Actual Cost at Dealer for 2010 vs 2009

What a fascinating thread this has been. Looking forward to the next installments when Sarah's hubby gets home!
Seems fundamental to me, that in leasing, or in borrowing to purchase, someone is lending you the capital to acquire an asset. Borrowing someone else's capital always comes with a cost, called interest. No matter how they may attempt to disguise it in the lease arrangement, the lender gets his pound of flesh!

 

Jabber,
Sounds like all dealers in IL have to charge the same amount for plate fees. Is that the same amount htat a person who goes to hte DMV will end up paying ?

 

Right you are.

 

Yes. I am not allowed to mark up dmv fees by even a penny. In IL, we have access to the DMV computers. Before a customer leaves the lot, I have already electronically paid the taxes, plate and title fees. If you could leave without paying those fees, you would pay the exact same amount at the DMV window. Only you would have to wait 3 hours to do it with their work habits.

 

Yes, BUT in a typical car transaction, the retailer is not the lender. So you have *two* parties jockeying for your flesh, and they don't agree up front to make do with a total of one pound.

Jabber has posted that in the case of a lease, the lender's (Toyota) fees and interest rate are disclosed upfront and are non-negotiable, leaving the car cap cost to be sorted out between the consumer and the dealer.

A regular purchase is different, though. In this case the dealer often makes money on the loan, and so can play with the cap price and still end up with the same profit. There may be other cost/fee/rebates that apply to a lease but do not apply to a car purchase, or vice versa. I've long hypothesized that a smart game to try and pull on a dealer would be to let them screw you on the loan in order to get a lower cap cost, and then pay off or refinance the expensive loan shortly after purchase. Since purchases are typically set up so that you first agree to the car price (cap price, by my lingo), and then go talk with finance/payment dept, you have to convince the price closer that gold is waiting for them in the finance dept. It used to be common for the lot guy to ask how the customer intends to pay for the car. That would be an opportune time to let the 'good news' for the dealership to slip out.

Car dealers and manufacturers try very hard to hide the actual costs from the consumer. It's not by accident that so many people sign a lease without knowing what interest rate or capitalization they are paying.

 

True, if the dealer is the one making the loan.

Many of the cars I have purchased in the past I did so via a loan from my (former) company Credit Union, McDonnell Douglas. So my negotiation with the car dealer focussed solely on the final sales price, and I learned a laudable level of brutality in that regard from my travel experiences in Africa, albeit at a lower level of sophistication, but where haggling over price is both an art and a time honored tradition.

 

wow.. what a discussion!!!

how about someone post the monthly payment differences between purchase and lease?

 

While we are waiting for OP to drink her am coffee, an anecdote:

A close friend of mine grew up in Lybia and came to the US as a young adult. He tells a LOL story how his first experience in a supermarket ended up with the cashier crying, because there was no way in hell he was going to just pay the list price on the milk carton without a proper negotiation.

 

I am spending way too much time on this question, but I like to perseverate.
We will hash out the numbers to the last dollar eventually, and I expect we will find that the lease option (in THIS case, since most lease offers stink as a general rule) is about competitive with the buy option, depending on how low OP can buy the car for outright -- say within $1000 either way. I'd like to emphasize though that while these calcs are a useful thing to go through and know how to do, the actual decision whether to lease; or really, whether to get a new car at all, should be decided by other factors entirely:

The most blunt question is why OP is buying a car beyond her means. The purist frugal in me says "no cash, no game." The more practical side just wants to say that if the monthly payment is constraining financing, OP should look long and hard at considering a less expensive capital expense.

Second, and perhaps just as important: A three year lease may end in a potentially volatile time for the US economy, when hyper-inflation has arrived to pay off the federal debt financing of the current depression. That is *not* the time to be forced to finance a car. Locking in a low interest rate now for the entire car price is a smart hedge against that possible day.

Combine (1) and (2), and a lease just looks high risk to me for no gain.

 

Sage, I'm LOVING your posts and am learning a lot. Calculations are not my strong suit. Plus I too had the thought of why the O.P. was attempting to get a car they could not afford to purchase, which puts them in a vulnerable financial position.

Personally I hate paying interest and try to avoid it when I can (and yes, it is possible). I don't run up credit cards either and pay that off each month in full.

I will buy my 2010 (or maybe by then it will be the 2011) Prii in cash. I will pay zero interest. That's why I am driving an 11 yr old car, btw. I bought it brand new after I was in an auto accident in 1997. I got a 0% 2.5 yr finance deal from the bank of 'My Father,' and paid that off, and I've been socking away $$ every month since, preparing for my next car purchase. My current car is my 3rd car (ever). Since it's a depreciating asset and I'm taking the full depreciation hit by purchasing a new vehicle, I'm going to leverage that hit for as long as I can and keep the car as long as possible (as long as it makes sense from a repair cost standpoint). I don't drive a lot of miles, so in my 11 years I've got slightly under 90K miles. The car has a lot of life in it still (knock wood), with those low miles.

 

I think we can all now agree that the O.P.'s assertion that "the dealer is already losing $1,000 on this lease deal" is not valid. The dealer is losing nothing at all. They will be making a profit whether that '09 is purchased or leased. They'll make more if it's leased.

 

LottaMoxie, thanks for the compliment. You and I sound like cousins in how we approach personal finance. I try to remind myself not to pontificate too much to others, because my salary is high enough to make it easy not to take on consumer debt. I want to think I would act smartly if my income was halved or less, but it is easier said than done.

