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High End Luxury Cars

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  • deweydewey Posts: 5,243
    Seems kinda confusing to me what this ALG awards mean, really.

    The residuals reflects the overall average of BMW models and it is that average that is highest when compared to other marques.

    To find the segment information you will have to access that from ALG itself. The extra detail of segment information will not disprove the overall averages.
  • ljflxljflx Posts: 4,664
    Lexus is coming around on this - slowly. Toyota is very conservative here. But the GX residuals are much higher than the projections they made in leases a few years ago in the first 15 months of introduction. So they have elevated that residual substantially - which is why it made the list - I guess. Hey - any bean counter would love the Toyota methodology. Any lessee has to make sure they get the best discount in the Lexus way of doing things. Winner in a situation like that is always the dealer which has to be part of the reason why Lexus dealers are the most profitable in the land. In the end the whole thing is a game. Discount the car upfront rather than residualize it high in a few years or keep the MSRP up there and increase the residuals to unlikely retained values. The latter is a cash flow game. Pricing has so many variables that you lose track of them after a while. But in the end it really comes down to two things - what did you pay and how much can you sell it for 3-5 years later. Everything else is window dressing.
  • ljflxljflx Posts: 4,664
    "The residuals reflects the overall average of BMW models"

    Not in any way shape or form is this true and you can substitute whatever brand or car you want for BMW in that quote. But that's what you are supposed to think. That way if you are buying rather than leasing a car with a high residual projected you are in a losing proposition as you are taking the risk on the residualized value. Hpowders nailed it with his post. Bottom line - lease a German car and leave the future price risk with the manufacturer. If you are going to hold a car 8-10 years none of this has any relavance as they all end up at the same place by that time.
  • deweydewey Posts: 5,243
    Not in any way shape or form is this true

    Bottom line - lease a German car and leave the future price risk with the manufacturer

    OK three questions:

    1)So are you saying BMW subsidizes their leases more than Lexus? As I asked in a prior post where is the proof!

    2)Are you saying that Lexus has less future price risks than BMWs? I have never seen any evidence of this and would appreciate it if you can tell me where you learned your facts from!

    3)Are you saying that the high residuals of BMWs reflects their subsidies and not their popularity? Do you honestly believe that?
  • ljflxljflx Posts: 4,664
    "Can anyone prove that the subsidies of a average Lexus lease are less than a BMW lease?"

    Again see Hpowders post - lower than historic retention values and higher than industry standard money factors are as opposite of subsidizing a lease as you can get. You have to understand the whole approach to leasing is strategically different in the case of Lexus and BMW. It could be that Lexus Finance prefers the lessee to make a deal with his dealer on the car and a local bank on leasing reather than running big lease programs. so they throw a non-competitive deal on the table just to say it's there for convenience. Maybe that's why they only run a handful of progreams a year with the December to remember being the big one. My LS is leased from Chase because they had a lower money factor and a 5% higher residual. You could argue that Chase has more confidence in Lexus future prices than Lexus does.
  • hpowdershpowders Posts: 4,269
    I've shopped both Lexus and BMW leases.
    More than a few.
    The BMW leases are always the better deal.
    Yes. BMW subsidizes its leases and Lexus doesn't except in its "December To Remember" promotion.
    Lexus keeps the residual artificially low and because of that, the payments are high.
    Many people who lease Lexus vehicles go through Chase.
    In one case I know someone who was told point blank by his Lexus salesperson, to do a lease through Chase!
  • deweydewey Posts: 5,243
    The BMW leases are always the better deal.

    I cant argue that BMW provides better lease deals than Lexus.

    BUT those better deals may not only reflect subsidies but also higher anticipated resale values.

    Lease deals are not only about subsidies but also about anticipated supply and demand of resales.

    The fact that Lexus lease deals are not that good may be the result of lower anticipated Lexus resale values than BMW resale values!

    Ljflx,

    I know what you are thinking! Citicorp is proof that there is more confidence about Lexus resale values than what Lexus projects itself! Therefore Lexus residuals are lowballed and do not reflect reality.

    BUT Citicorp may have more confidence about BMW resales than BMW itself! Citicorp may be more agressive than Lexus or BMW!
  • ljflxljflx Posts: 4,664
    Retention values are based on percent of original prices paid retained not on absolute dollars retained. I've put up plenty of posts in the past that has shown the LS is the run away winner in this segment and that's based on MSRP. Given the LS is more easily discounted up front, as Lexus gives dealers a wide Invoice to MSRP range, the retention percentage is even greater than I had posted as I used MSRP. As for popularity - Lexus is the number 1 US luxury brand and resales are high because it's quite popular after 3 years - and that is because it's reliability is deeply trusted.
  • ljflxljflx Posts: 4,664
    "I know what you are thinking! Citicorp is proof that there is more confidence about Lexus resale values than what Lexus projects itself! Therefore Lexus residuals are lowballed and do not reflect reality.

    BUT Citicorp may have more confidence about BMW resales than BMW itself! Citicorp may be more agressive than Lexus or BMW!"

