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Why does BMW have to lease their cars for so cheap compared to everyone else?
Several answers, but the most basic one is depreciation. BMW developed a cult-following, over decades, that pumped up the residual value of used ones....people grabbed up used ones, even at fairly high prices, that they did not think they could afford brand-new. That allowed the monthly lease-payments on new BMWs, which are based on the estimated depreciation of the vehicle over the 2-4 year period (whatever the lease-contract states) to be lower than for some competitors. In other words, if the manufacturer (or dealer) expects an undamaged vehicle to depreciate $12,000 over 24 months, your monthly payment is going to be roughly $500 a month, plus maybe a little more, since the dealership and manufacturer have to make at least some profit on the transaction. If the vehicle is going to depreciate $24,000, your payments will be about $1000+........I think you get the picture.
Manufacturers and dealers have to be very careful about this, particularly after what happened with Nissan, when that company lost a huge amount of lease-money from vehicles whose residual values ended up lower than what they were projected to be. That was one of several things that led to Nissan's near-bankruptcy, and Renault coming in and talking over.
I think people are pretty comfortable with the idea that BMW makes excellent cars, which is what you're implying, that they dont.
Its all relative. BMW has good leases and doesn't generally offer huge discounts on their cars % wise. Other carmakers don't have lease terms that are as good, but they offer much bigger discounts off MSRP (Lexus and Mercedes). If you look at *hot* BMWs like the X7, X5, SUVs etc their lease payment are by and large similar to Mercedes models.
Their reputation on reliability is what it is...and their resale value is what it is. They have in the past had an excellent reputation for performance and steering feel. On many BMW's (not all) in the last few years, the steering feel people loved is gone.
None of that above is really accurate. BMW has inflated residuals on their cars, meaning they have residuals that they know are higher than the cars will actually be worth. That makes leases cheaper. This is no different than offering big discounts, they just take the hit at the end vs upfront. BMW also has somewhat higher money factors which compensate for that hit somewhat. Other carmakers have more realistic or even low residuals where its very possible the car may be worth more (Lexus, Mercedes) this makes lease payments higher, and requires the dealer and manufacturer to discount the car more upfront and charge a lower money factor to get the lease somewhere that is competitive.
Dealers don't care whether the manufacturer makes money on the lease or not. They sell the car to the leasing company and they are out of the equation.
Several answers, but the most basic one is depreciation. BMW developed a cult-following, over decades, that pumped up the residual value of used ones....people grabbed up used ones, even at fairly high prices, that they did not think they could afford brand-new. That allowed the monthly lease-payments on new BMWs, which are based on the estimated depreciation of the vehicle over the 2-4 year period (whatever the lease-contract states) to be lower than for some competitors. In other words, if the manufacturer (or dealer) expects an undamaged vehicle to depreciate $12,000 over 24 months, your monthly payment is going to be roughly $500 a month, plus maybe a little more, since the dealership and manufacturer have to make at least some profit on the transaction. If the vehicle is going to depreciate $24,000, your payments will be about $1000+........I think you get the picture.
Manufacturers and dealers have to be very careful about this, particularly after what happened with Nissan, when that company lost a huge amount of lease-money from vehicles whose residual values ended up lower than what they were projected to be. That was one of several things that led to Nissan's near-bankruptcy, and Renault coming in and talking over.
That's interesting what happened to Nissan. I've been wondering who eats the cost of the cheap BMW lease? The finance company? The Manufacture? The Dealer? Pass it on to the 2nd owner? I know they can't sell a 2 to 3 year old BMW for high resale. When I traded my M550I, It certainly did not bring a good trade in value. Worse than any vehicle I have owned.
BMW offers great deals on some cars, and terrible on others. My M2 lease it only about $350-400 less than my X6M lease, despite double the MSRP on the X6M.
BMW has inflated residuals on their cars, meaning they have residuals that they know are higher than the cars will actually be worth. That makes leases cheaper.
That can only work for so long, though. If a manufacturer cannot recuperate the money it is losing on leases from other means, sooner or later, you will have a situation like what happened with Nissan, where someone else either has to come in and bail them (or buy them) out.
Dealers don't care whether the manufacturer makes money on the lease or not.
Might not affect dealerships in the short term, but could (?) long-term if the situation is bad enough. When GM and Chrysler folded a little over decade ago, even with the buyout, thousands of dealerships were forced to close their doors or switch to other franchises....their existing franchises were simply not renewed, which even led to some lawsuits.
Back to BMW, it will be interesting to see what future residuals will look like for the standard, non-M-cars, as they have recently lost some of the magic they used to have in the cult-following business. The Ms, though, are still held up on a pedestal.
Not what I have experienced. I've traded in multiple Lexus vehicles and Porsche...and all did much better than the BMW. The first offer I got for my M550i from my Lexus dealer was laughable.
And don't get me wrong, I don't think there is anything wrong with leasing a BMW for 2-3 years if you get a good deal They still make exciting, appealing vehicles in certain trims and variations. All the German brands make exciting vehicles.. I just might shy away from buying one to plan on keeping for a few years. Even on the Porsche forum, people feel a little unsure how well the new more electronic 992 will do long term...it will be interesting to see. I came very close to getting a 992 4S recently....but it being a first year model...that was made during a pandemic...made me think twice.
That can only work for so long, though. If a manufacturer cannot recuperate the money it is losing on leases from other means, sooner or later, you will have a situation like what happened with Nissan, where someone else either has to come in and bail them (or buy them) out.
Might not affect dealerships in the short term, but could (?) long-term if the situation is bad enough. When GM and Chrysler folded a little over decade ago, even with the buyout, thousands of dealerships were forced to close their doors or switch to other franchises....their existing franchises were simply not renewed, which even led to some lawsuits.
