Owner's Choice...question about options at end of term (Texas)

I've researched heavily and am trying to find a definitive answer to one aspect of the Owner's Choice program (which apparently is only available in TX and IL). I live in Texas and have finalized an OC deal on a 2013 M3 that should arrive in a couple of weeks. I got the base/buy rate (currently 3.00%, which is the same as the base lease money factor) and I know what the residual is (62%), so neither of those items are in question. And I'm aware that with the OC I do not have the acquisition fee nor do I have GAP insurance (which is essentially what the acq fee pays for).

My question has to do with the options at the end. I know that I have the option to turn the car in and walk away, just as I would with a lease. But if I decide to trade the car and purchase another new BMW, which is a likely scenario, do I get full sales tax credit for that 62% residual? I saw something in another thread that implied that I would only get "trade-in credit" for a value negotiated with the dealer just as I would with a normal trade, as opposed to the set residual in the OC contract. Either way, I still come out ahead with the OC as opposed to a lease, but I really want to know what the story is with trade-in credit.

Thanks!

You get the trade value not the lease residual.

Thanks. That's what I figured. Still better than with a lease, since all else is equal in my case.

Although that raises another question: If I want to buy another BMW and take advantage of the sales tax credit on the negotiated trade-in value, would I then get myself into a situation where I'd have to cover any "negative equity" amount in order to take advantage of the sales tax credit on the trade? The residual in my case is $46,714. Let's say that the dealer offers $42,000 for it as a trade at the end of the OC term, which is the amount that would be applied toward sales tax credit on my next car purchase. Would the difference of $4,714 be ignored (because BMWNA committed to the residual at origination of my OC contract) or would I have to pay that if I wanted to take advantage of the sales tax credit on the trade? I would assume that it's ignored but if it's not, that obviously complicates the options further because it gets me into a situation where I have to decide whether trading is more feasible than walking away.

Originally Posted by bca

Thanks. That's what I figured. Still better than with a lease, since all else is equal in my case.

Although that raises another question: If I want to buy another BMW and take advantage of the sales tax credit on the negotiated trade-in value, would I then get myself into a situation where I'd have to cover any "negative equity" amount in order to take advantage of the sales tax credit on the trade? The residual in my case is $46,714. Let's say that the dealer offers $42,000 for it as a trade at the end of the OC term, which is the amount that would be applied toward sales tax credit on my next car purchase. Would the difference of $4,714 be ignored (because BMWNA committed to the residual at origination of my OC contract) or would I have to pay that if I wanted to take advantage of the sales tax credit on the trade? I would assume that it's ignored but if it's not, that obviously complicates the options further because it gets me into a situation where I have to decide whether trading is more feasible than walking away.

The deficit isn't just ignored, per se, but you can likely get around it depending on the particulars of your situation. There's another value at play here - it's the amount at which BMWFS would "sell" the car to the dealer. It's based on some formula using Manheim auction values and is intended to represent the true wholesale value of your vehicle. To BMWFS, the residual is almost irrelevant if you're not buying (or keeping, in the case of an OC) the vehicle.

In your example above, say the BMWFS wholesale value is $41K. You'd have $1,000 trade equity plus the sales tax saving toward your next vehicle.

You need to find out the BMWFS wholesale value for your vehicle. Surprisingly, in my experience, the dealers have been very open about providing that information.

One question for you - I've done an OC before and I thought that GAP coverage was included. Have you been told differently?

Subscribed. I was told that I would have to carry the negative equity but want to read what the professionals have to say.

Thanks for the info. I'm not too worried about it, really, but I will ask my dealer when I sign the papers if they can provide any details about all this.

Originally Posted by TXPearl

One question for you - I've done an OC before and I thought that GAP coverage was included. Have you been told differently?

I haven't actually asked my dealer but I have seen it mentioned in several threads that GAP is not included in an OC by default. GAP is something that you essentially pay for in a lease with the acquisition fee, which is not part of an OC. You can obviously buy GAP with an OC if you like. If I end up being told differently, I will post here.

I did an OC on my wifes X3 they will offer you gap insurance on the loan at closing along with all of the other up sell items - glass, wheels and tires etc.

For GAP, try a 3rd party such as a credit union. It will be cheaper than at the dealer. Try Penfed. Their GAP prices seemed to be reasonable.

I am debating between leasing or OC, but my dealer quoted me 4% APR for the X5d. My monthly payments were higher than lease, even with 7 security deposits

Originally Posted by sunnygps

For GAP, try a 3rd party such as a credit union. It will be cheaper than at the dealer. Try Penfed. Their GAP prices seemed to be reasonable.

I am debating between leasing or OC, but my dealer quoted me 4% APR for the X5d. My monthly payments were higher than lease, even with 7 security deposits

Can you do MSDs on an OC? I thought it was for leases only? What's the formula for reducing the APR on OC for MSDs?

All other factors being equal (which they should be, same residuals are used for OC) the only difference between leasing and OC is the MF vs. the interest rate and the Acq. fee.

What's MF was used for the lease payment?

Originally Posted by TXPearl

Can you do MSDs on an OC? I thought it was for leases only? What's the formula for reducing the APR on OC for MSDs?

All other factors being equal (which they should be, same residuals are used for OC) the only difference between leasing and OC is the MF vs. the interest rate and the Acq. fee.

What's MF was used for the lease payment?

