Are ICE leases now...bad? I only see threads on electrified vehicles now

Ask the Hackrs
41

Ok then, I guess I missed that announcement.

Every car web forum out there has “advice” on how to finance a vehicle or buy used. But what sucks about those forums is any time someone talks about leases, the threads get derailed.

Usually some tight-asses talking about how “they only buy cars to own long term” and how “leasing is for idiots.” That’s why I like LH - the folks here see the value in leases. So I feel like it’s rather dilutive for this site to become another “gently used is a smart move” forum.

Like on MB World there’s a thread in their EQS sub about leases. That thread got completely bombed by the MSRP + ADM payers who hate the concept of leases. There was almost zero useful lease advice available to any MB World user.

Anyway, as an opportunity to lean into the broad-dogma you’re describing…

There’s room for the LH owners to go the route of the Caredge.com guys, but with the added twist of strong lease support. Basically extend LH into a platform to help people get into a vehicle using using whatever financing, lease, or used/CPO means make sense for that particular buyer. Right now it’s just a message forum mess and average consumers would balk.

Like, if there’s a workflow to understand the buyer… maybe person A is someone that doesn’t want the latest and greatest … but wants a warranty to commute 12,000 miles a year. With their budget in mind, the tool shoots out some good CPO options in the price range of choice and shows a reasonable buy vs lease structure to pursue. The underlying data is already available to both LH and CarEdge.

But, if person B wants to just keep rollin’ leases for the latest and greatest feel good new models, the site would spit out vehicles in the price class of interest that have attractive resid and MF for the month.

And to your point, if people could see historical/seasonal trends they could see if the current month just kind of sucks compared to prior months and hold off.

1 Like
42

Agreed. Not sure if the data behind Rate Findr allows querying it that way, but it would be extremely powerful to be able to run a query for e.g. “MF < 0.00050” or “residual > 70%” or “lease cash > $8,000” etc. to make it easier to know where to start when trying to put together a hackable lease.

43

Haha yeah, but the query to find what is a “good” ICE lease would need to be:

“MF < 0.00050” OR “residual > 70%” OR “lease cash > $8,000” AND “fuel type is gasoline”

44

The big question is whether the data provider allows it. The guys on the Edmunds forum seem to always be pushing people to narrow down their query, which leads me to believe there’s some kind of licensing restriction on providing too much data at one time.

1 Like
45

There are “good” ICE leases but it’s usually per broker/dealer/bank on some units they have to move.

I see that sentiment even here on LH. So I agree that LH is still the place to go to discuss lease-centric deals and strategies.

46

The numbers in that table show just the remarketing gains/losses only. So a measurement of the RV forecast accuracy. It doesn’t include any of the profit MBFS made on interest. So even when they were losing $2k/lease in 2018-2019, they made much more than that in interest income. Every captive has a cost of funds each month so when the MF is lower than that, someone is paying to buy that rate down on the front side. Usually, it comes from the OEM’s incentive budget or the captive splits the cost with the OEM. There is also a massive reserve for RV losses in place at each lender and when the RVs are set above a certain level, the OEM and captive will often share the risk above that level. For a large mainstream brand, the captive sets the RVs first, and if the OEM needs the RV to be above that they buy up that additional risk with a reserve in advance.

The business of leasing can be incredibly lucrative when the captive and the OEM work in harmony to set RVs/rates/incentives at the right level to move the right level of volume but not set the RVs too high to blow up the risk 3 years later.

When you start introducing EVs into the lease portfolio, those will be giant losses for the first 1-2 generations. The RV losses on all of these 1st gen products will all be extremely painful for everyone involved so that is why the ICE leases will be set to maximize profitability and hopefully offset the losses on the EVs.

47

To each their own, I find the value in LH to be the smartness of the people here with their money. Note I didn’t say stinginess. Over the years the smartest people here have found the lowest TCO on everything from Chevy Cruzes to $150k cars.

Again to each their own and I find the most myopic or dilutive thing LH could be, would be the leasing equivalent of the dogmatic “always buy used” crowd… to never understand nuance or have the mental flexibility to understand when buying used is smart, when buying new is smart and when leasing is smart.

1 Like
48

As long as “to each their own” also works the other way. Where you don’t get upset when folks like me comment on our observation that you participate in almost every ICE lease thread about how the low LH score means financing or CPO makes more sense.

You’re the longest tenured TH. By now you’ve have learned how to provide broad advice unique to a poster instead of just fixating on a single perspective or priority-set.

Take @mike_g83 's thread about the ICE Civic Coupe lease. That was a “pretty good” lease given the offered MF and economic climate. It is likely the best lease structure he could get today without finding a demo unit. This was his first ever post on LH and now he’s got the most tenured TH jumping in saying “most cars don’t lease well.” But you never even bothered to understand why the guy was considering a lease in the first place

Yes, some leases are “bad” when compared to what the MF/Resid/discounts would be expected on that vehicle. And some leases are “bad” when compared to how other vehicles in the class are leasing for. But you just came in saying leasing = bad right now.

