Lease Discussion

[Sublime]

"ish". By that I mean, when you figure the "down payment" which is really just another fee, the lease fee, and the money factor which is figured on the total car price, it's way more expensive to lease a car with a cap cost of $15k than to buy a car selling for $15k. Many thousands of dollars more. Assuming you could sell the SL outright for $16k after 36 months you've have lost about $2k with a lease.

Check out my post above (here)

The down payment is not a fee. Its the first month's payment + plus a down payment on the principle.

As far as I can see looking at the math (I'm new to leases) the only fee is the acquisition fee of $595. Everything else lines up with a purchase. Money Factor * 2400 = APR. In the deal listed above, it looks like nissan is selling the car for about $1k under MSRP and giving you a money factor that equals about 3.6% APR. Which is about about a half point or a point higher than a loan. I believe most states charge sales tax on the lease payment, so that $296/mo lease is probably more like $310-$320.

So the difference between a lease and a purchase is the acquisition fee, the purchase option fee (if you buy it after the lease) and the difference in the interest rate. On the advantages of the lease, you don't pay sales tax on the full vehicle price up front and nissan is fronting you the tax rebate. Even if you adjust your withholdings there's still some value in how it works with the lease, because that $7500 starts working for you the moment you sign the lease, not as you earn it.

Someone correct me if I got any of this wrong. Like I said, I'm new to leases as I think in general they are a bad idea, but this might be the exception.

 

[evnow]

Someone correct me if I got any of this wrong. Like I said, I'm new to leases as I think in general they are a bad idea, but this might be the exception.

Lease is one way to finance the car. Whether it is good or bad depends on various factors. Any generalization is bound to be useless.

Don't use "retail" price from KBB etc, because you don't get that price when you sell (even privately). Use the Pvt sell price. In anycase, prices listed by KBB etc are quite untested - since Leaf is so new.

The major reason for leasing for me is that I expect much better EVs 2/3 years from now. When I lease, I know the costs upfront and don't have the hassle of selling the car myself (the same reason I used trade-in value). That is worth a good deal of "money" to me.

 

[wantonsoup]

The major reason for leasing for me is that I expect much better EVs 2/3 years from now.

The Leaf is effectively 3 years old right now and nobody is calling the 2013 model a revolution in EV cars versus the 2011 model, so I wouldn't expect much change in 2-3 years personally. Look at the 1997 Prius versus the 2013 Prius. Not a ton has changed in 16 years. And most of the improvements are because ICE engines are getting better, not the EV side of the equation.

When I lease, I know the costs upfront and don't have the hassle of selling the car myself (the same reason I used trade-in value). That is worth a good deal of "money" to me.

You are eyes-wide-open and honest about what certain things are worth to you, a great lease candidate. But that's not to say a lease is the smart choice financially, you just are willing to pay thousands of dollars for the convenience of not selling the car, right?

 

[evnow]

The Leaf is effectively 3 years old right now and nobody is calling the 2013 model a revolution in EV cars versus the 2011 model, so I wouldn't expect much change in 2-3 years personally. Look at the 1997 Prius versus the 2013 Prius. Not a ton has changed in 16 years. And most of the improvements are because ICE engines are getting better, not the EV side of the equation.

I don't know how closely you are following the EV industry - but we do expect much bigger changes in the next 3 years compared to last 3. We will have i3, Infiniti EV & possibly Tesla gen 3 by then. We will also have gen 2 battery from Nissan.

But that's not to say a lease is the smart choice financially, you just are willing to pay thousands of dollars for the convenience of not selling the car, right?

It is a smart choice financially, because you are paying extra now to reduce risk later. Think of it as insurance. With battery problems coming out last summer, you never know where Leaf's resale prices will be in 2016.

