991 GT3 leasing?
02-16-2015 | 09:45 PM
#76
Racer
Joined: Feb 2015
Posts: 305
Likes: 1
All these lease discussions made me want to run some detailed scenarios on a spreadsheet to extract the true "cost of leasing" vs. "cost of buying" as a function of down payment, residual values, interest rates, etc.
Long story semi-short, there were some interesting conclusions:
1) Assuming the lease contract residual value is less than the "true" value at the lease end, and assuming you are always willing to purchase the car at least end if this is the case, then purchasing over a given term always costs less in the end than leasing over the same term as long as purchase interest rates are equal or less than lease rates. The intuitive explanation for this is that with a lease, you are financing the residual value of the car over the entire term, while if you are financing a purchase over a similar term, your "balance" on which you're paying interest is less on average.
2) As long as the lease contract residual value is less than the true residual value, the *lower* the contract residual value, the less the effective cost of the lease is! This may be counter-intuitive, but again it's because you are paying off more of the value of the car over the term, thus the residual value balance that you are financing throughout the entire term is less, and you are paying less total interest. No matter what the contract residual, as long as it is less than the true residual value, then when you buy the car for the contract residual, pay sales tax, and then re-sell it for the true residual value, you will recover the difference and your net cost over the life of the lease will be less if the residual value was actually lower.
3) On the flip side, the only time that leasing will cost you LESS if if the car's true residual is actually worth significantly less than the contract residual (I say significantly because it has to first surpass the elevated cost of leasing per #1 and #2 above first before it actually becomes beneficial). This is exactly the scenario folks have been talking about with the car having diminished value due to a repaired wreck. Porsche can protect themselves against this by simply pushing the residual values down. The lower the value, the less likely the scenario that a customer will be able to push a car of lesser value on them. But unfortunately for them, they make less finance interest this way, and it makes lease payments higher (similar to why a 15 year mortgage has a higher payment than a 30 year, yet a 15 year "costs" you less in the end). BUT they make out big in the event an unknown (or lazy) customer simply returns the car to them and walks away rather than buying it when it's true residual is actually much higher.
4) In reality, purchase finance rates are much lower than lease finance rates. So leases are actually substantially more expensive than purchasing, even if trying to pay all the lease depreciation up front with a balloon payment (ignoring the liability this opens you up to in the event the car is totaled).
If you blindly trust my numbers for a second, here are a few scenarios. Assumptions for all are:
Sales price: $150,000
Money Factor: 0.002 (= 4.8% APR, VERY good for a lease, and unlikely to actually happen on a GT3)
Term: 36 months
Residual value: 50%
Sales tax: 9%
Purchase financing APR: 2% (assume 36 month financing)
Assume you BUY the car at the end of the lease term for the residual value (plus tax)
Scenario 1: put $75,000 down to pay all "lease depreciation" up-front
Total cost to own car at end of LEASE term: $174,300
Total cost to own car at end of PURCHASE term: $166,255
Net cost of leasing: $8,045
Scenario 2: put $0 down
Total cost to own car at end of LEASE term: $180,490
Total cost to own car at end of PURCHASE term: $168,590
Net cost of leasing: $11,900
Now let's even assume a grim scenario where the lease APR and finance APR are BOTH 4.8%, AND you put $75,000 down to pay off the "lease depreciation" up front. Even in that scenario you're still paying over $4,000 for the lease over the purchase:
Total cost to own car at end of LEASE term: $174,300
Total cost to own car at end of PURCHASE term: $170,201
Net cost of leasing: $4,099
So why lease? To summarize:
1) You want to pay the $4,000-$12,000 difference as "insurance" that your car MIGHT be worth less than the contract residual value at the end of the term. (sounds like expensive insurance to me), or
2) You can somehow claim a tax write-off for your business on the lease costs that exceeds this difference in price, or
3) You want to minimize monthly out-of-pocket expenses (in exchange for overall higher cost of ownership)
Note than none of these calculations convert every dollar spent back into Net Present Value in today's dollars (essentially no "opportunity cost" of money is factored in, to keep things simple).
I threw this together relatively quickly so if anyone wants to poke around in the spreadsheet and find bugs or alternate conclusions please feel free: https://dl.dropboxusercontent.com/u/...uying%20v1.xls
Long story semi-short, there were some interesting conclusions:
1) Assuming the lease contract residual value is less than the "true" value at the lease end, and assuming you are always willing to purchase the car at least end if this is the case, then purchasing over a given term always costs less in the end than leasing over the same term as long as purchase interest rates are equal or less than lease rates. The intuitive explanation for this is that with a lease, you are financing the residual value of the car over the entire term, while if you are financing a purchase over a similar term, your "balance" on which you're paying interest is less on average.