You seem to prioritize TCO, but leases have historically provided value in addition to a simple financial metric. Leasing was usually the means to get certain customers into newer vehicles without the hassle of worrying about warranties or whether or not the previous owner flicked boogers into the center console.

We all know leasing isn’t for everyone, but for the right type of person, leasing is useful beyond simple ROI or TCO. But you aren’t assessing leases as a total package. Rather, you throw your rapid assessment of “bad lease” at every opportunity because you don’t like the LH score.

1 Like
49

That’s your opinion and you’re entitled to it. I don’t agree and we don’t necessarily have to agree.

From my personal experience, the subtext is really “I need a vehicle”. Once we strip away whatever assumptions the original poster had based on advertising or blogs or YT or word of mouth, turns out a lot of people just want the lowest TCO and don’t care about the structure of the transaction as much. They also start to look beyond just monthly payments once it’s reframed as total cost.

Most people cannot rationalize spending, say, $28k to drive a $30k car over two leases. It intuitively doesn’t make sense to most people once it’s been reframed. They may have started off thinking $2,000 DAS and $333/m for 36months was not a bad deal. Once it’s been reframed it doesn’t sound that great any more. Now obv everyone is free to say why a lease works for their particular circumstances despite the TCO delta and/or just ignore the advice.

That statement about most cars not leasing well is true. You don’t like it, I don’t like it. The best of the good old days were not only when leases had the lowest TCO by far but in addition companies like MBFS also allowed proper lease transfers. Nothing beats the combination of low TCO and rapid churn. However, we don’t live in that era any more. Wishing it away won’t change anything. Ignoring the reality of it won’t change anything.

From my POV, calling out a bad deal is like the fable of the Emperor’s New Clothes. Yes, in the past the Emperor did at one point wear clothes. If he’s not wearing any right now, that’s not the fault of anyone stating merely an obvious fact. It’s the fault of the tailor who was supposed to dress him but instead just gaslit him.

2 Likes
50

To clarify, the reason I’m looking at leasing with $0 down versus financing is the fact that we are a single income family, for now and want to spend the “least” amount possible each month for a reliable vehicle. I like leasing because I don’t have to worry about car repairs if I was to buy used, etc. Plus I take really good care of my vehicles so I turn them in like new. I have leased several Corollas in the past… We are making it work only having one car for the moment, but it is a pain in the butt for lack of a better term. My last car was a 2012 Honda Civic LX coupe that I purchased brand new and just sold this past September. It was a great vehicle and serve me well but I decided to sell it because it got to the point where it needed several thousand dollars in repairs and I did not feel it was worth putting the money into it as the salt really did a number on it living in the north east.

1 Like
51

I hear you, leasing isn’t as good today as it was in the past. But, I think you’re over-generalizing when you basically call out every ICE lease deal a bad deal.

If you were just any other joe-blow user on LH like myself, it’d be one thing. But you’re a TH, and your general message/tone carries a huge weight and implication to it. When you keep saying leasing is bad, you’re basically torpedoing brokers/dealers who post lease deals on LH.

Sometimes users will post about ICE lease deals that mirror what comes out of the LH marketplace, and you’ll jump in with your low Leasehacker Score assessment and say the lease is “bad.” I hope you see how you are harming the messaging of the brokers who are actually putting out the best lease deals that they can.

For example, a $75.5k MSRP X5 lease in the Marketplace is listed:
= $1,039 monthly / 36 months / $6,500 Drive Off

The Leasehacker score is 5.6 years; and using your typical mindset, you’d tell someone posting about this in Ask Hackrs that this a “bad lease.”

But the broker offer has a 6.5% discount off MSRP that your normal LH user may struggle to negotiate on their own. For most people without broker assistance, this same lease is $1,184 with inceptions because that’s what the national offer is from BMWFS.

The broker could be saving someone over $100 a month. But since you’re a TH… when you call this a “bad lease” it’s going to scare off any newb from touching the broker’s deal. That’s not a good situation for LH, the broker, or even the user who wants to lease a BMW X5.

As an aside, I’m still trying to understand why more brokers don’t just advertise a selling price (with potential loan financing) instead of a lease on ICE. I’m not quite quite sure what motivates most brokers on LH to go to leases as a headline offer on ICE.

1 Like
52

They don’t advertise a selling price to make it hard for a new users to just call a dealer and say I want x car for $y amount.

Only people who will reverse engineer the lease structure, rebates, etc can find the selling price.

And then they lose the broker fee and sale.

It makes sense.

However if something has a LH score of 5 is it not an objectively bad lease?

Saying it’s better than the national offer and better than you can get on your own is great - but it still doesn’t make it a good LEASE.

A new user should be aware of the financial literacy or buy vs lease on certain models when the lease is bad

53

It’s no longer close to 0% interest rate environment. With current interest rates, only good leases are 1. EV due to all the federal credits. 2. Cars no one wants and dealer wants to get rid of.

It’s not so much that leases are bad for ICE, but more of borrowing money to buy stuff is becoming a bad deal due to high interest rates. Financing to buy is not going to be that far off in terms of costs for the same car.

1 Like
54

I think this is a great way of explaining it to people.

