Date: Fri, 16 Jun 2000 10:10:28 +0100
From: "Hunter Johnson" <HJOHNSON_at_dbmail.debis.de>
Subject: Re: 1998 M3/4 Post Mortem
In the typical spirit of answering questions no-one is asking,
the dust has pretty much settled on the sale of the M3/4 last
weekend. For those of you who care about such things, here is
what this beast cost me. If you don't care, please don't flame
me...just page down.
I bought a 1998 M3/4 in Feb '98 and paid $855 above dealer
cost, with the help of the BMW CCA M3/4 customer cash rebate
offered at the time. In July 1999 I was transferred to Germany,
and since I was offered company cars, the BMW stayed home, being
driven by my 60 year old mother-in-law. During this time she paid
me a stipend to partially offset the monthly payment and
I leased the car from BMW Financial Services for 36 months. When
I bought the car, I was the controller of Chrysler Financial's
lease group, so I was keenly aware of the drawbacks of leasing.
Still, I leased because I was concerned how the vehicle might
hold up given an intention of autocrossing, etc., and BMW had
a competitive interest rate.
I bought the car after attending some driving schools in a E36
325i; I quickly decided (which is of course against what everyone,
including myself, suggests) that I needed "better equipment".
Modifying the 325i would have cost several thousands of dollars and
which would have had minimal residual value, and the 325i still
wouldn't have the power of the M3.
When the car was sold it had 29,xxx miles on it. I decided to sell
it since (1) I didn't think I'd move back to the U.S. before late
2001, (2) I was concerned about the market values of these cars
given the new 330i coming to market, plus the much lower than
expected cost of the E46 M3, (3) by selling now I could avoid
some cost from terminating the lease and perhaps make a bit of money
(with respect to my payoff), and (4) if I got back to the States a
few years from now I could always buy a 4 or 5 year old M3/4 for much
less than I'd sell mine for now.
Here's the cost and cost per mile of this car:
Depreciation $8,420 29.0 cents per mile
Interest 6,448 22.2
Insurance 4,050 14.0
Taxes 1,295 4.5
Fuel 1,040 3.6
Maintenance 1,010 3.5
Stipend (2,200) (7.6)
Total $20,063 69.2
The fuel assumes 20 mpg and $1.30 a gallon, and only through 16,000
miles; thereafter, my in-laws paid for gas. Maintenance includes 5 oil
changes (Mobil 1) between warranted scheduled maintenance, and four
new Pirelli P7000 Supersport tires mounted by the dealer. Taxes are
Michigan sales tax plus Luxury Tax.
These do not include around $1,420 of aftermarket accessories on the
car when sold (VDO gauges, ECE headlamps, X Brace, UUC Z3 shifter, etc.).
The BMW lease had a residual value of 65% (36 month low milage = 12,000
miles a year)of the MSRP ($44,915) with a 7.15% APR. This compares to the
normal loan from my credit union which was offering 7.00% interest for
60 month loans. The BMW lease added a $680 acquisition fee and a $350
fee at lease end if you early terminated or returned the vehicle to BMW
(if you bought the car at lease-end, this fee did not apply).
At delivery, the lease required $633 more at signing than the loan, but
the monthly payment was $300 less. At the sale, had I borrowed for the
car I would have received $9,902 in cash more than with the lease, since
the loan would have been paid down to a much lower payoff figure.
Discounting the cash flows at 10% (what I use for long-term investments)
gives the result that the lease cost $287 more than the loan. If the
differences in cash flow were invested at 12.96%, the loan and lease
would cost the same. If you only invested your money at 6% (risk-free
rate) then the lease cost $717 more.
Before I give you my conclusions, let me say that the E36 M3/4 was my
first new car since my 1983 Volkswagen GTI, and it was pretty much as
fun to drive. But overall, the delivery quality of the car was average
for the industry (I had four "conditions" on the car when delivered,
two concerning the paint finish), and I find that the quality of the
E36 cars is somewhat worse than the E30s (I had a 86 325es and a 87
325is, and a 93 325i).
Here are the conclusions:
Having bought several used cars over the past 10 years, I typically
apply the formula of 80% value rentention for year one and 85% for
year 2, etc. using the MSRP as a base figure, and assuming 15,000
miles per year. Using this formula my M3/4 should have had depreciation
of $14,372. With Porsches, I use 85% for year 1 and 90% thereafter,
so the M3/4, if it were a Porsche, would have deprecation of $10,555.
So overall, the depreciation on the M3/4 was better than I expected.
(The BMW lease expected $15,720 of depreciation from MSRP after 3 years,
but ALG, the industry standard residual value gurus said the car'd have
depreciation of closer to $17,000 -- BMW "bumped" the residual to help
sell these cars).
In general, however, buying new cars is expensive. The cost per mile of
nearly 70 cents and driving 1,250 miles a month means a monthly cost of
$865. Ouch. For the $14,868 I spent on depreciation and interest, I could
have bought some fairly nice used iron and owned it outright...an E30 M3
comes quickly to mind. I think I've bought my last new car.
If you must buy new, don't lease. Even though you have to pay sales tax
up front on the whole car when you buy (with a lease you pay on the total
lease payment, including interest, but only as long as the monthly payments
go), the front and back-end fees the lease companies charge make leasing
too unattractive. Plus, you have the potential turn-in hassle of arguing
over what constitutes "normal" wear and tear. Buying a lease is essentially
a balloon financing contract plus a put option on the underlying asset --
the car. This option costs money, but it is extremely difficult to value
this option. So the lessor charges you an arm and a leg for this option.
Unless you really think you might use the option (like you'll drive the car
on the track and have VANOS problems), most likely you're paying for something
you won't use.
Leases also lock you into the financing contract a bit more. They charge you
an Early Termination fee. Also, lessors typically will NOT allow you to
sublet the vehicle. BMW Financial says that you can sublet it, but the
lessee retains the default risk -- if the new owner assuming your lease fails
to make a payment, BMW Financial looks to YOU. Now YOU have to repo the car,
If you have any questions, drop me a line.
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