Get ready for new leasing tiers for MY 2018 4 Series

by Tim Jones on February 7, 2017, 6:50 pm
Tiered Residual Values starting in 2018

Starting in 2018 BMW is implementing a tiered residual system for leases written with BMW Financial Services. As if leasing wasn't complicated enough already BMW is adding another layer of calculation to the mix.

UPDATE 3/24/2017 - BMW has discontinued the tiered residual program

The info in this thread came from the latest 2018 4 Series LCI update, but will it also apply to other 2018 models? From what I can tell the standard monthly residual value will apply to the 4 Series Sport and Premium tiers only, and there will be a negative Residual Value (RV( adjustment percentage for the M Sport and Luxury tier, as well as the M Sport Executive and Luxury Executive tier (see chart below).

The monthly RV number sheet that dealers get will now include a new table immediately preceding the standard RV grids, which details the RV adjustments for each tier. These RV adjustments must be applied to the posted RV for the Sport/Premium model in question to arrive at the correct RV for the other tiers.

What this means is that if you load up a 430i and try to lease it BMW Financial Services is going to hit you with one to three percent less residual on your lease return. This might not seem fair at first as you're paying more for the car out the door, but on the resale/wholes market where lease returns go the options don't hold their value. You might pay $3000 for an option at purchase, it is worth 60% according to the residual value at turn in but on the secondary market only adds $500. BMW is currently eating that difference in price.

Will this be applied to the 320i and 330i as well? I'm not sure yet, but it wouldn't surprise me.

2018 BMW residual value

2018 BMW residual value chart



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59 responses to Get ready for new leasing tiers for MY 2018 4 Series

Der_Kommissar commented:
February 7, 2017, 7:18 pm

While this makes sense from a business perspective, making leasing more expensive without making buying more attractive will really hurt their overall bottom line. I think this is a shortsighted attempt to fix a symptom of their pricing structure that will have unintended ripple effects.
dunderhi commented:
February 7, 2017, 7:43 pm

If I do the math, a $3000 option costs BMW maybe a $1000 to install. The option profits nets $1700 (.91X$3000=~$2700-$1000=$1700) for a sale. Now if someone leases a '17, that option nets $1700 (.4*$3000= $1200+$500=$1700). For an '18, that option now nets $2200 ($1,700+.01*$50000=$2200). Of course, if I don't choose the $3000 option because BMW jacked up the residual, BMW doesn't get the $2200 or the $1700 profit. Hmmm.
namelessman commented:
February 7, 2017, 8:06 pm

Quote:
Originally Posted by dunderhi View Post
If I do the math, a $3000 option costs BMW maybe a $1000 to install. The option profits nets $1700 (.91X$3000=~$2700-$1000=$1700) for a sale. Now if someone leases a '17, that option nets $1700 (.4*$3000= $1200+$500=$1700). For an '18, that option now nets $2200 ($1,700+.01*$50000=$2200). Of course, if I don't choose the $3000 option because BMW jacked up the residual, BMW doesn't get the $2200 or the $1700 profit. Hmmm.
Where does the "+$500" come from?

Ask-a-dealer has a similar thread and one post suggests that this change encourages lessees to move up to next trim, e.g. 430i to 440i(which already had M-sport included, and not affected to 1%-2% change).
Gubu commented:
February 7, 2017, 8:41 pm

Sucks.
dunderhi commented:
February 7, 2017, 8:54 pm

Quote:
Originally Posted by namelessman View Post
Where does the "+$500" come from?

Ask-a-dealer has a similar thread and one post suggests that this change encourages lessees to move up to next trim, e.g. 430i to 440i(which already had M-sport included, and not affected to 1%-2% change).
The $500 comes from the resale value of the option at this time of turn in.
namelessman commented:
February 7, 2017, 9:20 pm

Quote:
Originally Posted by dunderhi View Post
The $500 comes from the resale value of the option at this time of turn in.
"If someone leases a '17, that option nets $1700 .4*$3000= $1200+$500=$1700".

How about the $1000 install cost? Assuming $500 resale value, then leasing $3k option will yield:

0.4*$3000 +$500 - $1000 = $700 profit, sounds right?

In contrast, purchase will yield:

0.91*$3000 - $1000 = $1730, so a purchase should bring extra $1030 profit when compared to lease.

Does this look correct? So adding 2% RV on a $50K MSRP car can recoup $1000 of profit on the lease.
dunderhi commented:
February 7, 2017, 9:31 pm

Quote:
Originally Posted by namelessman View Post
"If someone leases a '17, that option nets $1700 .4*$3000= $1200+$500=$1700".

How about the $1000 install cost? Assuming $500 resale value, then leasing $3k option will yield:

0.4*$3000 +$500 - $1000 = $700 profit, sounds right?

In contrast, purchase will yield:

0.91*$3000 - $1000 = $1730, so a purchase should bring extra $1030 profit when compared to lease.

