December 535/528 "West Coast Lease Special"

Looks like Jason's thread was deleted. The reason I am starting this one is that something seems inconsistent with the program the way it was described. For example, if I live in New Jersey and want to lease a 535 for 24 months, my residual is going to be in the 60s, while those on the west coast will have a residual in the 70s? More interestingly, if I am not one of the first 18 at my preferred dealership in CA to lease one for 24 months, my residual is going to be in the 60s while the guy who signed 2 minutes before me got a residual in the 70s? Not that there is something wrong with doing it this way, but it seems odd since it impacts lease-end scenarios for cars purchased within the same hour. I would have thought that a special like this might have been done with changing the MF or cash incentives, not the residual. Certainly seems like a new way to lease vehicles.

Yes - they could have just given certain dealerships some money. But where would the fun be in that?

One thing you have wrong is how they allocated the leases. They were not to the first folks in line. It was to whoever they choose to. So they could give it to one, and hold it back on the next, and then give it to the one after that. Naturally you would expect the first and last person in that order paid a higher selling price. No dealership in their right mind would give away those leases at anywhere near invoice in my opinion.

The mechanics of how they allocate is not important, as the fact remains that people signing leases within minutes of each other would have different residuals. That could create accounting issues and will have tax implications for the finance company, which is one reason why they have remained consistent with a single formulaic approach for so long within a certain time period (like consistent for programs in December or January, etc.). Not saying there is anything wrong with this, but it seems they are trying a new, less transparent way of leasing vehicles in which the lease is based on a payment and not based on a transparent set of underlying parameters that were the same for everyone. Previously, most of these parameters were standardized, which made it easier for the relatively savvier consumers to make their deals on a number of constants and with the "sale price" the only variable. Then they started playing with MF markups and discounts and stopped the likes of Jon and others to publish those. Now they are making even the residual a variable. The more moving pieces, the better for the company's business and less so for the consumers. The less transparent the process for the consumer to back into numbers by comparing his deal with his neighbor's, the better for the company. Nothing wrong with it as long as they can get away with it and sell just as many vehicles as they did previously.

Originally Posted by chrischeung

Yes - they could have just given certain dealerships some money. But where would the fun be in that?

One thing you have wrong is how they allocated the leases. They were not to the first folks in line. It was to whoever they choose to. So they could give it to one, and hold it back on the next, and then give it to the one after that. Naturally you would expect the first and last person in that order paid a higher selling price.

Put yourselves in BMW's shoes. How would you do it instead? You want to pay certain "bonuses" to certain dealers, without getting sued by other dealers? http://www.cleveland.com/business/in...on_judgem.html

Explain how this deal is better for BMW? They're likely making losses on all of those leases. Wouldn't they have been better off not doing those leases - profitability wise? It's at most a few hundred cars? Think this through - this is not a benefit for customers. It's not to mainly sell a lot more cars. The main point of this is to pass on specific bonuses legally and efficiently.

But I don't think they may do this again. I bet there were a bunch of people thinking they could get these leases with a car just above invoice, and were told no. That probably wasted a lot of time for dealers and customers. Better to go with volume based bonuses and freebies like trips. Those generally go down well without hassle.

And as to it being less favorable to consumers - isn't that how it should be? Does a buyer have to disclose what they're willing to pay? How easily they made their money? What other business do you know has to disclose their buying prices? Supermarkets? Airlines? Healthcare? Insurance? Banking? Heck - we don't even disclose how much money each of us makes, unless you're running for President (and even then it's not entirely mandated). As a non-American, I always found it strange how it was required that invoice pricing had to be made public. I don't honestly see this in practice anywhere else in the world. Something I can personally research as to how that came about.

Originally Posted by chrischeung

As a non-American, I always found it strange how it was required that invoice pricing had to be made public. I don't honestly see this in practice anywhere else in the world. Something I can personally research as to how that came about.

It started in the early 90's when Al Gore invented the internet.

You are obviously missing the point of my post. My point is that this is a new, less transparent way of leasing a vehicle. I am not saying it is right or it is wrong, just that it is a different way of doing it. And if this allows them to sell more vehicles at higher margins, more power to them.

And thinking that the "invoice" price is the true cost of a vehicle to the dealer is naive at best. Also, thinking that selling a vehicle at such a subvented lease number means a loss on the vehicle is also naive. True, selling at such a low lease number is lower margin for the manufacturer, but it is in no way a losing transaction on variable/marginal cost basis.