My wife was reminding me the other day that she is a good student of consumer modesty, not complaining when she uses our '96 Subaru when the Prius is not available. Little does she know -- I have high hopes for that car lasting another 10 years!

 

If I were a stronger person I'd wait to purchase a new vehicle until my '98 Saab 900 were truly ready to be retired. But I'm not THAT strong and the 3rd generation is the one enticing me to take the plunge again. Now maybe Toyota will adjust the package options by the time I'm ready to order mine (next year) and I'll be able to get some of the features I want without having to take others I don't want.

 

This might be true if the company involved wasn't Toyota. Why?

• All the 09s are already built and on the ground in NA. None more are coming here.
• All the remaining 09s are almost assuredly on the dealers' lots.
• All the remaining 09s are already billed to the respective dealers ( the dealers' costs are now fixed ).
• There are now about 30-60 days of sales remaining in the 09s left on the lots in the US.
• Once the 09s get down to the final few there's no chance to pick and choose anything. It'll be 'take it or move on to a '10'.
• A good supply of '10s probably won't be on the ground until mid summer. If the vehicle is an outrageous hit it might be a year.

 

Here is the key point I think that you are missing. Yes right now a standard package #2 lists for ~$24300 with mats. Then there is a $1000 rebate from Toyota so the 'net MSRP' is ~$23300. The dealer has about 10% markup in most Prius'. Thus if a specific dealer really wanted to blow out a unit ( maybe its bank is asking for payments on Monday ) then it could turn that piece of inventory into cash right now for about $21000 which would be breakeven, no profit / no loss.

But once that 09 unit is gone...the pressure to discount is gone. No dealer is going to sell a unit that cost him $21000 for $17000. Unless the unit is damaged or some similar problem a sales that low will never happen.

 

Sorry Sage..

While Jabber is in the business office side I'm on the front side. We are the largest store in our region and by far the largest seller of Prius' in our region. The numbers in CAT are very similar to those quoted by Jabber in terms of cost ( see above post ). A basic package #2 with the Z1 accessory will cost the dealer about $22000 which they must pay to Toyota. The $1000 rebate is refunded to the dealer after the customer buys the vehicle and releases the payment of the refund ( done in the business office ). So effectively the vehicle cost the store about $21000 NET.


There are five key reasons why any dealer would sell a unit at breakeven, or ocassionally lower than cost:

1. the sales day has been very profitable with many other units being sold at good prices so one more unit being turned into cash is good inventory management
2. the lender for that dealer needs to be paid on time and sometimes cash is so short that turning a piece of inventory into cash is necessary
3. being overstocked ( see above post - not yet )
4. damage to a vehicle ( has to be declared to the buyer and insurance normally covers the loss )
5. the vehicle being a 'down demo' with 5000 miles or so

There is no pressure now to sell any normal Package #2 for any price near to $19000 without one of these 5 situations being present. $17000 is out of the question.

The other statement about negotiating the price down to the losest level is better for a purchase than for a lease is not accurate either. If a sharp buyer could somehow negotiate a price to $19000 (?) then that's the price whether it's a lease or a purchase. The financing tool has nothing to do with the price negotiated. The interest rate for a purchase is normally very closely linked to the money factor in a lease. When one goes down the other goes down similarly.

 

In VA where I work it's similar to VT where the sales tax is based on the acquisition price of the entire vehicle just as if it were a purchase. In NC where I live the tax is calculated only on the usage and added to the payment. But if one were to buy the vehicle later the 'unapplied tax' would then be charged by the state of NC on the remaining residual.

The other key points being ignored are MILES & RESIDUAL/TRADE-IN!!! The lease payment based on 20K miles per year are going to be inflated somewhat simply because of the 'overmileage' - but the residual doesn't go down. In the purchase example the payment is lower but the final resale/trade-in/residual value will be much lower than a vehicle driven with 'normal' miles. The depreciation loss for driving 60000 miles in 3 yrs is going to be paid one way or another.

 

Sorry not necessarily.

Until the details of the Lease agreement are presented we don't know what the acquisition cost of the vehicle is. This is certain. After the $1000 rebate is deducted a package #2 will cost the dealer about $21000. Nothing else is hidden.

The Purchase vs Lease calculation can then can be compared once that one piece of data is known. Here's a very simple example. If the Acquisition cost ( after rebate ) is $21500 then the dealer made $500. If it's $20500 then the dealer lost $500. It really is that simple.

 

Thanks Deadphish. I am in the front end (Current Scion Manager), but have been in the business for 16 years. 8-9 in the F&I office.

Thanks for the clarification on how a use tax applies when someone purchases the off lease car. As for the residual value based on 20k a year, I understand what you are saying, but just want to clear it up some. The residual value gets lowered by $.10 per mile over 45k total miles. In this case, her residual was lowered by $1,500. That is why she won't have to pay a large sum at the end. I read your post, and understand what you are saying, just wanted to clear it up for someone new to leasing.

 

By no means is it clear that all the `09 Prii are on dealers' lots, or even billed to or earmarked for specific dealers. The recession has caused quite a lot of refusal of new inventory on the part of dealers with too much. Dealers' inventory floor plans are not limitlessly elastic. Toyota only knows how many `09 Prii it has that are not spoken for and standing behind chain link fence in Long Beach! Also, see another of my posts about a dealer in VA that is already taking orders for `10 Prii at $500 discount.