Does this look correct? So adding 2% RV on a $50K MSRP car can recoup $1000 of profit on the lease.
Oops, yes I forgot the installation cost for the lease.
VDPHB commented:
February 7, 2017, 9:59 pm

Unfortunate from a customer perspective, but it seems they're following Audi's lead here. Audi reduces residuals on Prestige models, so it can be advantageous to lease a fully loaded Premium Plus over a Prestige.
ctorrey commented:
February 8, 2017, 8:41 am

Quote:
Originally Posted by VDPHB View Post
Unfortunate from a customer perspective, but it seems they're following Audi's lead here. Audi reduces residuals on Prestige models, so it can be advantageous to lease a fully loaded Premium Plus over a Prestige.
As you can see from my sig, I went through several Audis over a 10 year period. However, the lease support was atrocious relative to BMW so I gave up and no longer an Audi customer - I don't even bother to cross Audi shop anymore. I would be hard-pressed to pay an extra $100+ per month for a new BMW that replaces an identically equipped one that I leased 3 years ago. And I wouldn't 'down size' or 'de-content' just to get the payment to stay the same. But that's just me.
dwlink commented:
February 8, 2017, 9:02 am

Quote:
Originally Posted by Der_Kommissar View Post
While this makes sense from a business perspective, making leasing more expensive without making buying more attractive will really hurt their overall bottom line. I think this is a shortsighted attempt to fix a symptom of their pricing structure that will have unintended ripple effects.
Lease sales are on fire in the US. If it adds even $20 to a monthly lease payment, I don't think very many people will consider that a deal-breaker.
ctorrey commented:
February 8, 2017, 9:47 am

Quote:
Originally Posted by dwlink View Post
Lease sales are on fire in the US. If it adds even $20 to a monthly lease payment, I don't think very many people will consider that a deal-breaker.
$20 residual value base increase is not necessarily a big deal unless the other levers such as money factor and price are also increased. If BMW adds value to some of its models such as increased standard equipment and discounted options (Technology Package comes to mind), then maybe this works. Of course, as I posted above, good luck explaining a multi-tier residual value structure to an experienced (or experienced for that matter) lease customer and not have them think less of the car buying process.
namelessman commented:
February 8, 2017, 12:09 pm

Quote:
Originally Posted by ctorrey View Post
$20 residual value base increase is not necessarily a big deal unless the other levers such as money factor and price are also increased. If BMW adds value to some of its models such as increased standard equipment and discounted options (Technology Package comes to mind), then maybe this works. Of course, as I posted above, good luck explaining a multi-tier residual value structure to an experienced (or experienced for that matter) lease customer and not have them think less of the car buying process.
My thinking is that lessees will adjust to not pick M sport or move up to next trim which has M sport included without RV penalty. Or some will just switch to buy M sport with cash to protest(jk).

Basically BMWFS says it is losing money on some M sport lease returns, hence lessees need to chip in.

Leases are complicated, adding yet another knob/parameter does not make it any worse than current offerings.
jjrandorin commented:
February 8, 2017, 12:22 pm

Quote:
Originally Posted by namelessman View Post
My thinking is that lessees will adjust to not pick M sport or move up to next trim which has M sport included without RV penalty. Or some will just switch to buy M sport with cash to protest(jk).

Basically BMWFS says it is losing money on some M sport lease returns, hence lessees need to chip in.

Leases are complicated, adding yet another knob/parameter does not make it any worse than current offerings.
One thing you keep saying that I strongly disagree with, is that somehow purchasers are subsidizing people leasing.

I am not a math wiz by any means, but if person A buys a car every 6-10 years, and person B gets a new car every 3 years, which one is producing more revenue (thus subsidizing the other)? It seems obvious to me that people who lease ( the high volume sellers) are subsidizing people who purchase, not the other way around.

Just like people who want MT are not subsidizing people who are buying the automatic transmission. If 90% of the people are buying a car with automatic transmission, by definition they are subsidizing the ones who are not.

Seems to be simple math to me, but I know you are smart and I respect your opinions even if I dont agree with them, but I just dont understand your position on this.
namelessman commented:
February 8, 2017, 1:52 pm

Quote:
Originally Posted by jjrandorin View Post
One thing you keep saying that I strongly disagree with, is that somehow purchasers are subsidizing people leasing.

I am not a math wiz by any means, but if person A buys a car every 6-10 years, and person B gets a new car every 3 years, which one is producing more revenue (thus subsidizing the other)? It seems obvious to me that people who lease ( the high volume sellers) are subsidizing people who purchase, not the other way around.

Just like people who want MT are not subsidizing people who are buying the automatic transmission. If 90% of the people are buying a car with automatic transmission, by definition they are subsidizing the ones who are not.

Seems to be simple math to me, but I know you are smart and I respect your opinions even if I dont agree with them, but I just dont understand your position on this.
My thinking is that with a 10+% RV subsidy(e.g. 65% instead of 50-55%), BMWNA needs to add 10% margin to MSRP/invoice to make money, and that inflated MSRP/invoice is paid by purchasers(cash or finance) alike.

The move to MRM and tiered RV probably is signaling a pullback of the subsidies, so that MSRP/invoice can drop, e.g. same MSRP but with extra standard equipment, or all the driver techs for $2k to $3k extra(similar to Honda Sensing).

As far as AT versus MT, non-US markets consistently charge /1500(and equivalent) for AT, and in fact BMWNA used to do the same up till E90/60 days.