2) As long as the lease contract residual value is less than the true residual value, the *lower* the contract residual value, the less the effective cost of the lease is! This may be counter-intuitive, but again it's because you are paying off more of the value of the car over the term, thus the residual value balance that you are financing throughout the entire term is less, and you are paying less total interest. No matter what the contract residual, as long as it is less than the true residual value, then when you buy the car for the contract residual, pay sales tax, and then re-sell it for the true residual value, you will recover the difference and your net cost over the life of the lease will be less if the residual value was actually lower.
3) On the flip side, the only time that leasing will cost you LESS if if the car's true residual is actually worth significantly less than the contract residual (I say significantly because it has to first surpass the elevated cost of leasing per #1 and #2 above first before it actually becomes beneficial). This is exactly the scenario folks have been talking about with the car having diminished value due to a repaired wreck. Porsche can protect themselves against this by simply pushing the residual values down. The lower the value, the less likely the scenario that a customer will be able to push a car of lesser value on them. But unfortunately for them, they make less finance interest this way, and it makes lease payments higher (similar to why a 15 year mortgage has a higher payment than a 30 year, yet a 15 year "costs" you less in the end). BUT they make out big in the event an unknown (or lazy) customer simply returns the car to them and walks away rather than buying it when it's true residual is actually much higher.
4) In reality, purchase finance rates are much lower than lease finance rates. So leases are actually substantially more expensive than purchasing, even if trying to pay all the lease depreciation up front with a balloon payment (ignoring the liability this opens you up to in the event the car is totaled).
If you blindly trust my numbers for a second, here are a few scenarios. Assumptions for all are:
Sales price: $150,000
Money Factor: 0.002 (= 4.8% APR, VERY good for a lease, and unlikely to actually happen on a GT3)
Term: 36 months
Residual value: 50%
Sales tax: 9%
Purchase financing APR: 2% (assume 36 month financing)
Assume you BUY the car at the end of the lease term for the residual value (plus tax)
Scenario 1: put $75,000 down to pay all "lease depreciation" up-front
Total cost to own car at end of LEASE term: $174,300
Total cost to own car at end of PURCHASE term: $166,255
Net cost of leasing: $8,045
Scenario 2: put $0 down
Total cost to own car at end of LEASE term: $180,490
Total cost to own car at end of PURCHASE term: $168,590
Net cost of leasing: $11,900
Now let's even assume a grim scenario where the lease APR and finance APR are BOTH 4.8%, AND you put $75,000 down to pay off the "lease depreciation" up front. Even in that scenario you're still paying over $4,000 for the lease over the purchase:
Total cost to own car at end of LEASE term: $174,300
Total cost to own car at end of PURCHASE term: $170,201
Net cost of leasing: $4,099
So why lease? To summarize:
1) You want to pay the $4,000-$12,000 difference as "insurance" that your car MIGHT be worth less than the contract residual value at the end of the term. (sounds like expensive insurance to me), or
2) You can somehow claim a tax write-off for your business on the lease costs that exceeds this difference in price, or
3) You want to minimize monthly out-of-pocket expenses (in exchange for overall higher cost of ownership)
Note than none of these calculations convert every dollar spent back into Net Present Value in today's dollars (essentially no "opportunity cost" of money is factored in, to keep things simple).
I threw this together relatively quickly so if anyone wants to poke around in the spreadsheet and find bugs or alternate conclusions please feel free: https://dl.dropboxusercontent.com/u/...uying%20v1.xls
My point was, Porsche leases are expensive and they make absolutely no sense. These figures are ridiculous to say the least. 4.8 APR and 50% residual are probably the WORST lease terms I have ever seen. I also drive a high end expensive car, and my car has a sticker of 120k and I lease (my 2nd M5 and I also leased 2 other M3s) and yet, guess what my lease terms were? 1.9 APR and 61% residual. That is actually better than any credit union deal you will get. Its almost free money.
So the point is, if you look at the current PFS lease rates, yeah it makes no sense to lease. But the question is (or was as it was answered), why those lease rates in the first place? Porsche could easily hike the price of the car by 10-15k, ease the lease terms so more people could afford the car and produce 3-4 times more GT3s. It will work in their favor (and ours too) because the used car market for this car is extremely strong and we all know it.
