BimmerFest BMW Forum banner

Please school me on lease negotiation.

23K views 58 replies 20 participants last post by  BudFox007 
#1 ·
For the first time we are considering leasing for my wife's next car, we usually always buy...can you please explain to me the dynamics of a good car leasing negotiation?

I got the buying negotiation down to an art, I always buy below invoice (often significantly so), waiting for the end of the month and preferably end of the year, trying to figure out dealer holdback, etc...

How does it work with leasing?? I still negotiate down the price of the car just like a regular buy correct?? So can I push for under invoice like I always do??

Do I then negotiate the residual value after X amount of years?? Based on what info can i base my numbers??

Is the down payment negotiable??


In case of an accident your insurance cover the repair obviously but does that affect the final value of the car at the end of the lease?? How anal manufacturers are they on wear and tear, scratches, etc??

Any tips and tricks are greatly appreciated...thank you!!
 
See less See more
#2 · (Edited)
There is no holdback with BMW. There are frequently incentives (like the build out credit on 2014's), but the details are readily available on www.BMWUSA.com and elsewhere.

Yes you can negotiate the price. Always negotiate UP from invoice, not DOWN from MSRP. Invoice can be found at Edmunds.com. $500 to $1,000 above invoice has historically been a good range. You may get a better deal on some less popular models, and a worse deal on ones in high demand (like the M3 and M4). It pays to shop around. A good place to start is a 'Fest sponsor like Jon Shafer, Greg Poland or Adrian Avila.

There is no negotiating the residual. It is cast in stone by BMWFS.

BMWFS also sets the Money Factor (MF), but dealers are allowed to mark it up. They cannot discount it.

By "down payment" you may mean a cap cost reduction. In 99.99% of the cases, this is a truly bad idea. Your drive away costs should consist of your first month's payment, taxes, license, and lease acq. fee, period. Sometimes Multiple Security Deposits are a good idea. Do a search on that topic.

BF used to have an outstanding "New To Leasing?" forum that offered all types of fabulous insider information. Unfortunately, it has been taken down.
 
#4 · (Edited)
There is no holdback with BMW.
Are you sure about this? I think unless one of us is in management at a BMW dealership (or you are an accountant doing the books for a BMW dealership) it is pretty hard to know what incentives BMW has available for dealers that the costing services (Edmunds, etc.) don't see.

I've discovered this much (in Canada):

1. If you complete the BMW delivery survey with the answer of "outstanding" on all questions, the dealership will get $1,000.00 from BMW.

2. If a dealership meets a target volume of vehicle sales set by BMW, they get an additional percentage of the total purchases from BMW as a rebate. Some people call this a holdback. In the Canadian dealership I was dealing with (but ultimately didn't buy from), the salesman told me that "everything is now about market share to BMW" and that it was going to be a tough year for the dealership as they were not going to hit their sales target and wouldn't be getting their rebate for the year.

It seems difficult to understand why many US dealers would sell cars (even early in the new model year) below "invoice" if invoice was their true "cost" unless it would help them reach a sales level that would unlock some additional revenue from BMW.

To answer the OPs question, I have always tried to negotiate the lease as if it was a sale, to get the lowest cap cost for the lease. Beyond that, in Canada if you are using BMW financial services, you are stuck with the rate published on the web site. You are also stuck with the residual value. I've been able to get rid of the "administration fee", which isn't really a big cost in the overall scheme.

Can't think of anything else. :)
 
#3 · (Edited)
There used to be all kinds of good information in the Ask-A-Dealer forum that isn't there anymore. Residuals by month, money factor information, easily available invoice data. I bet BMW cracked down on the use of their trade info.

Anyhow - Leasematic is a great app to download for your phone or iPad. It lets you do what-if analysis on lease deals based on changes in all the factors that they include. The first thing you'll notice is that you don't understand what all the factors are and how they affect the lease. That's a great indicator of what you need to learn before you do a lease deal. At the time you can reliably put together a lease using that app and have a casual understanding of all the data fields, you'll know as much as the finance guy and more than most CAs about leasing, and you will be ready to do a deal.

Also, hang out in the Ask-A-Dealer forum here on Bimmerfest for some good discussion on people's proposed lease deals, lease return information, and BMW's deals.

I'm a little more open minded about down payments than a lot of people here are. A lease is essentially just a different kind of debt vehicle, and lease down payments work exactly like down payments on traditional financing in terms of their effect on the payment, the risk they create as an investment in a depreciating asset, and such. It's all a matter of the buyer's priority.