And looking at the replacement cost AT and MT, the AT hardware is considerably more expensive than MT, e.g. mechatronics unit is $3500, the ZF 8AT box is $7000, while the MT box is $3400.

As a US buyer it takes conviction to not pick ZF 8AT + mechatronics at no-cost over the MT.
CoyoteZak commented:
February 8, 2017, 5:46 pm

It's a luxury item, a BMW. It's going to be stupid expensive and risky to own out of warranty. It will still make sense to lease if you want a new one every 3 years or so and don't drive a ton. I'm buying the 440i Convertible I have finishing production next week for March ED, but that's just my preference to own things. Even rapidly depreciating, temperamental, high maintenance things. If $25, 50 or 100 a month was a big deal I'd be buying a Malibu.
mr_clueless commented:
February 8, 2017, 8:58 pm

Quote:
Originally Posted by VDPHB View Post
Unfortunate from a customer perspective, but it seems they're following Audi's lead here. Audi reduces residuals on Prestige models, so it can be advantageous to lease a fully loaded Premium Plus over a Prestige.
This makes business sense. People buying Premium Plus are more likely to be price sensitive compared to those buying Prestige.
eazy commented:
February 9, 2017, 9:36 am

On an Audi A4 it a 4% difference is residual value between the premium plus and prestige. That a extra $60 a month if both cars have the same msrp and selling price


Sent from my iPhone using Bimmerfest mobile app
namelessman commented:
February 9, 2017, 5:45 pm

BMWFS may as well also adjust RV based on 330i verssus 340i, e.g. MY14 328i is $9k cheaper than MY14 335i from NADA data, while brand new 335i versus comparably equipped 328i was only extra $4k. The 335i RV should have been much higher than 328i RV.
jjrandorin commented:
February 9, 2017, 6:01 pm

Quote:
Originally Posted by namelessman View Post
BMWFS may as well also adjust RV based on 330i verssus 340i, e.g. MY14 328i is $9k cheaper than MY14 335i from NADA data, while brand new 335i versus comparably equipped 328i was only extra $4k. The 335i RV should have been much higher than 328i RV.
They sorta addressed the 330 already remember, by setting a Maximum residualized MSRP. I think that information said it was 49,400. You can build a "decently" equipped one for that, but not a "almost fully loaded" one.

They just seem to be addressing the 330 and 430 differently. the 3s are a bigger volume seller than the 4s I am positive so /shrug.. maybe thats why they did it differently for both?

They could also be experimenting to see which way has whatever desired effect they are shooting for. Setting a Maximum residualized MSRP means that, in general, people will likely option those cars up a bit less to stay under that number.

Making the RV lower on the 430 on certain trims only will make people who want those trims / features consider moving up to the higher model (slightly different effect).
Robert A commented:
February 10, 2017, 1:35 am

Where was maximum residualized msrp discussed? I tend to keep an eye on this stuff and must have completely missed it.
Quote:
Originally Posted by jjrandorin View Post
They sorta addressed the 330 already remember, by setting a Maximum residualized MSRP. I think that information said it was 49,400. You can build a "decently" equipped one for that, but not a "almost fully loaded" one.
namelessman commented:
February 10, 2017, 1:41 am

Quote:
Originally Posted by Robert A View Post
Where was maximum residualized msrp discussed? I tend to keep an eye on this stuff and must have completely missed it.
This thread was quoted by jjrandorin:

http://www.bimmerfest.com/forums/sho...d.php?t=924667

According to other posters, MRM(and tiered RV) has been popular among other brands, and BMW starts to catch on lately.

It is non-trivial, e.g. MRM of $49.4k on a MSRP $55k 330i = $5060 extra cap cost, or $140+ additional monthly for 3-yr.
Robert A commented:
February 10, 2017, 12:31 pm

Interesting that I missed this. It also pushes me away from the 330i camp into the 340i or possibly the 328d.

Quote:
Originally Posted by namelessman View Post
http://www.bimmerfest.com/forums/sho...d.php?t=924667

According to other posters, MRM(and tiered RV) has been popular among other brands, and BMW starts to catch on lately.

It is non-trivial, e.g. MRM of $49.4k on a MSRP $55k 330i = $5060 extra cap cost, or $140+ additional monthly for 3-yr.
namelessman commented:
February 10, 2017, 12:49 pm

Quote:
Originally Posted by Robert A View Post
Interesting that I missed this. It also pushes me away from the 330i camp into the 340i or possibly the 328d.
Yes, given $3k-$4k difference(local dealers ask for extra on 340i), the 340i is still a better value in resale/lease monthly than 330i.

It looks like my 328i cash purchase needs to be held to yr-10 to shrink the gap with 335i resale.

As far as TCO, there can be $2000 over a 3-yr lease duration extra on 340i, e.g. increased gas/insurance/registration.
Kafkaesque328 commented:
February 10, 2017, 3:32 pm

If this trend spreads throughout the model range and it is no longer 'cheap' to lease bmw's I will just buy this car. I understand this from a business perspective on bmw's part but cheap leases are what brought me to the brand. While driving dynamics have kept me here, if its going to get more like leasing audis or something I would be inclined to look elsewhere if continuing to lease.
White340 commented:
February 12, 2017, 9:28 am

This would push my lease payment up into the 700s range which would just make me look elsewhere. BMW charges way to much for options as it is when you can get most of them standard on cars that cost less than half the price (back up camera for example which is standard on all Honda's or comfort access now standard on a lot of cars).

