1% was/is never a rule in leasing. A lease is pure math based on 3 key variables: RV, MF, and adjusted cap cost (assuming $0 cap cost reduction). RV is fixed by the bank and assuming you get buy rate MF, you only have one lever to play with. Math is math and 1% has no bearing in the calculation.
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When two people can get the exact same discount on the exact same car, and one personâs deal is 1.2% and the other personâs deal is .7%, you should know everything you need to know about the validity of using a percent of msrp as a target.
The problem is people are looking for a shortcut metric to inform them of the validity of a deal and it just doesnât exist.
A better approach for looking at the validity of something like the 1% rule is to ask âfor a rule to be useful, what do we need to it to tell us?â
If thatâs the question, I would say it would need to say one (or more) of the following:
- Is this a good deal on the car? (Meaning how does the deal compare to what is possible on this vehicle currently)
- Is this lease a good value? (Meaning how does the deal compare to other competing vehicles)
- Is this better to lease than buy (Meaning over the period of the lease, it would cost less to lease than to purchase and sell)
Now, letâs caveat this with one more assertion: it would also be helpful if the rule applied to at least a good chunk of the people that want to apply it.
So letâs look at each of thoseâŚ
- Is it a good deal for the car?
It certainly doesnât tell us that. All one needs do is look at the vast change in incentives and regional pricing to determine that. Iâve seen incentive swings between two people of $10k before. Two people can get the exact same discount, but because of incentives, be hundreds apart on the monthly payment. Throw in regional taxes and you can literally have the same deal be off by .5% of msrp per month. Further, even when incentives are standardized and taxes/fees are ignored, what is a good deal for a vehicle varies wildly. On some cars, 1.25% is essentially impossible. On others, .75% is mediocre at best. There are definitely times when 1% is a good deal, but it varies by month, by person, by region, by vehicle, etc. A stopped clock is right twice a day.
- Is the car a good lease value?
Obviously as payment as a % of msrp decreases, youâre getting more for your dollar relative to msrp, but so what? Some brands have a marketing strategy where they inflate the msrp and then offer large incentives so you feel like youâre getting a deal. Others donât subvene their rates to hold value. There isnât some magic % where this suddenly becomes a good thing.
- Is it better to lease than to buy?
The argument that gets used often with the LH score is that it gives some inclination as to when it makes more sense to lease than to buy. This, of course, assumes that you purchase at msrp with no incentives, no taxes, no fees, no interest, etc. The problem is that it doesnât actually compare the lease terms against the financing terms. When the msrp gets subvened by significant incentives, a % of msrp number is suddenly a % of a completely irrelevant number.
So hereâs where that leaves us⌠We have a rule that isnât applicable to a variety of people, doesnât tell you if something is a good deal, doesnât tell you if something is a good value, and doesnât give you any insight as to if leasing is a better financial decision.
So maybe if youâre looking for a bmw 330, in North Carolina, in January, after leasing a previous bmw, joining bmwcca, and are named jason it applies; but youâd only know that after actually calculating and researching, which is exactly what you need to do to actually answer any of the above questions.
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Canât get 850/mo on a 21 base cayenne. Been trying for two weeks, 1250 is the lowest I could get them, one dealer though.
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if you dont mind, what is the MSRP on the car you are trying for? In your discussions, have you been able to get any discount on MSRP?
Itâs a Porsche, were they ever on a discount off MSRP?
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Ofc they were but that was in BCE (before covid era).
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Is that buy rate or marked up mf?
Base MF of .00200
Great! thanks for sharing!
And how does that work. If you and I get 75k etrons for 50k with same credit score range, why would our non-taxed payments differ?
Bumped MF, different dealer and registration fees⌠Or I miss something in your question?
Not just that, which to me wouldnât really be the same discount.
Iâm thinking more along the lines of different regional incentives. To use the e-tron as an example, I got mine for 11% off pre-incentive at buy rate. If I was in California rather than Florida, the exact same pre-incentive discount at buy rate would have cost me almost $100 less per month because of differences in regional incentives.
As a more extreme example, letâs look at something like a ~$40k Chevy Bolt with two lessees, one in Texas and one in NJ. The exact same pre-incentive discount lease between those two people would be $200/mo different because of taxes and incentives. That is a swing of .5% of MSRP in payment.
As a non-ev, non-tax example, when I originally wrote the 1% rant above, the specific example I had in mind was the Volvo V90CC circa 2019. There was a period of time when the volvo allowance varied by ~$6500 between two different regions. Throw in some differences in taxes and that easily becomes a .5% of MSRP swing on the higher MSRP vehicle.
All of those are times where an identical deal, as measured by the controllable variables (pre-incentive discount adjusted for any mark ups), had a significant delta in monthly payments. 1% of MSRP would have been absolutely impossible in one situation and thousands away from a good deal in the other.
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An $85k Cayenne will be $1300+ all day long. Probably closer to $1500 depending on taxes and miles per year.
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you are my hero.
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Yeah, I meant the same region, so incentives and taxes are the same.
Being in the same region definitely removes some of the variables, which of course then begs the question of what is the â1%â reference region?
When etron was in full swing, we were able to replicate the numbers across a number of LHackers in regions from CA to NJ to MA. Same pre-tax numbers âŚ
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CA had a couple extra k in regional incentives over other regions.
And taxes exist.
Unless weâre going to get into the 1% laundry list of caveats again⌠which is the whole point.
I have not wrapped my head around taxes, fees and terms yet but I am not paying a penny more than $85K * 1% = $850/mo . 