02-16-2015 | 09:50 PM
#77
Rennlist Member
Joined: Feb 2006
Posts: 2,826
Likes: 4
From: Truckee
This is exactly why I revived this thread. You have reached to the same conclusion I have, but from a different angle. My point was, Porsche leases are expensive and they make absolutely no sense. These figures are ridiculous to say the least. 4.8 APR and 50% residual are probably the WORST lease terms I have ever seen. I also drive a high end expensive car, and my car has a sticker of 120k and I lease (my 2nd M5 and I also leased 2 other M3s) and yet, guess what my lease terms were? 1.9 APR and 61% residual. That is actually better than any credit union deal you will get. Its almost free money. So the point is, if you look at the current PFS lease rates, yeah it makes no sense to lease. But the question is (or was as it was answered), why those lease rates in the first place? Porsche could easily hike the price of the car by 10-15k, ease the lease terms so more people could afford the car and produce 3-4 times more GT3s. It will work in their favor (and ours too) because the used car market for this car is extremely strong and we all know it.
Porsche doesn't push the lease market on their GT cars, as they have no reason to do so. They have no issues with their profit margins as they stand.
02-16-2015 | 10:10 PM
#78
Racer
Joined: Feb 2015
Posts: 305
Likes: 1
But, that is the point. Porsche is the most profitable car company out there. They have no need to incentivize their cars. BMW took a totally different strategy with increased volume and leasing as their primary target. More than 60% of BMW are leased.
Porsche doesn't push the lease market on their GT cars, as they have no reason to do so. They have no issues with their profit margins as they stand.
Porsche doesn't push the lease market on their GT cars, as they have no reason to do so. They have no issues with their profit margins as they stand.
02-16-2015 | 10:51 PM
#79
Burning Brakes
Joined: Jan 2010
Posts: 1,112
Likes: 1
From: Anaheim Hills,CA
Last year Forbes magazine wrote that Porshce had the most profitable and clean portfolio of any manufacturer ever. That portfolio sold and netted Porsche an absurd amount of cash in the hundreds of millions range.
02-17-2015 | 01:16 AM
#80
Nordschleife Master
Joined: Oct 2014
Posts: 5,404
Likes: 636
This is exactly why I revived this thread. You have reached to the same conclusion I have, but from a different angle.
My point was, Porsche leases are expensive and they make absolutely no sense. These figures are ridiculous to say the least. 4.8 APR and 50% residual are probably the WORST lease terms I have ever seen. I also drive a high end expensive car, and my car has a sticker of 120k and I lease (my 2nd M5 and I also leased 2 other M3s) and yet, guess what my lease terms were? 1.9 APR and 61% residual. That is actually better than any credit union deal you will get. Its almost free money.
So the point is, if you look at the current PFS lease rates, yeah it makes no sense to lease. But the question is (or was as it was answered), why those lease rates in the first place? Porsche could easily hike the price of the car by 10-15k, ease the lease terms so more people could afford the car and produce 3-4 times more GT3s. It will work in their favor (and ours too) because the used car market for this car is extremely strong and we all know it.
My point was, Porsche leases are expensive and they make absolutely no sense. These figures are ridiculous to say the least. 4.8 APR and 50% residual are probably the WORST lease terms I have ever seen. I also drive a high end expensive car, and my car has a sticker of 120k and I lease (my 2nd M5 and I also leased 2 other M3s) and yet, guess what my lease terms were? 1.9 APR and 61% residual. That is actually better than any credit union deal you will get. Its almost free money.
So the point is, if you look at the current PFS lease rates, yeah it makes no sense to lease. But the question is (or was as it was answered), why those lease rates in the first place? Porsche could easily hike the price of the car by 10-15k, ease the lease terms so more people could afford the car and produce 3-4 times more GT3s. It will work in their favor (and ours too) because the used car market for this car is extremely strong and we all know it.
But by increasing the residual, Porsche would be able to get actual lease payments lower, opening the market more to those that want lower payments in exchange for overall higher net cost in the end (making PFS more money on interest!). However, if most folks are simply turning their cars back in at the end of the lease, then they can make more money taking advantage of folks doing this with lower residuals...
02-17-2015 | 01:25 AM
#81
Instructor
Joined: Dec 2014
Posts: 210
Likes: 2
From: N/A
I agree with you in general. There is no excuse for the APR on the lease to be so high. As for the residual value, as I derived in the spreadsheet it actually costs you LESS in the end to lease the car if the residual is LOWER as long as you are willing to buy the car at the end of the term and re-sell it for the true market value.
