superswiss

Correct, risk is on the lesser, but you still pay depreciation, albeit a fixed depreciation.

SCarGuy

Not only that, but only for a portion of the car, and only for a short window of time. Then I am free to do what I want next. It's a much shorter term commitment, and that convenience is part of it's appeal

superswiss

I'll give you the convenience part. With buying, the commitment is what you make it. You can sell the car at any point. You make it sound like the car is worthless. Depreciation is the same. Audi tends to set the residuals conservatively. It's not unheard of for an Audi to have a higher trade in value at the end of the lease than the residual.

SCarGuy

Worthless, no. But on a $50k ish car, over 5 years and my mileage example above (15k/year), I can count on certainly doing tires (maybe twice depending on what car I got and what it came with stock), I can just about count on doing brakes (especially if it's an S anything), and for 1 of those years, or 35k miles, whichever came first, I'm driving without a warranty, which means any repair even beyond maintenance that may be needed, is my obligation. I have a car that is worth maybe $10k, assuming I took care of wear items as needed. Now what happens if I got into a fender bender in that time....Carfax, which means the value drops again. On a lease? Not my problem, it's Audi's. To some this is a favorable scenario. To others, it's not. In an S car as an example, it's not to say it's not still a cool car, it is. I happen to like the tech stuff, always have, and alot changes in 5 years now. For me, the risk associated with ownership is not worth it vs. a lease. The more expensive car, the more I find this scenario plays out in favor of the lease, until you get to a car that is so highly sought after/rare/exclusive, or it's something you simply always wanted, and once acquired, life circumstances notwithstanding, you will keep forever. There are very few cars that tick that box for me, and most of them are way out of my tax bracket (Singer 911 please!)

It all comes down to perspective, and, how you do things. I have tons of clients that pay for their cars in cash and keep them. That works for them - my job isn't to talk them out of that, it's what works for them. I have others that finance, and when it's paid off, they get a new car, or, they switch out sometimes before that, or maybe a bit after. Again, my job isn't talking them out of one into another....I don't care how they purchase it ultimately.

As far as the actual residual vs. market rate on an Audi vs other brands, without questions, Audi's are at least based in some realm of reality. Other brands are insane....but without those inflated residuals, which they pay for, and pay to insure against BTW, the cars would languish. This is why some say Audi's don't lease great vs other brands. From my experience (and I have had alot of Audi's!) they lease more to true dollars. As for being worth more at the end, with the amount of transactions I do, so many factors at play, there is no 1 slice fits all there.

heymoe

I can kind of see your point of view but long term it seems that buying a car will end up saving more money vs leasing.

I mean lets assume a 12 year period of time.

One person plans on leasing a $60,000 car every 3 years with a MF of .0017 which means they will lease 4 different cars paying around $890/mo (Edmond Lease Calculator). So after 12 years they would have paid: $128,160
Another person is buying a $60,000 car using a 5 year loan at 3% and will keep the car for 12 years. Their monthly payment would be about $1,080/mo and paid $4,687 in interest. Total cost: $64,687.

So the lease saves $190/mo over the loan for the first 5 years after that the person with the loan would free up $1,080/mo to be saved or spent elsewhere as needed but the person with the lease would still be paying $890/mo.

After 12 years the person with the loan would have saved $63,473 over the lease just from a lease / loan payment point of view.

I personally don't remember spending more than $5,000 a year for maintenance and that was for a big service. Most of the time it was less than that for my current car after I paid it off so if the person with the loan saved $500/mo to cover annual maintenance for the next 7 years, they would still save about $30,000 vs the lease after 12 years. Then if you deduct the $190/mo savings over loan payment for the first 5 years, the person with loan is still ahead by almost $20,000.

I didn't include the cost of gas or new tires since that is an expense that a person doing a lease or a loan will still have to cover.

All of the above assume no trade in or down payments.

If we take this a step further and look at investing just the monthly savings between a lease and a loan over 12 years

Lease: Saving $190/mo ($1080/mo loan - $890/mo lease) for 12 years earning 10% = around $53,000
Loan: Saving $580/mo ($1080/mo loan - $500/mo for maintenance) for 7 years earning 10% = $70,723

The loan earned $17,723 more after the 12 year period is over even though if had 5 less years of compounding of interest. Sure 10% might be dreaming but even at 5% or 7% a year, the loan still makes more money.

In the end it looks like the person with the loan ends up ahead by almost $40,000 give or take and the only draw back was they had to drive the same car for 12 years and this doesn't include whatever value the car has after 12 years.

My math could be wrong so feel free to let me know where I might have messed up or made the wrong assumptions.

superswiss

I'm not disagreeing with you at all, but the issue I'm having is that you seem to conflate the asset's performance with the financial instrument used to pay for it. That's two different things. The asset's performance doesn't change if you lease, buy or whatever. It's still a depreciating asset that depreciates at a rate determined by the market. You then have several options for financial instruments to pay for it. A lease gives you convenience and shifts risk to the lender, so that's a benefit for some. In exchange you commit to a fixed term. What if you have to get rid of the car before the lease is over? You are subject to the same trouble as if you owned the car. You'll have to find a buyer who is willing to pay what the car is worth at that time. Lease swapping is a bad idea with Audi, since Audi Financial doesn't release the original lessee of any liability. You'll have to pay off the remainder of your lease and you may be upside down. My point is that the asset doesn't change based on how you pay for it. The financial instrument that works best for you may not work for somebody else. That's really all I'm saying.