Best luck!
 
#5 ·
The CSI and volume bonuses are not technically hold backs. Since the dealer isn't assured of getting them, the OP can't factor them into his negotiations.

Obviously, the dealer can make more than $XXX over invoice. Do you really think the sales department could turn a profit if they didn't? But the OP asked about hold back, not CSI or bonuses.

Sent from BimmerApp mobile app
 
#6 ·
A few do's and dont's:

DO use a site like Edmunds.com to find out what people are paying for the car in your area, including fees and incentives.

DO negotiate up from the invoice price.
DON'T negotiate down from the MSRP.

DO negotiate the price of the car independent of the lease.
DON'T negotiate the lease payment.

DO put down maximum (7) security deposits (MSD) to reduce your money factor.
DON'T put a down payment (capital cost reduction) unless it is a very small one in order to reduce your security deposit to the nearest $50.

DO buy only the miles you intend to drive.
DON'T pay extra for miles that you may not use (you can always buy miles later).

DON'T accept any dealer markup of the money factor (MF) or acquisition fee.
 
#7 ·
DO put down maximum (7) security deposits (MSD) to reduce your money factor.
DON'T put a down payment (capital cost reduction) unless it is a very small one in order to reduce your security deposit to the nearest $50.
I don't necessarily disagree, but:

  1. Either of these will get you stuck in the lease for the duration unless you're willing to let them go in a lease assumption deal. MSDs are the worse of the two in this regard because you don't get a little of them back in every payment like you do with a CCR.
  2. Setting aside mechanics and risk of CCRs, down payments always shift cost from "operational" to "capital" even though individuals don't usually think of it that way. Sometimes it's better for someone to spend some cash to lower a payment or reduce a debt obligation - if they are buying a home and need to optimize their ratios, for example. It's effective to look at the larger financial situation before ruling for or against a down payment - whether in a lease or traditional financing.
 
#8 ·
MSDs = locking you into your lease for the entire term. Don't do it unless you're 100% certain you're able to see the lease through to full term (and I would argue very few people fit in that 100% certain category). BMW offers one of the most flexible and efficient lease transfer options that exists in the auto industry. You're effectively giving up that option by putting down MSD's as no one is going to front you thousands of dollars to reimburse you for MSD's as a condition of a lease transfer.

I would never advise anyone to give up the flexibility of having the ability to exit your lease early.
 
#11 ·
Great point. However, what if BMW provides you with a chance to turn in your car early via a "pull-ahead" special offer, where you can lease another BMW and not have to make the remaining payments on your current one? In this scenario, doesn't BMW return your MSDs as soon as you start your new lease on the new car (and your previous lease is now officially over)?
 
#21 ·
I did the pull-ahead offer, turning in my car 2 months ahead of time. The full MSD was returned.

I agree with dunderhi that you should not consider a lease if you have any inclination to terminate or transfer the lease prior to the term. If you have any reason to believe that you cannot comfortably afford the lease payment for the duration, then you should not consider that lease.

If you are forced to transfer for some emergency reason, then you should collect the MSDs from the person assuming the lease since they will get it back at the end.
 
#12 ·
I think this gives more flex in a lease transfer vs the MSD scenario. You could present the remaining payment on a monthly basis in the negotiation to show the advantage of the one lease payment vs traditional lease. Not everyone can afford to pay up front, but at least the implied monthly payments should be lower than competing lease swap offers, assuming you started with a good deal, which should help in the marketing of the swap.

Sent from BimmerApp mobile app
 
#13 · (Edited)
The only thing to add to the other good advice in the thread is that I've always taken a simple view on this and it's never let me down - regardless of whether you're paying cash, leasing or financing, focus *solely* on the price of the new car at the outset and do not discuss how you later intend to fund the deal until the price of the car is locked down. Only then discuss financing, if you need it, and whether you have a trade-in etc. Other golden rule is *never* share any info on your budget or your payment tolerance - if it's higher than it needed to be, the deal will magically end up at your indicated payment threshold. At this point, I'm then willing to revisit the price paid for the car - but only if the price drops further to seal the deal.

It's also very important to be aware of any incentives, trunk money and dealer incentives etc that may apply, and one of the tests I like to use is if the sales guy brings it up without me having to ask. I've generally found that the ones that are upfront about these things - and in particular any dealer incentives that can be applied to sweeten the deal - are the ones to deal with.
 