But by increasing the residual, Porsche would be able to get actual lease payments lower, opening the market more to those that want lower payments in exchange for overall higher net cost in the end (making PFS more money on interest!). However, if most folks are simply turning their cars back in at the end of the lease, then they can make more money taking advantage of folks doing this with lower residuals...
But by increasing the residual, Porsche would be able to get actual lease payments lower, opening the market more to those that want lower payments in exchange for overall higher net cost in the end (making PFS more money on interest!). However, if most folks are simply turning their cars back in at the end of the lease, then they can make more money taking advantage of folks doing this with lower residuals...
02-17-2015 | 01:37 AM
#82
Pro
Joined: Oct 2014
Posts: 512
Likes: 5
From: Irvine, CA
Agreed. Therefore, for me, I am looking forward to buying the car at the end of the lease... if I end up not swapping for something else. So I am really interested at how NSX will turn out. If it does not impress, then I am just going to keep the gt3....unless the second gen is even better...
Last edited by GregJGT3; 02-17-2015 at 01:38 AM. Reason: Spelling
02-17-2015 | 02:00 AM
#83
Rennlist Member
Joined: Feb 2006
Posts: 2,826
Likes: 4
From: Truckee
I don't really see the NSX as a logical alternative to the GT3. Unless they change the character of the NSX completely... If they do then it will take a considerable amount of time to equate the provenance of a car like the GT3. I suspect if the NSX is a logical alternative then the GT3 may not be the right car for you in the first place.
02-17-2015 | 05:10 AM
#84
Instructor
Joined: Dec 2014
Posts: 210
Likes: 2
From: N/A
I don't really see the NSX as a logical alternative to the GT3. Unless they change the character of the NSX completely... If they do then it will take a considerable amount of time to equate the provenance of a car like the GT3. I suspect if the NSX is a logical alternative then the GT3 may not be the right car for you in the first place.
04-03-2015 | 07:38 PM
#86
Instructor
Joined: Apr 2015
Posts: 101
Likes: 7
Awesome spreadsheet, thanks.
Anyone knows residuals on 12 and 24 mo lease?
I only want the car for a year and I'm thinking doing a one-time payment on a 12/24 mo lease, then buy the car and sell to a private party. Wondering if that makes more sense than a 36mo lease one-time payment in my case.
Thanks
Anyone knows residuals on 12 and 24 mo lease?
I only want the car for a year and I'm thinking doing a one-time payment on a 12/24 mo lease, then buy the car and sell to a private party. Wondering if that makes more sense than a 36mo lease one-time payment in my case.
Thanks
04-03-2015 | 08:53 PM
#87
Instructor
Joined: Oct 2013
Posts: 172
Likes: 1
From: In CA
Awesome spreadsheet, thanks.
Anyone knows residuals on 12 and 24 mo lease?
I only want the car for a year and I'm thinking doing a one-time payment on a 12/24 mo lease, then buy the car and sell to a private party. Wondering if that makes more sense than a 36mo lease one-time payment in my case.
Thanks
Anyone knows residuals on 12 and 24 mo lease?
I only want the car for a year and I'm thinking doing a one-time payment on a 12/24 mo lease, then buy the car and sell to a private party. Wondering if that makes more sense than a 36mo lease one-time payment in my case.
Thanks
04-03-2015 | 08:58 PM
#88
Instructor
Joined: Apr 2015
Posts: 101
Likes: 7
Thanks! Can you clarify the residual value? It seems very very low. I would expect $80-90K or so. Do you actually mean your one-time payment was $29,997 (which also seems very low)?
04-03-2015 | 09:03 PM
#89
Nordschleife Master
Joined: Oct 2014
Posts: 5,404
Likes: 636
I did a 24 month One Pay of $140,740.40 on my 2014 GT3. MSRP 149,885. Residual Value was $29,997 at the end of the 24 month lease term. Porsche doesn't offer a 12 month lease. The One Pay 36 month lease was about 5K more than the 24 month with the same Residual on the 3 year of $29,997.
04-03-2015 | 09:06 PM
#90
Rennlist Member
Joined: Sep 2014
Posts: 648
Likes: 2
doesn't sound shady, but it sounds like it was done entirely for tax purposes. he paid all of it up front essentially. what's left at the end is just whatever interest and sales tax.