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Why do Residuals suck?

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Old 12-19-2017, 11:00 PM
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icebeam
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Default Why do Residuals suck?

Hi All,

I have been looking at a Porsche 911 Turbo S Cab at a $215,000 MSRP and they want $3,500 a month for the lease. I have always been taught that a good lease is 1% of the MSRP price a month. Which means the payment should be only $2,150. When I have leased AMG's, BMW's, etc this has always been the case.

So my questions are...

1. Why won't they negotiate on the % off MSRP on this car. Do they really sell these things at sticker?
2. Why are the residuals bad? I look at cars on auto trader that are 3 years old the list price are 20-40K higher than what Porsche Financial thinks they are going to be.
3. Are the used prices on auto-trader like listed 10k to high? however they seem to align to blue book nicely.

Sincerely,

A very frustrated 911 buyer.
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Old 12-20-2017, 05:55 PM
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Supply and demand are a bit different from 911s, especially Turbos, compared to most BMWs and Mercedes, so yes, many dealers get MSRP or within 5% of it.

Residuals are bad because as you note, the monthly payments are high. I'm not sure what Porsche has in mind with this strategy, but I will say that the low residual does encourage leaseholders to buy out the car at lease end, because you will have a relative "bargain" compared to market. (Porsche leasing terms and conditions give the lessee the right to buy the car at the stated residual.) "Bargain" is in quotes because you are really paying for the delta between residual and market with your (higher) lease payments.

Remember also that used prices on Autotrader or even on the lot at a dealer are only asking prices. It's much harder to figure out actual sales prices. Nonetheless, they're a good yardstick against your residual.

I bought out my car at the end of the lease, and at least compared to asking prices on Autotrader, etc., what I paid (the stated residual) is still under market by a good amount. So in theory, I could still flip the car and make some cash at this point. But I won't. At least not in the short run because I really like my car!
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Old 12-20-2017, 06:40 PM
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The Turbo S holds its value quite well. 3 year old cars are selling for $140k which is a 70% value after 3 years.

If you lease a Turbo S your residual value will be well below market value. So leases are overpriced, and to ensure you don't leave money on the table you have to buyout the car at the end of the lease.

If Need4S had an accident just before the end of the lease and the car was totalled, he would have been out of pocket by a big sum because the insurer would have paid of the lease to the leasing company, but they wouldn't have paid Need4S the equity in the lease. There is no reverse gap insurance.

So the point is you should always buy not lease. Do balloon financing if you want to keep the payments low. I just finance my car on a 5 year loan at 1.9% and I think that optimizes my TCO including the opportunity cost of money.
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Old 12-20-2017, 07:02 PM
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Originally Posted by Need4S View Post
Supply and demand are a bit different from 911s, especially Turbos, compared to most BMWs and Mercedes, so yes, many dealers get MSRP or within 5% of it.

Residuals are bad because as you note, the monthly payments are high. I'm not sure what Porsche has in mind with this strategy, but I will say that the low residual does encourage leaseholders to buy out the car at lease end, because you will have a relative "bargain" compared to market. (Porsche leasing terms and conditions give the lessee the right to buy the car at the stated residual.) "Bargain" is in quotes because you are really paying for the delta between residual and market with your (higher) lease payments.

Remember also that used prices on Autotrader or even on the lot at a dealer are only asking prices. It's much harder to figure out actual sales prices. Nonetheless, they're a good yardstick against your residual.

I bought out my car at the end of the lease, and at least compared to asking prices on Autotrader, etc., what I paid (the stated residual) is still under market by a good amount. So in theory, I could still flip the car and make some cash at this point. But I won't. At least not in the short run because I really like my car!
This is great information. To your point I think Porsche Financial is just really conservative. For example, my current car (S550 Benz) is 20k underwater. Meaning I should of had 20k added into my lease payments. So how much % should I be looking off the list price of a used 911 Turbo S? Looking at the 2016 and 2017 model years.

Warm Regards,

Kevin
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Old 12-20-2017, 07:07 PM
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Originally Posted by stealthpilot View Post

to ensure you don't leave money on the table you have to buyout the car at the end of the lease.
Got it, I have to buy the car out more than likely. That is what I was thinking. Thanks for confirming.

Originally Posted by stealthpilot View Post

If Need4S had an accident just before the end of the lease and the car was totaled, he would have been out of pocket by a big sum because the insurer would have paid of the lease to the leasing company, but they wouldn't have paid Need4S the equity in the lease. There is no reverse gap insurance.
crap, good point. So if you have a total loss towards the end of the lease you may have just lost 10-30k!

Originally Posted by stealthpilot View Post

So the point is you should always buy not lease. Do balloon financing if you want to keep the payments low. I just finance my car on a 5 year loan at 1.9% and I think that optimizes my TCO including the opportunity cost of money.