#14 · (Edited)
As one who was in the business, albeit a long time ago, one thing that leasing neophytes get confused on is "money down" vs. "cash due at inception". They are not the same thing. One is a component of the other.

A downpayment, or cap cost reduction, is cash which reduces the net capitalized cost in the lease....so if you agreed on a price of $53000 for a car, then used a $3000 cap cost reduction as part of the cash due at inception, the amount used to capitalize the lease is $50000. The inception costs include the down payment if any, but also include fees and deposits, such as taxes, which in NY must be paid in full at inception (either part of the up front or capped in the lease), bank or acquisition fee, and security deposit(s) if applicable... So a "no money down" lease does NOT mean that it's a sign and drive transaction.

Otherwise, I agree with the premise that you negotiate the price of the car in the transaction before dealing with the funding method. I usually put on any contract "all incentives to customer", meaning that buildout credits and other over the table incentives (not holdbacks or CSI incentives) go to me. I have always been aware of money factors and interest rates, and have always insisted on no reserve (markup on rates). I insist on seeing the factory or bank rate sheet before signing. A good dealer will do that. If not, it raises red flags. If you give the impression that you are not putting your hand in the dealer's pocket, and acknowledge that he has to make SOME profit, I think you will wind up with a much better deal in the long run.

Good luck and let us know how you make out.
 
#15 ·
A person who leases should be prepared to keep the car the for the duration of the lease. Swapping leases is easier today, but one shouldn't go into a lease planning.g to swap it out. It's usually a money losing exchange.

That said, I usually go with 7 MSDs and put absolutely nothing else out of pocket. The upfront out pocket expenses should be covered by BMW incentives, which are almost always available. In this method, if I were to total the car after leaving the dealers lot, I would have not lost a penny. Any money paid out of pocket other than MSDs would have been lost under this scenario.
 
#17 ·
For the first time we are considering leasing for my wife's next car, we usually always buy...can you please explain to me the dynamics of a good car leasing negotiation?

I got the buying negotiation down to an art, I always buy below invoice (often significantly so), waiting for the end of the month and preferably end of the year, trying to figure out dealer holdback, etc...

How does it work with leasing?? I still negotiate down the price of the car just like a regular buy correct?? So can I push for under invoice like I always do??

Do I then negotiate the residual value after X amount of years?? Based on what info can i base my numbers??

Is the down payment negotiable??

In case of an accident your insurance cover the repair obviously but does that affect the final value of the car at the end of the lease?? How anal manufacturers are they on wear and tear, scratches, etc??

Any tips and tricks are greatly appreciated...thank you!!
Negotiating the price is still most important since the finance cost from the money factor is based on residual value and the residual value stays the up the same when you negotiate buying price.

The dealer will typically try to get money back from you via setting the MF higher than BMWFS has it and by upping random fees such as acquisition fee which should be $725 and often is listed as $925. That is money going directly back to the dealer and leaks off your base price negotiations. There is also an end-of-lease fee which should be $350. They might try to fold other upcharged fees into the "due at lease" payment hoping you don't notice they charge you $300 for the RMV work.

They are anal on the return. I would be tempted to go alpine white because it is easiest/cheapest to fix.

There is my favorite trick, tires. You must turn it in with tires with so-and-so profile left and it must be the original tire type. Sometimes the original tires become very expensive in the sizes needed for common lease returns. I just had that with my wife's car which isn't leased but the new tires on her 36 month old car were upchanged hugely in her size on tirerack. I could put other tires I liked better anyway but you won't be.

What I would do is measure thread depth regularly and when you are still good inside the limit, have somebody put on new tires for the remainder of the lease, then change back as you turn them in. That way you end up with almost new tires you can sell or maybe even reuse. Only works if you have a reliable and cheap tires place but not impossible to do. The change cost can easily be cheaper than being ripped off with those requirements.
 
#19 ·
I really don't think that it will be impossible to pass MSDs on. Many people trolling leasetrader and smaller sites understand what it does and what it did to the money factor. Those are not dumb regular cars buyers that treat every piece of upfront money the same regardless of whether it is refundable or not.

You will have to find somebody who has the cash in the first place but it isn't that big a sum.
 