Originally Posted by chrischeung

Put yourselves in BMW's shoes. How would you do it instead? You want to pay certain "bonuses" to certain dealers, without getting sued by other dealers? http://www.cleveland.com/business/in...on_judgem.html

Explain how this deal is better for BMW? They're likely making losses on all of those leases. Wouldn't they have been better off not doing those leases - profitability wise? It's at most a few hundred cars? Think this through - this is not a benefit for customers. It's not to mainly sell a lot more cars. The main point of this is to pass on specific bonuses legally and efficiently.

But I don't think they may do this again. I bet there were a bunch of people thinking they could get these leases with a car just above invoice, and were told no. That probably wasted a lot of time for dealers and customers. Better to go with volume based bonuses and freebies like trips. Those generally go down well without hassle.

And as to it being less favorable to consumers - isn't that how it should be? Does a buyer have to disclose what they're willing to pay? How easily they made their money? What other business do you know has to disclose their buying prices? Supermarkets? Airlines? Healthcare? Insurance? Banking? Heck - we don't even disclose how much money each of us makes, unless you're running for President (and even then it's not entirely mandated). As a non-American, I always found it strange how it was required that invoice pricing had to be made public. I don't honestly see this in practice anywhere else in the world. Something I can personally research as to how that came about.

Originally Posted by fq

You are obviously missing the point of my post. My point is that this is a new, less transparent way of leasing a vehicle. I am not saying it is right or it is wrong, just that it is a different way of doing it. And if this allows them to sell more vehicles at higher margins, more power to them.

And thinking that the "invoice" price is the true cost of a vehicle to the dealer is naive at best. Also, thinking that selling a vehicle at such a subvented lease number means a loss on the vehicle is also naive. True, selling at such a low lease number is lower margin for the manufacturer, but it is in no way a losing transaction on variable/marginal cost basis.

I guess I am as confuse as anyone who read this thread as to what do you want to say. If you are not passing judgement on whether it is good or fair for BMW to do a program like that, what exactly are you trying to say????

To me, it is just another promotional program. There are incentive available to different region of the country all the time. The higher residual is just a different way to pass the incentive out. They could have given out $X rebate for the first 2 customers of each dealership.

Originally Posted by chrischeung

As a non-American, I always found it strange how it was required that invoice pricing had to be made public. I don't honestly see this in practice anywhere else in the world. Something I can personally research as to how that came about.

I don't think it's "required", as in by law, but perhaps by competitive pressure. And do you really believe invoice pricing has any precise relationship to true dealer costs? With all the incentives, holdbacks, trunk money, bonus thresholds, etc., "invoice pricing" is just another price point like MSRP. Making invoice pricing available is more of a marketing gimmick (like when you go into Ross Dress for Less and the price tag says "Retail $50, Everyday Price $35, Ross Sale Price $20").

Chris...well said.

i am just pointing out that I have never seen this, in which the residual for the same vehicle is different at different times of the same day. Remember that the residual (theoretically) is the expected fair value of the vehicle 24 months from now, and changing what a car will be worth 24 moths from now every minute does not make a lot of sense. Again, nothing wrong with it, but certainly a new way of leasing vehicles by making a variable change that makes the least amount of sense to change.

Originally Posted by xofruitcake

I guess I am as confuse as anyone who read this thread as to what do you want to say. If you are not passing judgement on whether it is good or fair for BMW to do a program like that, what exactly are you trying to say????

This is not a typical promotion or incentive program, there are implications in it that will take a lot of time to explain. BTW, I don't see how the higher residual can be termed an "incentive to pass out."

Originally Posted by xofruitcake

To me, it is just another promotional program. There are incentive available to different region of the country all the time. The higher residual is just a different way to pass the incentive out. They could have given out $X rebate for the first 2 customers of each dealership.

Originally Posted by Greg@Pacific BMW

Chris...well said.

I usually feel bad 2 times when a deal doesn't get done - once for the buyer, and once for the seller. With this deal, I'm really feeling for great CAs, and the number of times you've had to say no on this offer. You probably feel like getting punched in the guts 10 times a day. Open your email - daily 5 series lease beating time. But I'm sure you'll heal .

Originally Posted by fq

i am just pointing out that I have never seen this, in which the residual for the same vehicle is different at different times of the same day. Remember that the residual (theoretically) is the expected fair value of the vehicle 24 months from now, and changing what a car will be worth 24 moths from now every minute does not make a lot of sense. Again, nothing wrong with it, but certainly a new way of leasing vehicles by making a variable change that makes the least amount of sense to change.
"

That implies that BMW (or any manufacturer) is using the true estimated residual. Few do. Companies like ALG do project residual values and those don't change all the time like you imply. However, manufacturers regularly deviate from the projected residuals to help drive sales. It's one of the many levers that BMW can pull to incent sales -- boosting residuals, reducing money factors or interest rates, or offering cash incentives and credits. Every month BMW re-evaluates the mix of these incentives (which is why, generally speaking, residuals drop when BMW puts out cash incentives -- it's not that the projected residual magically dropped 2-3 points that month, it's because BMW shifted some dollars from one type of subsidy to another). And on a time-to-time basis when they have a glut of inventory for a certain model in a certain region, or when they want to reward certain dealers or throw a bone to employees, they might offer short term special deals with unique rates or residuals.