If BMW would make their cars more affordable and reliable after the warranty was up, this would definitely help resale values. The premium for a BMW is usually paid when new. I know a lot of people who don't want to touch BMW's after the warranty period is up because of how expensive anything is to fix. Meanwhile, people will still buy a Lexus for good money that has over 100k on it. If BMW's could do the same, I have no doubt their values would be higher in the post-lease market.
jjrandorin commented:
February 12, 2017, 9:43 am

Quote:
Originally Posted by White340 View Post
This would push my lease payment up into the 700s range which would just make me look elsewhere. BMW charges way to much for options as it is when you can get most of them standard on cars that cost less than half the price (back up camera for example which is standard on all Honda's or comfort access now standard on a lot of cars).

If BMW would make their cars more affordable and reliable after the warranty was up, this would definitely help resale values. The premium for a BMW is usually paid when new. I know a lot of people who don't want to touch BMW's after the warranty period is up because of how expensive anything is to fix. Meanwhile, people will still buy a Lexus for good money that has over 100k on it. If BMW's could do the same, I have no doubt their values would be higher in the post-lease market.
but where elsewhere though? thats the question.

I personally see Lexus customers and BMW customers as a different market, generally. They are both in the luxury car segment, but thats about it.

BMW is really competing with Mercedes, Porsche, and Audi (in my opinion, again).

All of those manfacturers either already use either Maximum Residualized MSRP, or different RVs for different trim levels, AND / OR more realistic Residuals for lease return.

So, for you (and anyone else that is saying "I am going elsewhere"), the way I see it, you will be doing that "on principle" because if you choose a competing vehicle, it will be the exact same thing. Doing things "on principle" is fine of course. I will absolutely pay more for the same thing at store B because store A treated me poorly... but then thats not about the money.

I wonder what everyone is going to do when interest rates rise from their historically low levels (forcing money factors along with it)? THAT is going to do more to effect the CPO market than anything, as I am fully convinced that there are plenty of people driving new BMWs now that simply would not be able to afford them if interest rates were more like their historic normal of 6-7 percent, instead of the almost absurdly low basically "free money" we have now.
CoyoteZak commented:
February 12, 2017, 10:34 am

Quote:
Originally Posted by jjrandorin View Post
.
................ I wonder what everyone is going to do when interest rates rise from their historically low levels (forcing money factors along with it)? THAT is going to do more to effect the CPO market than anything, as I am fully convinced that there are plenty of people driving new BMWs now that simply would not be able to afford them if interest rates were more like their historic normal of 6-7 percent, instead of the almost absurdly low basically "free money" we have now.
It will dramatically change both the CPO and new buy/lease market. People love to point out how smart it is to lease vs buy but we're talking an 8.5 vs a 9.0 on the 0-10 ridiculous scale. Even a cash buyer like myself will rethink things if interest rates are at 6, 7% or more. I don't pay cash because I have boatloads of money, I do it because even low 1.9% loan rates are still higher than a money market or CD rate. I have investments of course, but there's always a certain chunk in cash. I say it could change how I buy because what tends to happen when rates rise is car companies subsidize rates to the point where they flip flop and are lower than CD rates.
Kafkaesque328 commented:
February 12, 2017, 11:58 am

Quote:
Originally Posted by CoyoteZak View Post
It will dramatically change both the CPO and new buy/lease market. People love to point out how smart it is to lease vs buy but we're talking an 8.5 vs a 9.0 on the 0-10 ridiculous scale. Even a cash buyer like myself will rethink things if interest rates are at 6, 7% or more. I don't pay cash because I have boatloads of money, I do it because even low 1.9% loan rates are still higher than a money market or CD rate. I have investments of course, but there's always a certain chunk in cash. I say it could change how I buy because what tends to happen when rates rise is car companies subsidize rates to the point where they flip flop and are lower than CD rates.
Yes but if rates go higher, in theory, so do savings rates APY. Remember before 2008 crash in the mid 2000's that online savings accounts were pushing 5% APY. I think I had an FNBO acct right around there. Now my AMEX 'high yield' personal savings
Account does 0.9%. High yield indeed
namelessman commented:
February 12, 2017, 12:59 pm

Quote:
Originally Posted by CoyoteZak View Post
It will dramatically change both the CPO and new buy/lease market. People love to point out how smart it is to lease vs buy but we're talking an 8.5 vs a 9.0 on the 0-10 ridiculous scale. Even a cash buyer like myself will rethink things if interest rates are at 6, 7% or more. I don't pay cash because I have boatloads of money, I do it because even low 1.9% loan rates are still higher than a money market or CD rate. I have investments of course, but there's always a certain chunk in cash. I say it could change how I buy because what tends to happen when rates rise is car companies subsidize rates to the point where they flip flop and are lower than CD rates.
For non-deductible interest, even if BMWFS subsidizes rates to be below CD rates(e.g. finance/lease rate of 5.5% versus CD rate of 6%), the after-tax CD rate can still be below finance/lease rate, e.g. 6% D rate is cut to 3% assuming 50% marginal tax rate.