#26 · (Edited)
I really don't think that it will be impossible to pass MSDs on. Many people trolling leasetrader and smaller sites understand what it does and what it did to the money factor.
Not true. Most people trolling LeaseTrader couldn't give a flip about MSD's, or even know about them, because it's not something dealerships peddle. People on these sites know about them, but that's a relatively small number of lease customers.

It is next to impossible to get out of a lease with a large security deposit attached. Ask anyone who is trying. It's a deal-killer. Most people, despite all the education you can give them, don't care about anything but cash outlay up front (specifically, none) and monthly payment. That's the allure of assuming a lease. All the one-time fees have already been paid, so it's just taking over monthly payments. Asking someone to front a huge amount only to get it back later just sounds shady to anyone who isn't very familiar with MSD's, and by the time you're done explaining why it's legit, the prospective transferee has moved on.

Not to mention, some or most of the MSD ROI has already been realized by the original lessor, so asking a transferee to put up thousands of dollars to gain back a few hundred dollars at most... again, by this point in the discussion, any prospective transferee has most likely moved on.

Logically, yes. The reality of the lease transfer market is that 19 of 20 "buyers" - or more - are there to get into a lease quickly with no cash out of pocket.
19 of 20 is probably generous - probably more like 99 out of 100. As someone who has transferred out of a lease early 3 times now, I keep a regular eye on LeaseTrader and swapalease. Every listing that asks for thousands up front to the current lessor (usually to reimburse for security deposit(s) or down payments) just sits and sits and sits. The 3 people I've done lease transfers with have all cared about 2 things, getting a car for a very short term (6-18 months), and monthly payment. That's it.
 
#33 ·
I'm 44 years-old, and I've never bought a car. I've leased almost too many to count. Currently, I lease a 2014 535i M-Sport. As you probably know, there are many things that determine a monthly lease price: cap reduction, money factor, holdbacks, dealer incentives, residual, etc. In the past, I tried to understand and factor all these things into consideration.

Forget all that. You'll never figure it out. Instead, here's my advice:

1. Avoid "cap reduction" at all costs. Your goal should be to pay nothing up front.
2. If you do pay up front, only pay drive-off (first payment, registration, tax)
3. When negotiating, forget all the variables that go into determining a monthly payment
4. Just negotiate the monthly cost - let them figure out what variables/levers to pull to get you there
5. Decide ahead of time what you want to pay monthly, and tell them this number right away: "We have a deal if I can pay nothing up-front except drive-off, and monthly payment has a 6 in front of it"
6. Make sure they give you monthly payments inclusive of tax, etc. Tell them your goal number includes taxes, etc.
7. TIP: They will no doubt come back to you with, "Come on, it's only $10 a month more..." You say, "I agree, it's only $10 a month...hardly seems enough to prevent a sale." (That gets them every time!)

Bottom line: just concern yourself with the monthly payment. That's why you are leasing in the first place.
 
#34 ·
I'm 44 years-old, and I've never bought a car. I've leased almost too many to count. Currently, I lease a 2014 535i M-Sport. As you probably know, there are many things that determine a monthly lease price: cap reduction, money factor, holdbacks, dealer incentives, residual, etc. In the past, I tried to understand and factor all these things into consideration.

Forget all that. You'll never figure it out. Instead, here's my advice:

1. Avoid "cap reduction" at all costs. Your goal should be to pay nothing up front.
2. If you do pay up front, only pay drive-off (first payment, registration, tax)
3. When negotiating, forget all the variables that go into determining a monthly payment
4. Just negotiate the monthly cost - let them figure out what variables/levers to pull to get you there
5. Decide ahead of time what you want to pay monthly, and tell them this number right away: "We have a deal if I can pay nothing up-front except drive-off, and monthly payment has a 6 in front of it"
6. Make sure they give you monthly payments inclusive of tax, etc. Tell them your goal number includes taxes, etc.
7. TIP: They will no doubt come back to you with, "Come on, it's only $10 a month more..." You say, "I agree, it's only $10 a month...hardly seems enough to prevent a sale." (That gets them every time!)

Bottom line: just concern yourself with the monthly payment. That's why you are leasing in the first place.
This optimization really only makes it easier to find somebody to take over.

Obviously MSDs are good for yourself to lower total cost.

Using downpayments can make sense. While they are not covered by the gap insurance you also don't pay for that amount of the gap insurance. It isn't anything you give away for free. You will have to cover the gap yourself if you total but if not the total amount your payed into the lease when it ends is lower due to the reduction in financial cost (interest), and yes by not paying for some of the gap insurance.