The MSDs were for the lease. It used .00116 for the MF for 2012 X5d.

Originally Posted by sunnygps

The MSDs were for the lease. It used .00116 for the MF for 2012 X5d.

Ah, OK. So the MF (before MSDs) was .00165 - is that the base or marked up (I though the current base MF was like .00145)? My experience in DFW is that it's like pulling teeth to get them to offer the base MF.

For the OC, you have the same APR markup issues. Plus if you can't take advantage of MSDs, then that's also a disadvantage. The 4% APR is equivalent to a MF of .00167 (not surprisingly, about the same as the marked up lease MF).

Good luck.

Originally Posted by TXPearl

Ah, OK. So the MF (before MSDs) was .00165 - is that the base or marked up (I though the current base MF was like .00145)? My experience in DFW is that it's like pulling teeth to get them to offer the base MF.

For the OC, you have the same APR markup issues. Plus if you can't take advantage of MSDs, then that's also a disadvantage. The 4% APR is equivalent to a MF of .00167 (not surprisingly, about the same as the marked up lease MF).

Good luck.

The Dallas area is tough to negotiate a good deal on a BMW. Dealers want $2500 mark up on a X5 and it seems like they have no issues getting that. All the rates I quoted in my previous email were marked up. They will no budge on the rates.

So the OC is not in the play for me at this time. I just don't want to put more money down to reduce the cap cost.

Dealing with the local car sales folks takes too much energy and time.

In a way, that's comforting. It means the local economy is strong and thriving. I'd personally rather have the economy going strong and pay more for my cars, than be in a deep recession and get a car cheaply.

Originally Posted by sunnygps

The Dallas area is tough to negotiate a good deal on a BMW. Dealers want $2500 mark up on a X5 and it seems like they have no issues getting that. All the rates I quoted in my previous email were marked up. They will no budge on the rates.

So the OC is not in the play for me at this time. I just don't want to put more money down to reduce the cap cost.

Dealing with the local car sales folks takes too much energy and time.

I agree with what Chris said, but perhaps you can have the best of both- have you tried buying through one of the B-fest sponsors? I'd recommend looking into the option. Two drawbacks: 1) cost of shipping vehicle to TX, or flying/driving it home and 2) no possibility of sales tax credits on a lease.

Originally Posted by TXPearl

I agree with what Chris said, but perhaps you can have the best of both- have you tried buying through one of the B-fest sponsors? I'd recommend looking into the option. Two drawbacks: 1) cost of shipping vehicle to TX, or flying/driving it home and 2) no possibility of sales tax credits on a lease.

What is the sales tax credits?

Originally Posted by TXPearl

Ah, OK. So the MF (before MSDs) was .00165 - is that the base or marked up (I though the current base MF was like .00145)? My experience in DFW is that it's like pulling teeth to get them to offer the base MF.

For the OC, you have the same APR markup issues. Plus if you can't take advantage of MSDs, then that's also a disadvantage. The 4% APR is equivalent to a MF of .00167 (not surprisingly, about the same as the marked up lease MF).

Good luck.

When negotiating my OC a couple of weeks ago, they quoted me 4% and I went nuts and almost walked out (also keep in mind that this will be my 6th purchase from this dealer since 2004). They agreed to give me the sheet rate of 3%.

Originally Posted by chrischeung

In a way, that's comforting. It means the local economy is strong and thriving. I'd personally rather have the economy going strong and pay more for my cars, than be in a deep recession and get a car cheaply.

+1

Originally Posted by sunnygps

What is the sales tax credits?

In Texas, whether you buy, lease or do an OC, you pay sales tax on the entire purchase price of the car up front. If you lease, when you turn the car in, you don't get anything in return for the sales tax you paid on that residual (unused value of the car). When you do a purchase or an OC and you decide to purchase another vehicle, you only pay sales tax on the trade difference (sales price of new car less the agreed-upon trade value of the old car).

Edit: The comment about sales tax credits may be in reference to ones that I've heard that Texas (or BMW perhaps?) periodically allocates to the dealer. If so, I don't know much about this but I've heard it mentioned and would love to know more.

Originally Posted by sunnygps

What is the sales tax credits?

Check out these threads for more "sales tax credit" info....


http://www.bimmerfest.com/forums/sho...es+tax+credits

http://www.bimmerfest.com/forums/sho...es+tax+credits

http://www.bimmerfest.com/forums/sho...es+tax+credits



(and, yes, bca, I was referring to the type of credits you mentioned in your edit)

Thanks, TxPearl. I hadn't taken much time to search on this issue as I haven't been all that concerned with it, but that's obviously good info. It's interesting that the tax credits appear to only be for leases but I guess that makes sense.

My CA did mention sales tax credits at some point in the process, but I believe that was before I decided on the OC. In my situation, the sales tax will only be about $1k anyway (trading my 2012 535i as an in-and-out being sold to a friend, and getting a 2013 M3), so switching to a lease if I were able to get tax credits would pretty much a wash because I'd then have to pay the $725 lease acq fee (and I don't plan to purchase GAP on the OC).

In the end, I'm sticking with OC regardless just in case I feel like keeping this M3 at the end of the term.

I picked up my 2012 X5 yesterday. I asked the dealer to lower the price as they were making $$ profit on everything. He came back and said that he will get me tax credits, lowering my payment even futher. The max credit he could apply was on $20k. I think the number is dependent on the dealer and/or BMW.