Maintenance depends very much on the car. In case of my RS5 I need new tires once a year. I'm on my 5th set of tires, so even if I had leased the car I would have had the tire expenses. Same for the brakes. My brakes were done at around 24k miles, so that's sooner than the 36k miles on a typical 3 year lease. So I would have had to change the brakes during my lease. However, because I own the car I was free to change it to aftermarket brakes that not only are better, but cost about half of what I would have paid for OEM brakes. I now have been out of warranty for almost two years and haven't had any unexpected repair costs. Yes, some of it is coming, for example I'm going to get a carbon clean done next week. That's something I wouldn't have to worry about if I had turned in the car two years ago, but again, at the same time the rate of depreciation of my RS5 has slowed down and annually I'm loosing less absolute money than I would if I was in the second year of a new car by now.

These are all valid points that we are discussing here. The thing is it's not black and white. It depends on what kinds of cars you buy as you can see from my history with an RS, which generally have higher wear and need more maintenance than an A or S. Also RS generally hold their values better, than the volume cars.

I suspect that if you'd really add things up and compared to for example skipping every second car that you leased, I sort of doubt that it would have been more expensive. Depreciation is not a linear curve. It is steep during the first 2-3 years and then flattens out, which means the longer you keep a car the less dollar you lose every year. By getting into a new car every 3 years you constantly spend your time in the steepest part of the depreciation curve. Not sure if you get this point. At some point the smaller annual depreciation will be offset by higher maintenance cost, so it's all a matter of planning and monitoring it.

superswiss

Thanks for doing the numbers. I haven't verified the math, but this is exactly what I was getting at. Long term leasing cars is more expensive than buying cars and keep them for an extended time. That's been proven by others doing similar calculations. And what's not in your calculations yet is at the end of 12 years, the person who financed the car still owns an asset that has some value. So in addition to the savings you laid out, they'll make some cash that can be used towards the next car when they sell or trade it.

SCarGuy

I don't think I am doing that at all. I also don't consider it an asset, as whichever way you go, it isn't appreciating. To me, it's a liability, but that becomes more of a philosophical debate
Other than that, yes, we are saying the same thing. The method by which you acquire the car is a very user specific determination.

And yes, and I think I accounted for the differing type of vehicle requiring different maintenance costs. RS anything's do not lease particularly well, as they are subject to high rates, due to the types of cars. I've yet to lease an RS anything to anyone, they have all been purchases. RS's are also not, generally, that client's primary car. So things are on a different curve when it's a toy.

I understand full well the depreciation curve. I also know that with most of these cars, even an Audi, they are being kinder, 9 times out of 10, on their projected depreciation, than what the marketplace will dictate, assuming I keep to the contracted mileage. I have had a lot of Audi's, and alot of just about everything at this point. After I have sat down to do my math for my transactions, I favored the net result of a lease. Others can differ, and that's cool. It is, as you say, and I said too at some point, never a one size fits all approach. Different vehicles for acquiring the same....ermm...vehicle.

SCarGuy

This is great if the only thing you're comparing is the person who keeps their car this long, vs one who doesn't. The majority of people do not...they change their car out, often before their car is paid off (because they often buy the wrong car to begin with). Cars, like most things, are rarely zero sum. Always a ton of variables.

As an example, I have a ton of clients who buy their cars, cash...keep them for 5-6 years, and then trade them in for new cars. Routinely. They don't drive a lot, and they are regularly changing car to car. This works for their lifestyle. For others, they buy cars for cash but put them on their own personal credit lines, and that is how they manage their expenses. I have others still who lease, and always want out prior to the lease term. There is a path for each of these to do what works best for them. There is no magic formula

njspeedfreak

I think people are making the differences between leasing and buying out to be bigger than they really are.

It mainly comes down to how the payment is structured and where the risks are, and its useful to have multiple approaches for handling each, but in the end you are going to pay pretty much the same for what you get. Whatever differences there are in overall cost of each approach will be tiny compared to that total cost. The important thing to remember, neither approach is going to result in a free lunch. The market makes sure of that. If a free lunch existed, someone else would have already grabbed it and monetized it before you got your chance at it.

I can't do a lease because I put to many miles on per year and I really like keeping the car for 5 years. BUT, I still treat the ownership experience like it's a lease. Ignoring the initial start up capital, here is how I do that. I use my previously paid off car's residual value as the cap cost reduction on the next one. That way I'm only financing the difference between the purchase price and the theoretical residual value of the car 5 years down the road. After I make the last loan payment I trade in for the next one the same way someone might roll into the next lease. Monthly payment comes out almost exactly the same as if I was able to get a 5 years lease at 20K+ miles per year. Either way you are paying for the total depreciation of the car during your possession of it plus the carrying costs of the initial value of the car. BTW - this is also true if you paid cash for the car upfront. Instead of paying interest on borrowed money you are losing interest on invested money. Same difference other than the possible difference in interest rates of debt vs investment, but then again those differences are small compared to the overall cost of the car anyway.

I never think about a car as being "owned". It's only possessed by me during a certain span of it's useful lifetime in which I pay certain operating costs, with depreciation being one of them. And one way to make that operating cost lower on average is to maintain possession during the time when depreciation is lower (like year 4 and 5).