If so cash buy will still be better than paying 5.5% with after-tax money, assuming there is no outstanding debt that charges above finance/lease rate.
namelessman commented:
February 12, 2017, 3:33 pm

Quote:
Originally Posted by jjrandorin View Post
I wonder what everyone is going to do when interest rates rise from their historically low levels (forcing money factors along with it)? THAT is going to do more to effect the CPO market than anything, as I am fully convinced that there are plenty of people driving new BMWs now that simply would not be able to afford them if interest rates were more like their historic normal of 6-7 percent, instead of the almost absurdly low basically "free money" we have now.
Free money also enables BMWFS to be so lenient with its leases, the recent lease restructuring may also be driven by BMWNA/BMWFS preparing for rate hikes.
CoyoteZak commented:
February 14, 2017, 10:46 pm

Quote:
Originally Posted by Kafkaesque328 View Post
Yes but if rates go higher, in theory, so do savings rates APY. Remember before 2008 crash in the mid 2000's that online savings accounts were pushing 5% APY. I think I had an FNBO acct right around there. Now my AMEX 'high yield' personal savings
Account does 0.9%. High yield indeed
Yes, that's why I brought up subsidized rates which create the spread.

Quote:
Originally Posted by namelessman View Post
For non-deductible interest, even if BMWFS subsidizes rates to be below CD rates(e.g. finance/lease rate of 5.5% versus CD rate of 6%), the after-tax CD rate can still be below finance/lease rate, e.g. 6% D rate is cut to 3% assuming 50% marginal tax rate.

If so cash buy will still be better than paying 5.5% with after-tax money, assuming there is no outstanding debt that charges above finance/lease rate.
In general, at least for the last 30 years or so, real unsubsidized car loan rates are typically 50% to as much as 100% higher than CD rates. Unfortunately, a cash buyer doesn't usually get a price break when he doesn't go for the subsidized loan since the price discount would be dealer money and the subsidy is usually at least partially corporate money. I know some brands offer a choice of cash or low rates but I haven't been a BMW watcher long enough to know their habits.
namelessman commented:
February 14, 2017, 11:53 pm

Quote:
Originally Posted by CoyoteZak View Post
In general, at least for the last 30 years or so, real unsubsidized car loan rates are typically 50% to as much as 100% higher than CD rates. Unfortunately, a cash buyer doesn't usually get a price break when he doesn't go for the subsidized loan since the price discount would be dealer money and the subsidy is usually at least partially corporate money. I know some brands offer a choice of cash or low rates but I haven't been a BMW watcher long enough to know their habits.
The BMWFS current rate is about 3%, while credit unions can offer 1% finance rate, and CD rate is about 1%. If those numbers are believable, the BMWFS rate is 100% above un-subsidized credit union rate.

As far as subsidy/incentive, BMWNA does offer some of those to cash buyers and lessees and finance(from BMWFS) alike, and some current incentives favor cash/finance over lease.

E.g. corporate fleet discount now offers $2500 discount to cash/finance, while lease gets $1500 discount plus 0.0002 MF reduction.
Jersey John commented:
February 17, 2017, 9:10 am

Adjusting the RVs on the higher trim cars just allows BMW to not have to additional support for higher level trimmed cars. RVs on the higher trim cars are always lower by 1-2% because the what the trim levels add in equipment and price don't always equate to an increase in the Lease-End Value (LEV) of a car. If it means they save $500-1000 in additional support per model, that can translate into millions in savings they can re-purpose elsewhere.

Also, this is another way for the BMW to hedge against the lease returns that will come their way. The number of 3/4 Series, A4s, S60s and C-Class vehicles being returned are climbing and are going to drive the re-sale values of these cars further down. By making the RV lower in the front end, it may make it easier to resell these cars back to the BMW retailer and make it easier to re-sell the car as a CPO model.
tim330i commented:
March 9, 2017, 7:40 pm

This change to BMW's leasing seems to be as a direct result of end of lease write downs that happened in 2016. Read more about it here -

http://www.bimmerfest.com/forums/sho...d.php?t=968541

Tim
tim330i commented:
March 9, 2017, 7:40 pm

This change to BMW's leasing seems to be as a direct result of end of lease write downs that happened in 2016. Read more about it here -

http://www.bimmerfest.com/forums/sho...d.php?t=968541

Tim
Robert A commented:
March 9, 2017, 7:48 pm

Why would this be a news item? I bet they lose money on every single car that's turned in. This was by design.

But let's unpack this a bit. They hiked the MSRP of their cars to unreasonable levels while cutting manufacturing costs by shifting from 6 cyl to 4 cyl engines, then used leasing with inflated residuals to move their product. So now the used car market is flooded, which is driving resale values lower, and they're yanking the program because they're complaining of losses -- which were their own creation. Confused!

Quote:
Originally Posted by tim330i View Post
This change to BMW's leasing seems to be as a direct result of end of lease write downs that happened in 2016. Read more about it here -

http://www.bimmerfest.com/forums/sho...d.php?t=968541

Tim
namelessman commented:
March 9, 2017, 9:42 pm

Quote:
Originally Posted by Robert A View Post
Why would this be a news item? I bet they lose money on every single car that's turned in. This was by design.