    I can guarantee you a bank will base retention value on past history not on some bubbly enthusiasm of future prices put out there by the manufacturer or future credit scores put out there by you. Can you imagine a bank lending you money based on your future projections of income rather than your prior year tax return, past income history and past credit performance??
  • hpowdershpowders Posts: 4,269
    As a loyal BMW customer, I have to admit, I would never buy one.
    Always leased since 1993.
    If I were to change to the LS which could happen in 2007, I would buy one.
    The car has great long-term reliability (which BMW's don't) and retains its value better than most. I would not be looking to dump it after 3 years.
    This car is as close to an investment as a depreciating asset can be!
  • deweydewey Posts: 5,243
    Oh I understand percentages versus absolute dollars.

    My prior arguments are based on percentages. And none of my arguments have been contradicted so far!
  • nvbankernvbanker Posts: 7,285
    We do it all the time......
  • ljflxljflx Posts: 4,664
    "My prior arguments are based on percentages. And none of my arguments have been contradicted so far!"

    Then you are missing everything that has been stated. I guess we can all believe what we want to.
  • oacoac Posts: 1,594
    "As a loyal BMW customer, I have to admit, I would never buy one. Always leased since 1993. If I were to change to the LS which could happen in 2007, I would buy one....This car is as close to an investment as a depreciating asset can be!"

    Words of wisdom.... Dewey may do well to not skip this post, but I am sure he will bcos it doesn't jive with his version of things BMW. Reading between the lines in hpowders and ljflx's excellent posts, you can decipher that no one is saying BMW is not a great brand, with high retention of value, but to assume that Lexus is not as good in both areas is missing the point.

    'nuff said....
  • lexusguylexusguy Posts: 6,419
    Exactly. I dont remember exactly when it was that one of us Lexus owners claimed Lexus cars have the highest quoted residuals in the industry. I certainly dont remember saying that. I dont lease cars, so I really could care less what the "predicted" residuals are, when thats such a game anyway, that has little basis in reality. In the really real world, my '96 LS did very well in terms of resale, and I have little doubt that my '01 will do just as good. My '96 certainly got me a lot more money on resale than a '96 BMW 7 would have.
  • ljflxljflx Posts: 4,664
    If Dewey was right it would mean BMW was more interested in a high residual price and a silly award then it was in profits. Think about it. You are so popular that you can command full MSRP in a lease or buy. People are tripping over themselves coming into your showrooms. Let's say the market for lux cars calls for a residual after X years of 57%. So the closer you are to that market percentage the higher your profit per leased car is - since you are leasing at full sticker up front. So why on earth would you residualize a car a lot higher than the market percentage? You lose out on big profits by doing that. Residualize a brand that leases half of its cars at 5-7% higher than the market rate on a $50K average sale and you are passing up $2500-$3500 in profits per car. You have to be brain dead to make a business decision like that. If 500K BMW's are leased they'd be passing up a billion or more a year in profits. Meanwhile BMW profits were squeezed last year and the earnings were disappointing. Naturally BMW (or anyone) would enhance profits as much as possible. So the reason retention values are pegged higher is because the lease sale would be lost if they were pegged closer to market. So you either discount upfront and keep retention low or pump up retention and don't discount. It's nothing more than a pricing strategy. Dewey's point makes a lot of sense to a BMW fanatic and no sense whatsoever in the business world. Lastly I see BMW lease prices advertised nationally and locally on TV all through the year. That's the ultimate sign of a subsidy. Two and a Half Men had the current 325I deal in front of everyone the other night. I can't ever remember Lexus doing that on a car but I could be wrong. I never see Lexus lease deals in newspapers either. Different strategy to marketing/pricing is applied. It's that simple. Since both brands are very successful one could easily argue that both approaches are correct.
  • hpowdershpowders Posts: 4,269
    Down here in hurricaneland, the same ridiculously high 36 month leasing price on a basic LS is offered every Sunday in our local papers.
    They manage to call the promotion a different name every Sunday-something like $800 a month with a $5000 cap. cost reduction. Never, ever changes.
    I wonder if anybody actually bites.
  • lexusguylexusguy Posts: 6,419
    Actually, I'd be curious as to what the lease vs. buy rate is for Lexus. I know that for most of the German brands, a vast majority lease. Do most Lexus owners buy?
  • deweydewey Posts: 5,243
    Spare me the fallacy accusation unless you can prove me wrong! Make my day and prove me wrong!

    So it is all a question of BMW subsidizing their leases more than Lexus? I doubt that very much until you can answer the following three questions I posted yesterday.

    1) So you are saying BMW subsidizes their leases more than Lexus? Where is the proof that BMW subsidizes at higher levels than Lexus!

    2)Are you saying that Lexus has less future price risks than BMWs? I have never seen any evidence of this and would appreciate it if you can tell me where you learned your facts from!

    3)Are you saying that the high residuals of BMWs reflects their subsidies and not their popularity? Do you honestly believe that?

    The Bottom Line is the Following:
    It is more profitable for BMW to offer competitive leases than Lexus! Why? The primary reason is BMW's competitive advantage : The highest anticipated resale values in the industry.
  • ljflxljflx Posts: 4,664
    Sorry Dewey - I've made more than enough posts about how this works. Given all my business experience and all the pricing strategies I've led in my career I'll rely on what I know and you can go on believing what you believe. Argument for argument sake is useless nor do I have the time or desire to play that game.
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