 

[wantonsoup]

I humbly apologize because I'm certain that I'm coming across as a jerk, but I must again disagree. Insurance / protection plans / extended warranties are all spending money on "maybe". It's not a smart financial decision. It's just putting money in the hands of someone else for your peace of mind. Again, you seem to acknowledge and accept that, but don't pass it off as fiscally wise. Buy the car in cash, get the tax incentives, and sell it privately in 3 years (or 2, or 4, or never) and you'll be ahead in the game versus leasing. (This doesn't hold true of the absurd lease deals they did on the remaining 2012 models, those were highway robbery and a great deal if you want a 2012 model) Again, it's all speculation about the value in 36 months, but hoping that technology improves much in 3 years is a folly. I have followed hybrids, electrics, etc. since they came into existence in the modern era and industry folks always say huge advancements are coming "in 3 to 5 years". Yet the largest manufacturers spend ungodly sums of money and can't get much improvement generation to generation. Leasing makes you feel good - that's great and I'm happy for you. But you're spending money on those good feelings. That's all I'm trying to say. It's seemingly cheaper to buy the car and sell it when you want down the road.

 

[evnow]

I humbly apologize because I'm certain that I'm coming across as a jerk, but I must again disagree. Insurance / protection plans / extended warranties are all spending money on "maybe". It's not a smart financial decision.

Well, then, your idea of "smart" and mine differ. It is not an objective term, but a subjective one.

BTW, I do hope you have car insurance - even though the chance of an accident is much lower than the Leaf having lower than anticipated resale price in 3 years

 

[wantonsoup]

I was hoping you'd mention car insurance. Car insurance is $500 / year for the potential $300,000 payout. Life insurance is $1,500 / year for a potential $500,000 payout. Health insurance is $5,000 / year for a potential $1,000,000 payout. You're talking about spending hundreds or thousands of dollars on the chance you could save ... a few thousand dollars. That's why I don't get a lease in this situation. Best case scenario - you're up a grand. Worst case scenario - you're down $5k+. I don't see the cost/benefit making sense/cents. That's why I said that you are spending money and buying peace of mind.

 

[evnow]

I was hoping you'd mention car insurance. Car insurance is $500 / year for the potential $300,000 payout. Life insurance is $1,500 / year for a potential $500,000 payout. Health insurance is $5,000 / year for a potential $1,000,000 payout. You're talking about spending hundreds or thousands of dollars on the chance you could save ... a few thousand dollars. That's why I don't get a lease in this situation. Best case scenario - you're up a grand. Worst case scenario - you're down $5k+. I don't see the cost/benefit making sense/cents. That's why I said that you are spending money and buying peace of mind.

Pls start multiplying by probability with those amounts to see the benefit.

 

[edatoakrun]

I was hoping you'd mention car insurance. Car insurance is $500 / year for the potential $300,000 payout. Life insurance is $1,500 / year for a potential $500,000 payout. Health insurance is $5,000 / year for a potential $1,000,000 payout. You're talking about spending hundreds or thousands of dollars on the chance you could save ... a few thousand dollars. That's why I don't get a lease in this situation. Best case scenario - you're up a grand. Worst case scenario - you're down $5k+. I don't see the cost/benefit making sense/cents. That's why I said that you are spending money and buying peace of mind.

Pls start multiplying by probability with those amounts to see the benefit.

The unknown probability of the events is precisely the weakness of your argument.

You are essentially arguing in favor of purchasing "insurance" for an unknown probability of the event of loss, for a maximum loss in an amount so small, that most everyone in a financial position to acquire a new vehicle, should easily be able afford to self-insure against it.

 

[evnow]

The unknown probability of the events is precisely the weakness of your argument.

Hmm ... so you know the probability of you getting into an accident this month ?

None of us know the probabilities - we just need to estimate. My estimate is that lease is financially better for me than buy.

 

[pgrokkos]

Regarding the SL lease:

So it'll cost you $12,954 total to lease the car for 36 months, (plus tax, title, etc).

Or you could likely buy it outright for $34,690-$7500 = $27,190 ($1k under sticker which is my goal)

The break even point is if the value in 36 months is $14,236. If it's worth more than that, you'd have been better off buying it outright. If it's worth less than that, you were better off leasing. Of course purchasing it after the lease it up seems like a terrible deal then at over $18k after fees.

My guess is that the real selling price after 36 months will be around $15-16k on the private party market, and $16k-18k retail at dealers. If the car does really well, the federal tax incentive might disappear by then and hold retail prices steady too.

I'm still on the fence, but you pay a lot of fees for the convenience of a lease it seems.