But let's unpack this a bit. They hiked the MSRP of their cars to unreasonable levels while cutting manufacturing costs by shifting from 6 cyl to 4 cyl engines, then used leasing with inflated residuals to move their product. So now the used car market is flooded, which is driving resale values lower, and they're yanking the program because they're complaining of losses -- which were their own creation. Confused!
That is an accurate summary of the current state of affairs. To elaborate further, as stated the MSRP(and invoice) are inflated, and BMWFS/BMWNA pads the RV loss upfront into the MSRP/invoice, and both the lessees/purchasers lose out unless the deal is at least 15-20% off MSRP.

This does appear to be the artifacts of chasing unsustainable growth.

The strategy of opting for I6 looks good, at least to escape the lousy resale/RV of I4. However BMWNA is too smart not to load up the I6 models with goodies such that the MSRP on I6 is pretty high .... Hmm .... maybe the fester wisdom to go Accord is worth reconsideration ....
namelessman commented:
March 10, 2017, 2:44 pm

Quote:
Originally Posted by Robert A View Post
But let's unpack this a bit. They hiked the MSRP of their cars to unreasonable levels while cutting manufacturing costs by shifting from 6 cyl to 4 cyl engines, then used leasing with inflated residuals to move their product.
Interestingly, almost everyone cuts costs by moving to I4, so why do competitors(e.g. MB) perform better than BMW even when they also have inflated RVs? Or maybe MB will also pay the price in the near future?
Robert A commented:
March 10, 2017, 2:57 pm

I have no idea. On the famous 2000-post thread on lease vs. buy, I kept asking why BMW would knowingly lose money on almost every car that gets turned in. No one could explain, but one person correctly pointed out that we do not know how much these cars cost to make, so we don't know the extra profit gained from increased volume.



Quote:
Originally Posted by namelessman View Post
Interestingly, almost everyone cuts costs by moving to I4, so why do competitors(e.g. MB) perform better than BMW even when they also have inflated RVs? Or maybe MB will also pay the price in the near future?
gkr778 commented:
March 10, 2017, 4:31 pm

Quote:
Originally Posted by Robert A View Post
They hiked the MSRP of their cars to unreasonable levels while cutting manufacturing costs by shifting from 6 cyl to 4 cyl engines, then used leasing with inflated residuals to move their product. So now the used car market is flooded, which is driving resale values lower, and they're yanking the program because they're complaining of losses -- which were their own creation. Confused!
It's all a shell game. Looks like the sales and marketing dweebs are very influential at BMW of NA and BMW AG.

I'm pleased though that BMW has been expanding availability of 4-cylinder engines throughout their automobile lineup. The combination of responsiveness, light weight, and efficiency delivered by BMW's latest 4-cylinder TwinPower turbo gasoline engines is impressive. I love the N20 engine in my 320i, and am sure the B48 is as good or better.
namelessman commented:
March 10, 2017, 5:51 pm

Quote:
Originally Posted by gkr778 View Post
It's all a shell game. Looks like the sales and marketing dweebs are very influential at BMW of NA and BMW AG.

I'm pleased though that BMW has been expanding availability of 4-cylinder engines throughout their automobile lineup. The combination of responsiveness, light weight, and efficiency delivered by BMW's latest 4-cylinder TwinPower turbo gasoline engines is impressive. I love the N20 engine in my 320i, and am sure the B48 is as good or better.
The shell game has consequence:

"Ellinghorst voiced surprise at the extent of negative adjustments that included estimated resale values for leased vehicles. Those contributed to 498 million euros of "eliminations" from fourth-quarter profit.

The numbers show "a lot of residual value pressure or conservatism", he said, adding that automakers typically anticipate lower resale values as markets peak."

That basically means the market is flooded with used bmw's and the resale prices collapse.

It seems that handling and engine tech cannot trump market forces.
Robert A commented:
March 10, 2017, 5:54 pm

Was he referring the US market in particular?
Quote:
Originally Posted by namelessman View Post
The shell game has consequence:

"Ellinghorst voiced surprise at the extent of negative adjustments that included estimated resale values for leased vehicles. Those contributed to 498 million euros of "eliminations" from fourth-quarter profit.

The numbers show "a lot of residual value pressure or conservatism", he said, adding that automakers typically anticipate lower resale values as markets peak."

That basically means the market is flooded with used bmw's and the resale prices collapse.