Back to BMW, it will be interesting to see what future residuals will look like for the standard, non-M-cars, as they have recently lost some of the magic they used to have in the cult-following business. The Ms, though, are still held up on a pedestal.
Originally Posted by Frog98
Not what I have experienced. I've traded in multiple Lexus vehicles and Porsche...and all did much better than the BMW. The first offer I got for my M550i from my Lexus dealer was laughable.
This has been boggling my mind for a long time. For instance when my X5 was about 4 years old, with roughly 20k miles, I was considering trading it in for something else, and the offer my dealer made me was also laughable. Most BMW as vastly cheaper to lease than to buy, and for the life of me I don't understand what they are doing with all the cars that are returned at the end of lease term. And it's not just BMW, it applies to most manufacturers - there is no way in hell they can sell these 3 year old cars for a price that justifies the discounted leases they offer.
At least here in NY, I barely see old cars anymore, it seems that everyone is driving a new leased car, whether its the cheapest Nissan or most expensive Mercedes. You go to rural areas, and people mostly drive older American cars. Where the hell do all these off lease vehicles go?
This has been boggling my mind for a long time. For instance when my X5 was about 4 years old, with roughly 20k miles, I was considering trading it in for something else, and the offer my dealer made me was also laughable. Most BMW as vastly cheaper to lease than to buy, and for the life of me I don't understand what they are doing with all the cars that are returned at the end of lease term. And it's not just BMW, it applies to most manufacturers - there is no way in hell they can sell these 3 year old cars for a price that justifies the discounted leases they offer.
At least here in NY, I barely see old cars anymore, it seems that everyone is driving a new leased car, whether its the cheapest Nissan or most expensive Mercedes. You go to rural areas, and people mostly drive older American cars. Where the hell do all these off lease vehicles go?
That's what's I wonder about too! What happens to all these cheaply leased cars turned back in?
And Och...I really do like your choice in BMW's. The M2 and X6 M are very cool! Again, nothing wrong with leasing them under warranty. But who is buying all the used ones that come off cheap lease? As a used vehicle, they don't exactly have a stellar reputation.
And SW17LS, I would go with the S Class...you only live once...and it seems like something you have always wanted Having new experiences with other brands is exciting and helps you learn what you really like. It's nice to be able to try different brands and experiences besides Lexus.
That can only work for so long, though. If a manufacturer cannot recuperate the money it is losing on leases from other means, sooner or later, you will have a situation like what happened with Nissan, where someone else either has to come in and bail them (or buy them) out.
Its been working for BMW for decades. The issue with Nissan is they didnt know the residuals were inflated, BMW knows and they build that loss into their profit margins on their products.
Might not affect dealerships in the short term, but could (?) long-term if the situation is bad enough. When GM and Chrysler folded a little over decade ago, even with the buyout, thousands of dealerships were forced to close their doors or switch to other franchises....their existing franchises were simply not renewed, which even led to some lawsuits.
BMW is not going to fold lol
Back to BMW, it will be interesting to see what future residuals will look like for the standard, non-M-cars, as they have recently lost some of the magic they used to have in the cult-following business. The Ms, though, are still held up on a pedestal.
Sales seem to be doing just fine.
Originally Posted by Frog98
Not what I have experienced. I've traded in multiple Lexus vehicles and Porsche...and all did much better than the BMW. The first offer I got for my M550i from my Lexus dealer was laughable.
Got killed on my GS. Got killed on my 2015 LS, and if I do this, I'll get killed on the 2017 LS.
That's what's I wonder about too! What happens to all these cheaply leased cars turned back in?
I really don't see as many used 3 year plus models in my area as I see brand new cars. There have been photos posted of huge airport sized lots holding unsold cars, I wonder if a lot of those off lease vehicles end up there. No idea how manufacturers make a profit.
Originally Posted by Frog98
And Och...I really do like your choice in BMW's. The M2 and X6 M are very cool! Again, nothing wrong with leasing them under warranty. But who is buying all the used ones that come off cheap lease? As a used vehicle, they don't exactly have a stellar reputation.
Thanks, except the X6M is my wife's, and my daughter "borrowed" my M2 when I was taking her X5 for repairs, and it seems that she's borrowed it permanently, so I'm stuck with the X5. With the pandemic I really don't drive much though, if I go somewhere I'm mostly riding my bicycle or motorcycle, so it's fine, but when it gets colder I'll probably get myself the new Supra.
Got killed on my GS. Got killed on my 2015 LS, and if I do this, I'll get killed on the 2017 LS.
I'd say probably because those were higher end Luxury cars. Entry level...and SUV Lexus do very well. I know my LC won't do as well resale wise right now. It's a high end not practical car. Although resale values might go up over time. Hoping the GS F does better because it is highly in demand as a used car. But not worried about it, because I like them so much...I plan on keeping them both for a while.
I'd say probably because those were higher end Luxury cars. Entry level...and SUV Lexus do very well. I know my LC won't do as well resale wise right now. It's a high end not practical car. Although resale values might go up over time. Hoping the GS F does better because it is highly in demand as a used car. But not worried about it, because I like them so much...I plan on keeping them both for a while.
Well sure, your M550i was a higher end luxury car too. Lower end BMW SUVs and such do better too.
They still make exciting, appealing vehicles in certain trims and variations. All the German brands make exciting vehicles.. I just might shy away from buying one to plan on keeping for a few years. Even on the Porsche forum, people feel a little unsure how well the new more electronic 992 will do long term...it will be interesting to see. I came very close to getting a 992 4S recently....but it being a first year model...that was made during a pandemic...made me think twice.
With the pandemic I really don't drive much though, if I go somewhere I'm mostly riding my bicycle or motorcycle, so it's fine, but when it gets colder I'll probably get myself the new Supra.