Chins

I am a confirmed Petrol Head/Serial car buyer. In the UK over the past 30+ years I’ve bought a solid 100 odd cars for my old company, myself and friends. Over that time I think I got pretty clued up as to what a good deal looks like.

Now I’ve moved to the USA it has felt like starting from scratch again, but I think I’m starting to get my head round it. Thought it would nice to share my findings and potentially help expats when leasing a new car.

There are some key elements to look first at when leasing a car:

· MSRP – Suggested Retail Price

· Discount off MSRP

· Incentives

· MSD – Multiple Security Deposits

· Residual

I will look at these individually in a bit.

Leasing vs PCP

From all my investigations US leasing is similar to a PCP with an initial deposit followed by the ability to hand back the car at the end or buy it. You can also buy the car at any point during the lease, but expect a big dollop of negative equity in the first 2 years.

MSRP

It is what it is as in the UK. The importance however is linked to the lease end fee or balloon as I like to call it.

A key difference here in the US is linked to the residual, but more on that later.

Discount off MSRP

How much discount should you get ?

The best online resource I have found that has been closer than others is Kelly’s Blue Book www.kbb.com True Car is also reasonably good www.truecar.com, but don’t give your email address and phone number for local pricing unless you want multiple phone calls and emails !

I’m mostly into German and European cars and tend to find 6-10% very achievable on most cars.

My suggestion is to find an owners forum as there is usually a thread discussing current discounts.

The US likes to work on model year rather than the UK registration system. Most of the cars as of writing this are MY18, but MY19 are just starting to appear at dealerships. Discounts on MY18 will improve over the next couple of months as dealers start to receive MY19. However lease residuals will get worse for MY18. VW already has the MY19 Jetta on dealer lots, but the MY19 Golf may not appear until Dec/Jan.

Incentives

Other discounts should be on top of the dealer discount. Some dealers in the east in PA and VA will show huge discounts on cars that it hard to get anything off. Essentially they are stacking every possible incentive together, although you might not quality for any

· College Grad

· Ex or Serving Military

· Coming from another competitive brand

· Staying with the same brand

· East Coast Dealers Incentive

· Fleet Discount

The list can go on and on. For me the ones that I can use have been

· Manufacturers lease credit (ex $3000 on various Audi’s)

· Fleet discount via Costco Membership (ex until the end of Oct $1500 off a lot of BMW’s)

Later on I hope to add loyalty J

So buy adding together your discount and incentives you can get the true cost of the car (excluding all the taxes, registration fees etc) This is your Cap Reduction Cost

On top of this you could reduce the price to finance by putting in extra cash to help lower the monthly payments. There are quite a few people that advise against this as it is dead money if the car is totalled or stolen.

If you have free cash and want to lower your lease costs further look to MSD – more to follow



Money Factor

I’m used to talking APR and the good news is Money Factor can be converted. Dealers here talk about money factor which is essentially the rate of interest.

This is an area dealers mess about with. If they have given you a good discount and know how much you are happy to pay a month they can mess with the money factor (I screwed up here on my first car – amateur in hindsight)

Manufacturers set a money factor for every car and there can be different ones even between models variants.

i.e. Audi S5 Sportback this month is running at 0.00183 (4.39% APR) and the Coupe at 0.00128 (3.07% APR)

Dealers will not reduce the money factor below the one the manufacturer gave them, but they have permission to bump them up a fair bit. So what they give you in discount they make up for in higher interest.

I will tell you where to find this information later.



Multiple Security Deposits

This took a bit of finding, but it’s a little gem to use on certain cars if you have free cash. You are essentially putting into escrow an amount of money that the finance company can get access to if you default. Having this money in escrow reduces their risk and therefore they lower the rate you can borrow at. Now on certain cars with a very low Money Factor i.e. 0.00005 its not worth it, but if you buying a car that has a higher money factor (usually as they are not struggling to sell them), then this can have a good effect on the interest you will pay. You can have multiple MSD’s and each one is roughly worth one months lease payment.

