wisely, while still enjoying a fine driving experience. It was an especially good strategy for me since I am a low mileage user (and even more so in recent years since I injured my back).

     

    Real life example: in 1987, I bought a 1 yr old 735 BMW for $31K cash (big first year depreciation on 7s in those days!). I kept it until 1998 when I traded it in for about $5,000 off on a new MB E320 (again paying cash). So my cost for driving a great car was about $180/month (yes, I know, plus the time value of money)!

     

    Admittedly, the numbers are different these days, but the point is the same. That's why I just bought an '05 LS for cash instead of another MB this time-- I plan on holding it for long time. But if Pablo is right and nobody is going to bother building cars that hold up long term anymore, I will end up paying $700+/month like all the lessees. And I don't really care about getting a new car every 3 or 4 years if I can be driving a fine older one (with low mileage in my case).

     

    Please Lexus, don't try and follow the path of "planned obsolescence". Toyota didn't get where it is by selling short-term fashion plates cheaper than the Germans. There is still a market for people who want quality. Otherwise, Pablo is right and I would lease an S over an LS(I still love the look and feel of the former), and just dump it every 3 years (and hope I get one that doesn't have to be in the shop too often even in those first 3 years!).
  • kgarykgary Posts: 180
    I agree with you. Owning a quality vehicle, and holding on to it, makes the most sense. Lets just hope that companies keep making quality vehicles.
  • patpat Posts: 10,421
    Let's just be careful that we don't we get into "moralizing" about the methods folks choose to use to acquire their vehicles. We all have our different reasons for using whatever vehicle (ha!) seems to be most expedient, but judging those decisions is not what we are about.

     

    We need to discuss the cars and not rip people for making financial decisions with which we do not agree.
  • ljflxljflx Posts: 4,687
    Nothing wrong with that philosophy - It's just not for me. I am fortunate as I can write the check for any of these cars - nevertheless I'll continue leasing - partly because I use a car for my business and partly because I do like a new set of wheels every 3 years. Thus I lease my personal vehicle as well.
  • oacoac Posts: 1,594
    For trying to bring this back to some sanity. Now let's get back to talking about luxury cars....
  • jvcnjvcn Posts: 50
    It's hard for me to believe that leasing beats buying except in odd circumstances with very subsidized leases for people who want new cars every 3 years, and with cars that are a lot of trouble after just a few years. Maybe some Jags and MBs are like that. But I doubt that the Acura/Lexus/Infinitis and possibly even the Cadillacs require >$3000 a year in maintenance and repairs even after 5 or 6 years. I know for sure that many of the used 7 or 8 yr old LS400s with 90K miles discussed in Lexus forums cost maybe upfront $2000 in repairs (say if bought cheap 3rd hand) followed by no more than another $1500-$2000 in total maintenance and repairs for 5 years after that.

     

    If you have hard numbers on this, I'd appreciate learning a source because I'm quite interested in this issue.

     

    But if you're just guessing that people will be so fickle that long term reliability has little value, then who knows... You may turn out to be right.
  • patpat Posts: 10,421
    This is not the place ...

     

    The positives and negatives about leasing are being discussed on our Smart Shopper board - I hope that those of you who are interested in pursuing this subject will look up appropriate discussions there and continue.

     

    But here we are talking about vehicles, not the ins and outs of various financing methods.
  • ljflxljflx Posts: 4,687
    I'll just answer the leasing question and then drop it per Pat's request. But say you can lease a $62K LS for $825 per month (36 months) (some have said they got $50-75 better than this) then buy it at lease end for $35K and it costs you $500 in bank fees. This is a pretty typical deal. Out of pocket costs are $65,200. If you assume a 3.5% interest factor (interest you could have gotten on a 3 year CD) than your lease payments would have earned about $1600 had that money stayed in your pocket - so add that in and your out of pocket is $66,800. If you could have bought the car outright for say $59K (Edmunds TMV is $60K) than after 3 years you're real out of pocket is $65,400 (using that same 3.5% lost interest factor; 66,500 if I use Edmunds TMV). Is it worth $1400 (and only $400 if Edmunds TMV is right) to decide 3 years from now that you want the car?? That's the premium factor. If you can do better than 3.5% on your money in 3 years it may well swing the bias toward leasing on a pure cash basis and you have the added benefit of buying or passing on the car after you got to know it and its reliability. Tax deductions in leasing - if they apply - blow it out of the water in leasings favor. I kept this rather simple without PV's and I left out sales tax. But leasing isn't really all that much more than buying at all and you have the option of looking at your finances to decide if you want to buy what you leased or re-up on a new lease at the end.
  • brightness04brightness04 Posts: 3,151
    Money tied up in kids trust funds is not free un-encumbered cash (ie. facing severe tax consequences if looting is attempted); money tied up in the house is not free un-encumbered cash (there is no money in the house except for those under the mattress or something, or those parts that one can sell without losing a roof over the head). Once again, it is pretty sad for someone who makes "a couple/few hundred thousand a year," there isn't $70k free un-encumbered cash around somewhere.