Originally Posted by fq

i am just pointing out that I have never seen this, in which the residual for the same vehicle is different at different times of the same day.

If you want to just see different residuals on the same day, there is one very common example. One purchaser who has locked a prior money factor, and another who is taking the current money factor terms, both taking delivery on the same day.

In fact, this is what is happening with the lease special - 2 different programs can apply to the same car on the same day, each with a different residual.

Did I miss the actual December lease program for the 528/535? It sounds like a very high residual, is that it?

Can someone spell out exactly what the MF and Residual is (base 10k/yr), etc.? I'm assuming it is a change to one or both of these and then Holiday Cash and other incentives apply?

Thanks!



Is it 24 Mos., 72% base residual (+2% 12k, +3% 10k) / .00125 base MF / $2500 holiday cash ?

I do not disagree with you. I am just pointing out that it looks like BMW has turned one more underlying factor in calculating a lease into a variable, which I have never seen before. The more variables there are, the less "standardized" transactions are and the lower the value of the information available on the internet. Nothing illegal (I think) and nothing wrong, just that the power that the consumer had gained via information on the internet has just got a bit diluted. If this allows them to keep their sales per projections and achieve higher margins (which translate into higher prices for consumers), more power to them.

Originally Posted by SARAFIL

That implies that BMW (or any manufacturer) is using the true estimated residual. Few do. Companies like ALG do project residual values and those don't change all the time like you imply. However, manufacturers regularly deviate from the projected residuals to help drive sales. It's one of the many levers that BMW can pull to incent sales -- boosting residuals, reducing money factors or interest rates, or offering cash incentives and credits. Every month BMW re-evaluates the mix of these incentives (which is why, generally speaking, residuals drop when BMW puts out cash incentives -- it's not that the projected residual magically dropped 2-3 points that month, it's because BMW shifted some dollars from one type of subsidy to another). And on a time-to-time basis when they have a glut of inventory for a certain model in a certain region, or when they want to reward certain dealers or throw a bone to employees, they might offer short term special deals with unique rates or residuals.

Not quite. In the lock instance, the buyer has been given a free option by BMW for a transaction agreed to on a different day (without actually getting a put for itself). My example was for a new transactions in which the residual becomes floating at the discretion of the dealer. Remember that over the past 20 years of buying/leasing vehicles, I was always told the one thing the dealer does not and cannot change is the residual, which was supposed to be supplied by the finance company and was fixed for a certain period of time. As I have pointed out before, there is nothing wrong with this, it is just a new way of leasing to wrest some of the power of information back from the consumer. Whether it becomes the norm going forward remains to be seen and will likely depend on the outcome of tests/experiments conducted this month.

Originally Posted by chrischeung

If you want to just see different residuals on the same day, there is one very common example. One purchaser who has locked a prior money factor, and another who is taking the current money factor terms, both taking delivery on the same day.

In fact, this is what is happening with the lease special - 2 different programs can apply to the same car on the same day, each with a different residual.

I'm merely providing a common example that goes against this specific statement "but it seems odd since it impacts lease-end scenarios for cars purchased within the same hour".

Regardless of there being a put or not, this would impact lease end scenarios - BMW seems to be fine dealing with. That's all I'm saying. Nothing regarding anything else in your post.

That statement was supposed to be part of the rest of the post and maybe should have the words "cars purchased" replaced by "transactions negotiated".

Originally Posted by chrischeung

I'm merely providing a common example that goes against this specific statement "but it seems odd since it impacts lease-end scenarios for cars purchased within the same hour".

what is the special deal? Residual and MF?

Originally Posted by Kar Don

what is the special deal? Residual and MF?

IIRC, the residual for a 535i is 74% for 24 months @ 10k/yr (-3% for 15k/yr)

On top of 2k holiday cash

Just look at the internet in a forum such as this - see what deals others are getting that look really good, go negotiate for the same or better - that is what I do.

Few will get better than me and I can live with that but many will get worse.

Originally Posted by 1985mb

IIRC, the residual for a 535i is 74% for 24 months @ 10k/yr (-3% for 15k/yr)

On top of 2k holiday cash

Hi,

Is the west coast residual on the 535xi similar?

I think the F&I folks are going to be making mistakes with deals having different residuals. The consumption of Advil just increased. And wine too.

This deal is also on the east coast....

Does the east cost version you know about include x-drive?