It seems that handling and engine tech cannot trump market forces.
namelessman commented:
March 10, 2017, 6:11 pm

Quote:
Originally Posted by Robert A View Post
Was he referring the US market in particular?
http://www.reuters.com/article/us-bm...-idUSKBN16G183

The news article(assuming not fake news) came from Paris/Frankfurt, so it probably is referring to BMW worldwide. There is no clear indication how much US contributes to those numbers.
jjrandorin commented:
March 10, 2017, 6:29 pm

Quote:
Originally Posted by namelessman View Post
http://www.reuters.com/article/us-bm...-idUSKBN16G183

The news article(assuming not fake news) came from Paris/Frankfurt, so it probably is referring to BMW worldwide. There is no clear indication how much US contributes to those numbers.
and yet, no one comments on the posts where BMW is hitting all time sales numbers, like all of last year (internationally) and continuing to do so:

http://www.bimmerfest.com/forums/sho...d.php?t=968639
gkr778 commented:
March 10, 2017, 6:56 pm

Quote:
Originally Posted by jjrandorin View Post
and yet, no one comments on the posts where BMW is hitting all time sales numbers, like all of last year (internationally) and continuing to do so:

http://www.bimmerfest.com/forums/sho...d.php?t=968639
It's rare for any thread in the BMW News section of Bimmerfest forums, like the one linked in your post, to receive replies and comments for members.
jjrandorin commented:
March 10, 2017, 10:18 pm

Quote:
Originally Posted by gkr778 View Post
It's rare for any thread in the BMW News section of Bimmerfest forums, like the one linked in your post, to receive replies and comments for members.
Right, I agree with you... I am just repeating (as I did all last year) that "what makes sense" is BMW shifting gears from thinking the US is the holy grail market, to now the reality that it absolutely is NOT for them.

They set sales records the entire year last year (record sales for BMW group). Every single month, US sales were DOWN, yet international sales were UP.

Now we have the shift in leasing direction here in the US, yet BMW is STILL setting record numbers which no one wants to talk about. They just want to talk about why its bad here in the US (which I get because most of us are here), but to ignore the "entire rest of world" is something that LOTS of people in the world accuse those of us in the US of doing.

We are NOT the center of the universe, as much as people want to think so... /shrug.
namelessman commented:
March 11, 2017, 4:10 am

Quote:
Originally Posted by jjrandorin View Post
Now we have the shift in leasing direction here in the US, yet BMW is STILL setting record numbers which no one wants to talk about. They just want to talk about why its bad here in the US (which I get because most of us are here), but to ignore the "entire rest of world" is something that LOTS of people in the world accuse those of us in the US of doing.

We are NOT the center of the universe, as much as people want to think so... /shrug.
The center of the universe is irrelevant to this thread, as the discussion is mainly about steps taken by BMWNA to adjust to local US market conditions.

What happens to BMW sales in non-US market is also irrelevant, as US purse string holders need to deal with local US prices set by BMWNA.

By the same token, BMW China, or BMW Australia, or BMW Singapore, cannot worry about the rest of the world(including US), as they are each dealing with their respective local markets.

BMWAG does make global decisions, e.g. in fall 2012 BMWAG shifted boatload of 3-series allocations to US dealers. It can be conceivable that BMWAG will shift US allocation to non-US markets if it makes business sense to them.
jjrandorin commented:
March 11, 2017, 10:08 am

Quote:
Originally Posted by namelessman View Post
The center of the universe is irrelevant to this thread, as the discussion is mainly about steps taken by BMWNA to adjust to local US market conditions.

What happens to BMW sales in non-US market is also irrelevant, as US purse string holders need to deal with local US prices set by BMWNA.

By the same token, BMW China, or BMW Australia, or BMW Singapore, cannot worry about the rest of the world(including US), as they are each dealing with their respective local markets.

BMWAG does make global decisions, e.g. in fall 2012 BMWAG shifted boatload of 3-series allocations to US dealers. It can be conceivable that BMWAG will shift US allocation to non-US markets if it makes business sense to them.

I dont agree, its relevant if you want to know why things are changing. How can international sales results not be relevant to the company as a whole?

I never said BMW China has to worry about the US, But to assume that BMW as a whole does not look at it ALL and balance it ALL is pure fallacy. How do we know WHO is making the ultimate decisions about what happens i the US? We think that BMW corporate has no say in what happens in the US? I know you dont believe that....
namelessman commented:
March 11, 2017, 12:37 pm

Quote:
Originally Posted by jjrandorin View Post
I dont agree, its relevant if you want to know why things are changing. How can international sales results not be relevant to the company as a whole?

I never said BMW China has to worry about the US, But to assume that BMW as a whole does not look at it ALL and balance it ALL is pure fallacy. How do we know WHO is making the ultimate decisions about what happens i the US? We think that BMW corporate has no say in what happens in the US? I know you dont believe that....
Post#45 and Post#47 suggest no one(as in US-based fester?) is concerned about BMW worldwide trends, the rebuttal is that US-based fester has enough to worry about in terms of US pricing and US trends.

What is relevant to the US-based fester is the pricing, what is relevant to the corporation is profit/loss(P&L).

The mentioning of other non-US markets(e.g. China, Australia, Singapore) is to highlight the usual regional P&L models of multinational corps like BMW. The steps taken at BMWNA are inline with managing the numbers of US as its own P&L center. E.g. if a big chunk of that 498 million euros of "eliminations" is from US, that's good reason to fix that.

As suggested in post#46, BMWAG does make global decisions, based on regional P&L numbers. BMWAG has used US to absorb allocations from stagnant Euro markets back in 2012, now that US is not performing as well, BMWAG can potentially redirect US allocations to other non-US markets.
namelessman commented:
March 11, 2017, 1:56 pm

On the subject on non-US markets, it would be interesting to find out lease structures of, say, UK, Germany, China, Japan(etc, etc). Are those markets heavily subsidizing leases too, and contribute to the 498 million euros of "eliminations"?
Squiddie commented:
March 18, 2017, 10:36 am

So they do what Porsche is doing, which is putting a cap on what kind of options and what total value of options you can sneak into the original residual value? Options outside that envelope have lower individual residual value?