2 Likes
55

Sometimes a vehicle is expensive to utilize at a brand new stage in its lifecycle no matter if you lease or buy it. Simply because the LH score is low does not mean buying the vehicle via loan is automatically the smart move either.

Replying to @soflacarguy 's comment… I can’t believe I’m on a forum called Lease Hackr and having to explain why Leases attract certain folks. It’s further befuddling to have one of the most seasoned user of a forum called Lease Hackr seemingly touting how leasing new cars is a bad idea. I am so confused right now lol. Usually the anti-lease mindset is what you find on car enthusiast forums.

Leases attract people who want new cars. They buy new over and over and over. They keep the US auto industry going; especially on luxury nameplates. It’s obvious such behavior is not the cheapest way to get conveyance in an automobile.

But some people love the freshest rides, the loaners, and the warranties. They don’t want to find a mechanic and pay for new ball joints or see cracks in their worn out seats.

It will always be cheaper if someone bought a 5 year old used car and drove it until the wheels fell off while being their own backyard mechanic to do all the work. But we’re talking about leasing new cars, not the smartest financial decisions in the world.

Anyway, I put in that broker’s deal (but I removed the taxes since the NY taxes are funky). I also removed the loyalty $1k.

DAS is now $3,662 instead of the $6,500 advertised in in the Marketplace. The buy rate lease MF is 0.0018 with a 52% resid on 10k per annum miles.

I also put in a 5 year loan @ what CU is offering on Tier 1 auto loans (5.5%). I’m assuming dropping the down payment to match the DAS less first payment to make the DAS more equal since you don’t pay loans up front.

Assuming the same resid (which assumes the same driven miles)… here’s the comparison. I’ve removed the disposition fee since my presumption is the lessee is gonna keep leasing… while the buyer/seller is going to keep buying and selling and is somehow able to exit a loan-vehicle with no reconditioning or pack.

image
image508×950 95 KB

TLDR: Driving a new BMW X5 is expensive as shit. It’s “bad” to drive a new BMW X5 if you want to save money. But, I’m not seeing a loan option being materially better than leases option on this product.

FYI, please tell me what I did wrong with the Calculator… honestly I don’t use the LH calculator that often - especially on financing deals.

2 Likes
56

The problem is that it’s expensive to constantly access a new car, with the intent of cycling into a new car a few years later.

Which is why most car forums (mostly non-LH users) bemoan leases as a bad idea.

Buying a car and holding it for a long duration is usually where “wiser” financial decisions are made. But if you’re cycling new via lease or loan, the differences aren’t massive at this time.

57

This talk of “harm” must be a joke. My comments are not moving the needle. Leases have dropped from something like 33% of new car volumes to 26%. Out of ~17 MILLION new car transactions every year that’s a metric shit ton of cars that were financed instead of leased since this shit started. (Someone can post the precise numbers if it matters).

That harmed everyone in the broker business, not just those on LH. And who’s responsible? The captives that dropped RV, gutted their incentives and jacked up their buyrates? Or one fucking guy on one fucking forum?

That is such a reach that it’s beyond all absurdity. Whatever credibility you had just went to 0. Clearly you are angry at a situation none of us can change but you feel compelled to find a scapegoat any way.

That’s my last reply to you on this topic. Feel free to have the last word as many times as you need.

2 Likes
58

Ive been leasing cars since 2006 my friend, I have 1000% clarity on when or why a lease might be more attractive or beneficial than financing or paying cash.

The reality is most people don’t understand leasing - and a significant majority lease for the wrong reasons. I personally think how @max_g explains it could help shed some light on what’s usually a newbie posting a dealership’s proposed numbers. Iirc he often recommends reaching out to our friendly neighborhood LH broker network and/or marketplace as well.

I get that his remarks might come across as pessimistic. Thats understandable as market conditions are mostly unfavorable currently.

Finance rates suck. Leasing programs mostly suck. It’s just really not a great time to get into a new car.

BUT - there are exceptions. Thats why the regulars are here refreshing LH daily lol. Fishing for exceptions, or at a minimum attempting to do as little damage as possible to our financial portfolio when signing the dotted line.

1 Like
59

That’s my point though, if someone desires to drive the “latest and greatest” paying cash (or loan) isn’t actually cheaper right now.

Look at that X5 example I posted above. Someone who wants to be in a new X5 and finances isn’t actually coming out ahead compared to a lease. The only time they come out ahead in the comparison is if they keep driving the X5 past its first 3 years; which becomes a separate conversation around whether operating a 3 year old car is better than a 0 year old car.

When max_g explains leases the way he does, he is pointing out how expensive it is to drive new cars. But his logical fallacy is he connects expenses to leasing… as if buying/loan were somehow a better choice.

I think we both agree that always wanting to be in the newest vehicle is a bad financial decision… especially considering the German luxury nameplates.

2 Likes
60

Especially German luxury. The example of an X5 lease vs finance is great example of why or when the lease is more beneficial, even if it’s not a great lease- financing it could be worse.

A lease on a 30k Civic though? Makes zero financial sense for most.

3 Likes