Main manufacturers offering MSD – MB, Scion, Lexus. Audi, Toyota and Infiniti. BMW has also been known to offer and GM has something similar to this.

Example: Audi RS5 standard MF = 0.00256 (6.14% APR) Use 10 MSD and the MF comes down to below 5% APR. Not brilliant, but it can help.

Residuals

The residual the manufacturer sets for a car has a massive impact on your lease price. A ley difference between the UK and US is how this is set. In the UK a PCP balloon is set off the base price of the car without options. Very few options will increase the balloon (metallic being one that usually does). Here the residual is set off the MSRP including options. The good news here is that if you like options they are not as painful as they would be in the UK.

Residuals at 3 years using 10,000 miles per year can range from 68% for the likes of Toyota Tacuma to around 45% for an Audi S3 ( your will find worse I’m sure if you look closer).



Putting it all together !

In reality you should be able to email or walk into a dealership with a pretty good idea of what you should pay using online resources.

Step One – Choose the car

Choose your car an options. I am going to use an Audi S4 as an example in Prestige Plus trim with an MSRP of $60,000

Step Two – Discount

Use www.kbb.com or owners forums to uncover how much discount you should get. In this case I am happy I should be able to get 10% off.

Step Three – Incentives, Money Factor and Residual

Check the incentives you qualify for. Dealers websites help, but the best source I have found is Edmunds car forums. https://forums.edmunds.com/

This is a great resource as there are a couple of contributors that will tell you this months Money Factor and Manufacturers Incentives. So this month on the S4 its $2500 lease incentive and a Money Factor of 0.00100 (2.4% APR).

I don’t qualify for any other incentives, but typically if I was driving a BMW or Audi I might get another $1000.

The residual based on 10,000 mpa this month is 54% (note these tend to decrease throughout the year and then go up again on new model years.



Step Four – Work out your payment

Visit www.leasehackr.com and input your data. This site calculates all your fees, taxes etc. It also tells you what the likes of the Acquisition Fee should be in case the dealer tries to mark it up.

Putting all this info into the calculator gives me a monthly payment of $634 and I would need to pay $2830 to drive away including the first months lease payment.

Ive used Audi, but they are not the best to lease. You should aim to get as close to the 1% rule. If the car has an MSRP of $60,000 you should aim to pay about $600/month. This will get tougher with rising interest rates, import duties etc.



Hope this helps. If Ive made any mistakes please feel free to put me right

scrubbedexpat099

Last time I bought a new car, a long time ago, sorted it all out on line first.

Probably use Costco now.

Never leased for obvious reasons.

penguinsix

Thanks for the very helpful and detailed list.

That said, many US car buyers advise that you should, basically, completely ignore the MSRP. Completely.

The goal is to determine a starting point for negotiations that are best for you. The price of a car is not the MSRP but the invoice price paid by the dealer, minus holdbacks and other dealer incentives (and occasional optionals padding). From this point you can start to build a true "dealer cost" price--that which the dealer paid for the car and start your negotiations UP from the dealer price rather than down from the MSRP. A profit of 3-5% up from the dealer cost is considered 'fair' for a dealer and most will take that without too much fuss.

https://www.autocheatsheet.com/new-c...car-offer.html
https://help.edmunds.com/hc/en-us/ar...r-dealer-cost-
Why It's Important to View Invoice When Negotiating

TheKingOfHearts

I find carsdirect.com always details great lease deals and the "true" monthly cost.

phish

Nice post, will definitely find this useful in the next month or two.

One thing I haven't been able to find that would be extremely useful is an exhaustive list of manufacturers that offer a foreign leasing type programme for people just entering the US without credit. I know of a couple (BMW, VW) but a more complete list would be welcome.

penguinsix

Another interesting thing I've discovered recently is car subscriptions. LIke a lease, but pays title, tags, insurance, and maintenance. Volvo and Mercedes and a few others. Quite convenient, but more expensive than a lease.