I will look at balloon financing. I don't want to plop down this much cash but my comp is structured highly towards year end bonuses.
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Old 12-20-2017, 07:09 PM
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Another thought given your question about Do they really sell at MSRP? First, negotiate price, then let them know you want to lease and see if that changes the dynamics.
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Old 12-20-2017, 08:35 PM
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I prefer to lease as it protects me in the event of an accident. Very congested and distracted drivers everywhere and the risk of owning a car with a bad accident is significant as I have car ADD. But at the end of the lease if the car is clean and no issues, I do consider buying it. I don't agree with the blanket statement "you should always buy" and not lease. Not to be argumentative or just take the opposite opinion, "always" is finite and for me, leasing works for many reasons I don't care to discuss on this forum, plus I am willing and able to pay the lease prices and if I want I can 1) pull ahead for a new car or 2) turn the car in at lease expiration.
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Old 12-20-2017, 11:13 PM
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The lease residuals are low on this car because Porsche doesn't subsidize 991 Turbo leases like some of its competitors subsidize their leases to move cars. They would just as soon have you buy the car.
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Old 12-21-2017, 12:14 AM
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Originally Posted by Michael_s
I prefer to lease as it protects me in the event of an accident. Very congested and distracted drivers everywhere and the risk of owning a car with a bad accident is significant as I have car ADD. But at the end of the lease if the car is clean and no issues, I do consider buying it. I don't agree with the blanket statement "you should always buy" and not lease. Not to be argumentative or just take the opposite opinion, "always" is finite and for me, leasing works for many reasons I don't care to discuss on this forum, plus I am willing and able to pay the lease prices and if I want I can 1) pull ahead for a new car or 2) turn the car in at lease expiration.
Interestingly I have had in the past a couple of cars which were rear ended and took a hit in value. But I actually came out ahead. In Georgia insurance companies are required to compensate for diminished value. When I added the diminished value payment to the sales price I was actually ahead of where I would have sold a clean car. I will admit though that I am a master negotiator and so the insurance company paid out very well.
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Old 12-21-2017, 01:39 AM
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All high end leases have become uncompetitive in the past few years, unless a car is not selling well. I purchased my 2017 TTS for that reason, and also my Mercedes GLS63 last month. I'm planning to keep both cars for about 3 years, and will be even with the expected value at that point, but my payments are much, much lower with good rates. Getting 5-7% discount off MSRP for a TTS is fairly normal, but I understand the supply is currently short, so maybe that's the issue. I'd talk to more dealers outside your market and see if you can find a better deal. The dealer will be none too happy that you are arming yourself with info from experienced Porsche buyers, but you have to take care of yourself, not them.
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Old 12-21-2017, 02:09 AM
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Not only does Porsche Financial set their residuals low they also have high money factors - start around .00210 without dealer mark up. Lease a Porsche & you will most likely have positive equity after a couple of years and can get out it easily and make a couple of bucks. That is not the case for MB or BMW as you will be way underwater unless its a G Wagon or other popular high demand vehicle.
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Old 12-21-2017, 01:17 PM
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Originally Posted by Randyc151 View Post
All high end leases have become uncompetitive in the past few years, unless a car is not selling well. I purchased my 2017 TTS for that reason, and also my Mercedes GLS63 last month. I'm planning to keep both cars for about 3 years, and will be even with the expected value at that point, but my payments are much, much lower with good rates. Getting 5-7% discount off MSRP for a TTS is fairly normal, but I understand the supply is currently short, so maybe that's the issue. I'd talk to more dealers outside your market and see if you can find a better deal. The dealer will be none too happy that you are arming yourself with info from experienced Porsche buyers, but you have to take care of yourself, not them.
I talked to my in state dealer and told them that I have been doing my research on Rennlist about discount off MSRP on a TTS. The sales manager said "I like rennlist. There is good information there. However people lie as nobody wants to admit to paying MSRP for the car but everyone and I mean everyone pays MSRP for this car!" I'm going to call some dealers out of state. Even if I can only get 4% off that is 8k+ and easily makes up for 1k closed container shipping cost. I have two dealers in my state and the other one said they would give a discount but have no allocation. To be honest, I'm sort of surprised at this sales managers attitude you would think when you can afford a car 4X+ the median family income they might treat you like your not stupid. I guess car dealers will be car dealers. If I keep going though this stuff I might just pick up one used or buy that new E63 AMG S.
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Old 12-21-2017, 01:23 PM
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Originally Posted by Bloose993TT View Post
Not only does Porsche Financial set their residuals low they also have high money factors - start around .00210 without dealer mark up. Lease a Porsche & you will most likely have positive equity after a couple of years and can get out it easily and make a couple of bucks. That is not the case for MB or BMW as you will be way underwater unless its a G Wagon or other popular high demand vehicle.
Yea, that is a high MF. We are talking about 5.03% APR without markup! Crazy...
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Old 12-21-2017, 01:45 PM
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I don't care, why wouldn't I admit if I paid full MSRP? I offered my local dealer MSRP + $65k for a GT2RS and he laughed in my face. I can admit that!

Where are you located? My local dealer said just now he does not have an allocation currently but can trade for one if needed. He said supply for Cab allocations are a little tight now because of the time of year, not some global shortage or anything. He said there are about 40 TTS cabs on dealer lots or in transit now, and that's a normal supply. PM me if you want me to put you in touch.

Your sales manager is a d-bag.
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Old 12-21-2017, 03:12 PM
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My observation is the Turbos seem to take the biggest hit in the first year, same as any other mass-produced luxury car but then the depreciation curve levels off in year 2 and subsequent years vs most others. Is this just me?
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