If you buy normal insurance, do you pay extra to avoid deductibles? It's a bit like that.

It is all a question of what you want to optimize for.
 
#36 ·
You might be right. I might have gotten a better deal. Not sure. But, you can say the same thing for a lot of big ticket purchases, e.g. a house. Maybe I should have called this a "philosophy" vs. advice. For me, I want a monthly payment I'm comfortable with and seems to be fair and in-line with what I know others pay. Ultimately, there are so many levers a dealer can pull to manipulate the price, that's all you are trying to do anyone - find a comfortable monthly price.

For me, the beauty of my style is that is reduces the amount of time I'm in the dealer - that alone is worth a few bucks.
 
#44 · (Edited)
Intreesting. I see a lot of bmws and Mercedes in NYC with various leasing company license plate frames. Always seemed a bit sketchy to me. Can you order a car from the factory when using a broker or do you have to take somrtyihg off the lot?

Personally I am quite happy doing my own research, negotiating using all available incentives and doing euro delivery. I kind of doubt one of these brokers could match the deals I've gotten by doing it myself (low 400s, 0 down other than msds, msrps in mid 50s). Only possible way would be if they got me a leftover oddball specced car that a dealer really needs to unload and is willing to lose all of their holdback money on

But it may be preferable to walking in off the street with only a vague notion of how leasing works
 
#50 ·
For those well versed in leases, it probably is OK to pre-compute a target monthly payment(e.g. $500/month for a 3-year lease) with the best available cap cost(e.g. invoice minus incentives minus trunk money), residual %, interest rate, desired money down, fees+tax, etc, etc. Also it would be wise to skip trade-in and any F&I product. In this case, the dealer can shift the moving parts any way it sees fit, but any dealer offer can easily be compared to the target, e.g. an extra $25/month for 3 years is $900 profit.
 
#57 ·
TomXH, how do sales taxes work in MA?

The lease terms you describe (62K MSRP, 61% residual, 57K sales price less 3.5K incentives, 0.00129 money factor, $725 acq), gets you to a $574 monthly payment before any taxes.

Are you sure your lease reflects MSDs? First, the base money factor right now is 0.00129. You can put up to 7 MSDs (not 8, to my knowledge) and bring that down by 0.00007 per MSD, for a total of 0.00049, which gets you to a net" money factor of 0.0008. At that MF, the payment is $529 monthly.

If you are putting down MSDs and you are quoting prices before taxes, then $562 is too high. The dealer must be giving you the "sell rate" on the money factor, or 0.00169, and after subtracting 7 MSDs you get to a net MF of 0.0012, or a payment of $566 monthly.

BTW, what model year are we talking about here? If 2014, you're other issue is that your sale price is too high. You should be able to get below invoice (before incentives) for a 2014 model. For a 2015, I think you are in the right zip code.

Good luck!
 
#58 ·
TomXH, how do sales taxes work in MA?

The lease terms you describe (62K MSRP, 61% residual, 57K sales price less 3.5K incentives, 0.00129 money factor, $725 acq), gets you to a $574 monthly payment before any taxes.

Are you sure your lease reflects MSDs? First, the base money factor right now is 0.00129. You can put up to 7 MSDs (not 8, to my knowledge) and bring that down by 0.00007 per MSD, for a total of 0.00049, which gets you to a net" money factor of 0.0008. At that MF, the payment is $529 monthly.

If you are putting down MSDs and you are quoting prices before taxes, then $562 is too high. The dealer must be giving you the "sell rate" on the money factor, or 0.00169, and after subtracting 7 MSDs you get to a net MF of 0.0012, or a payment of $566 monthly.

BTW, what model year are we talking about here? If 2014, you're other issue is that your sale price is too high. You should be able to get below invoice (before incentives) for a 2014 model. For a 2015, I think you are in the right zip code.

Good luck!
Many thanks BudFox007, your advice is impeccable!

Sales tax of 6.25% can be rolled in the payment every month.

I'm definitely missing something here as I didn't know there was a "sell rate" MF or whatever that entails. You are correct in that the Net MF should be 0.0008 and state sales taxes will be rolled into the payment. Only dealer doc fee and RMV fee will be paid upfront.

I'm looking at a 2014.

Sent from BimmerApp mobile app
 
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Top