     

    Mortgage tax deduction doesn't really wash very far either. There are severe limits on the tax deductibility of 2nd mortgages for non-home improvement purposes (ie. take-outs), especially for someone who makes "couple/few hundred thousand dollars a year." The usual cap is $100k, and further restrictions kick in as early for gross income as under $70k for single/separate filing, and $140k for couples. KD's friends making "couple/few hundred thousand" per year must have less than $100k eligible for mortgage deduction due to their higher income.

     

    Even with mortgage tax deduction, 5.5% is turned into 3.7% effective, still higher than most car manufacturer's loans and lease money factors.
  • kdshapirokdshapiro Posts: 5,751
    brightness - you're beating a dead horse. Suffice it to say, people have their reasons for doing things a certain way. BTW - go and read the original post carefully.
  • patpat Posts: 10,421
    You know, I reeeally don't like to get like this, but this is NOT the place and I've said so as clearly as I know how.

     

    I'm going to have to start removing these kinds of messages if people persist in posting them. The "I'll just say this and then drop it" does not work because there is never an ending point; someone always has something else to "just say and then I'll drop it".

     

    I again invite those interested to continue this in an appropriate discussion on our Smart Shopper board - you can explore this topic fully there.

     

    Now ... who here is going to be attending the Detroit Auto Show? What are you looking forward to checking out?
  • kgarykgary Posts: 180
    I can't make the Detroit Auto show, I will try to make the NY show. I hope to see some great cars.
  • pablo_lpablo_l Posts: 491
    Since the whole concept of buying a luxury car is irrational and emotional, I think criticizing anyone's approach to buying some car is not very rational either - it's all merely a function of how important something is to someone. And "perceived value" -and not COGS- is the very essence of luxury brands and ultimately of market economy. Whether we want it or not, irrational behavior rules a large portion of our being consumers.

     

    I read somewhere that by now over 2 thirds of all cars from entry luxury upwards are leased, and that this is expected to grow even further. To assume that car manufacturers are not going to engineer their cars with this market shift in mind is a dangerous assumption. Again - I am someone who's always owned, but I think the time has come for me to change. My outlook on ownership has not really changed, but the products in my opinion have: more electronics mean more programmed in obsolescence and probably less graceful aging. And with maintenance costs for older cars shooting up... the concept of paying nearly as much for maintaining an old car as I would for leasing an new car is somewhat silly. Older cars seemed engineered for long term ownership. I see little evidence that is still the case.
  • ljflxljflx Posts: 4,687
    Pablo - overall the concept is logical but it breaks down because residual value costs will be effected very negatively if future potential buyers are afraid of purchasing "off lease" cars. To a certain extent we can already see this is progress. MB residuals have fallen like a brick since 2001 from 67% on a 3 year 36K lease then to near 50-52% now. Someone is underwriting that lease depreciation, either other insurance protection plans for the mfr. of some kind, or the leases are subsidized and the losses put off into the future. Lexus, on the other hand has held around 60-62% and a pre-owned Lexus LS will cost you a lot higher percent of original MSRP than a pre-owned S-class after the 3 years are up. High reliability standards will always show up best in the secondary used or pre-owned market. When you think about it that is where MB's whole reputation was built. No one was afraid to buy a pre-owned MB in the 70's, 80's and for awhile in the 90's - if you could even find one particularly in those earlier decades. Today that is not the case at all. It is now Lexus, and even Acura, that has taken over that rock solid feeling buyers of pre-owned cars want to have. If the secondary market doesn't support high residuals then the initial market will not support the high depreciation brought on by the excessive new price. So in the end - regardless of who you are building the cars for - initial buyer or the secondary and tertiary buyers - you better build it well.
  • jvcnjvcn Posts: 50
    I'm curious: Is there any evidence that the cars are less reliable in the longer term? My impression is that the LS series of Lexus is more reliable than ever with fewer complaints both at the 90 day and at the 5 year mark. Are you saying that's not right?

     

    Or do you mean: Cars today are better in the first 3-5 years, but once the electronics go out, you're dead. Whereas many of the best cars from the 70s and 80s had more niggling problems early, but once ironed out, the cars can be kept going forever at reasonable cost? Is this the argument?

     

    Just curious. And do we have info about this?
  • wabendswabends Posts: 102
    We are in the market for a 2003 745Li. We currently have these two offers and I will appreciate any comments that members of this forum have before making our final decision.

      

    Car 1: 2003 754Li; 23k miles. Navigation. Luxury pkg. Shades. Comfort front seats & heated rear seats. Heated steering wheel. Computer. Xenon lights w/ washers. Premium sound pkg. 19” Alloys. Non-BMW dealership, no CPO. Asking price is $57,995.

      

    Car 2: 2003 745Li; 34K miles. Luxury seating package; premium sound pkg; convenience pkg. parktronic. BMW CPO. Asking price is $56700.

      

    Which of these two will be a better deal?
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