I think it make sense from a "fairness" perspective as we all know that option values drop like flies. However I am not a friend of making things more complicated (especially if the full table for this might not be available to people who calculate their own leases). Also, this makes it more ridiculous that so many common options aren't standard on BMW cars.

Specifically it distorts the perceived value between the lower end and higher end models. A 440i vert with individual color and leather is more attractive to me than a M4 vert at comparable MSRP. But since the M4 has most things I need standard that gets distorted by this scheme. That's kinda idiotic since I have little use for the high power engine, don't care about carbon fiber trim etc.
Robert A commented:
March 18, 2017, 12:56 pm

Let's remember that RV is not necessarily intended to reflect reality. We don't see the manufacturer's hand so we have no way of knowing the true economics from their perspective. For example, the M Sport package on a 330i may add very little to the resale value, but it's quite possible the incremental manufacturing cost of the package is almost nothing.


Quote:
Originally Posted by Squiddie View Post
I think it make sense from a "fairness" perspective as we all know that option values drop like flies. However I am not a friend of making things more complicated (especially if the full table for this might not be available to people who calculate their own leases). Also, this makes it more ridiculous that so many common options aren't standard on BMW cars.

Specifically it distorts the perceived value between the lower end and higher end models. A 440i vert with individual color and leather is more attractive to me than a M4 vert at comparable MSRP. But since the M4 has most things I need standard that gets distorted by this scheme. That's kinda idiotic since I have little use for the high power engine, don't care about carbon fiber trim etc.
jjrandorin commented:
March 18, 2017, 1:27 pm

Quote:
Originally Posted by Squiddie View Post
So they do what Porsche is doing, which is putting a cap on what kind of options and what total value of options you can sneak into the original residual value? Options outside that envelope have lower individual residual value?

I think it make sense from a "fairness" perspective as we all know that option values drop like flies. However I am not a friend of making things more complicated (especially if the full table for this might not be available to people who calculate their own leases). Also, this makes it more ridiculous that so many common options aren't standard on BMW cars.

Specifically it distorts the perceived value between the lower end and higher end models. A 440i vert with individual color and leather is more attractive to me than a M4 vert at comparable MSRP. But since the M4 has most things I need standard that gets distorted by this scheme. That's kinda idiotic since I have little use for the high power engine, don't care about carbon fiber trim etc.
Right now if those are the models you are considering this does not effect you. This is on the 430, not the 440.
namelessman commented:
March 18, 2017, 1:41 pm

Quote:
Originally Posted by Robert A View Post
Let's remember that RV is not necessarily intended to reflect reality. We don't see the manufacturer's hand so we have no way of knowing the true economics from their perspective. For example, the M Sport package on a 330i may add very little to the resale value, but it's quite possible the incremental manufacturing cost of the package is almost nothing.
It is true M sport parts(springs, shocks, bumpers) often have similar replacement costs(difference of hundred versus thousands of dollars) to non-M parts.

Nada shows that M-sport adds $2000 resale on a 3-year old F30, but a friend tried to advertise that price for his M-sport and most offers put around $500 to $1000 premium on top of base price.
tim330i commented:
March 24, 2017, 8:15 pm

Good news! BMW is giving up on this program before it ever got started. More info here -> http://www.bimmerfest.com/forums/sho...d.php?t=970919
namelessman commented:
March 24, 2017, 8:23 pm

Wow another reform was pulled?!?
Tc_sting commented:
March 25, 2017, 9:03 am

This lease change makes complete sense.

If anyone has shopped for a car lately then you know the market is over saturated with cars causing value to plummet.

A used 328i BMW that cost 50k 3 years ago values today at 18k for private party trade in to dealer. Price of base model for same 328i gets you 15k.

Options simply don't hold a car value in today's glut of cars so BMW future leases need to take this into account.
yanks1 commented:
March 25, 2017, 9:15 am

Agree this is driven by used values. These cars are a dime a dozen used due to sooooo many leases as the MSRP rises.

I was recently looking at 2-3 yr old 3 & 4 series and many prices are close to 50-55% of original MSRP; I wouldn't even consider any 3/4 series BMW above 60% after 25-30k miles; it's truly a buyers market due to leases




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namelessman commented:
March 25, 2017, 3:36 pm

Quote:
Originally Posted by Tc_sting View Post
This lease change makes complete sense.

If anyone has shopped for a car lately then you know the market is over saturated with cars causing value to plummet.

A used 328i BMW that cost 50k 3 years ago values today at 18k for private party trade in to dealer. Price of base model for same 328i gets you 15k.

Options simply don't hold a car value in today's glut of cars so BMW future leases need to take this into account.
Those prices are inline with other makes, e.g. $50k gets 20% off MSRP(esp. on heavily loaded 328i) had sales price of $40k. 3-yr-old is about 50-55% even for Accords, so a private party of $20k and trade-in of $18k should be doable.