Wantonsoup - I think you are missing an important point on the $$ regarding interest and opportunity cost. I'm assuming you are talking about paying the $27,190 up front in cash, vs paying the $12,954 over 3 years. If you choose the lease, you park your $27k in the bank. Over the 3 years, even at a relatively conservative 3%, you are making close to $1k per year. You can make this much more complicated if you start thinking about taxes on this interest, or the fact that the $27k goes down over time as you pay the lease...but the bottom line is even locking up a 3 year CD will get you approximately $2-3k. This amount is forfeited under the purchase scenario where the $$ must be locked up in the car. So I'd argue that you are probably roughly between your private party/retail range at end if you take this into account - you have to sell the car for $16-17k to be at break even.

That means you are banking on coming out ahead because you can sell a car more profitably than someone looking to just dump it assuming your estimates on value are right. Given the aggravation that I find selling a car entails, its not worth the potential savings to me, particularly if I have to guess right 3 years in advance that the price range will be on a relatively reasonable but high end of possibilities, in an industry where there will be more competition and at a minimum, cars with some material increase in range. A 3 year old Prius holds its value well today because the gas mileage isn't really that different. But if you assume range in 3 years goes from 100 miles (optimistically) to 150 miles, then I think a lot of people will pay a premium for that and ignore a used car with such a drop in range (and an older battery as well). I get leasing has lots of costs, and I appreciate your laying out the math, but I think that has confirmed that I'm going for the lease.

 

[Sublime]

But if you assume range in 3 years goes from 100 miles (optimistically) to 150 miles, then I think a lot of people will pay a premium for that and ignore a used car with such a drop in range (and an older battery as well). I get leasing has lots of costs, and I appreciate your laying out the math, but I think that has confirmed that I'm going for the lease.

That's the dynamic that worries me about buying. Next gen battery vs dropped range previous gen. Just way more uncertainty than buying an ICE or hybrid. You're looking at the value of an iPhone 3 when the iPhone 5 comes out.

I tend to buy slightly used and drive them into the ground. With the LEAF there are enough incentives to look at new and enough uncertainty about what will be out in 3 years for me to not buy.

I think its perfectly plausible that in 3 years Nissan will have used all its tax rebate allotment, but that a new one will have been cost reduced enough that it is about what a new one costs today minus the rebate (ie they will have reduced the MSRP by 7500). I also think that it having an increased range and increased performance is a certainty. How much? I'd put the probably ceiling at 2x the range and 50% more power and the likely increase at 50% more range and 25% more power. Either way, how will your 3 year old LEAF look on the market? If you plan to hold on to it, you don't care.

There isn't a single best answer for everyone.

 

[wantonsoup]

Over the 3 years, even at a relatively conservative 3%, you are making close to $1k per year.

You'd be lucky to get 1% right now. So that number is more like $200 a year interest minus taxes. Or $800 after 36 months, again minus taxes of say 27% = $584 net profit from leaving the money in the bank. And that's a CD. Money markets are more like 0.8% right now. Savings accounts are so bad it's not worth considering.

But if you assume range in 3 years goes from 100 miles (optimistically) to 150 miles, then I think a lot of people will pay a premium for that and ignore a used car with such a drop in range (and an older battery as well).

Optimistic is an understatement here. The next generation is going to get another 50% boost in range, in 3 years? I'd say we'll be lucky to get another 15% in range.

I get leasing has lots of costs, and I appreciate your laying out the math, but I think that has confirmed that I'm going for the lease.

Again, I think the real reason you want to lease is because you believe these cars to be very short-lived devices that will have no value in 3 years and you'll want/need to upgrade. That's fine - but you're paying a lot for that peace of mind.

 

[DaveinOlyWA]

But if you assume range in 3 years goes from 100 miles (optimistically) to 150 miles, then I think a lot of people will pay a premium for that and ignore a used car with such a drop in range (and an older battery as well). I get leasing has lots of costs, and I appreciate your laying out the math, but I think that has confirmed that I'm going for the lease.

That's the dynamic that worries me about buying. Next gen battery vs dropped range previous gen. Just way more uncertainty than buying an ICE or hybrid. You're looking at the value of an iPhone 3 when the iPhone 5 comes out.

I tend to buy slightly used and drive them into the ground. With the LEAF there are enough incentives to look at new and enough uncertainty about what will be out in 3 years for me to not buy.

I think its perfectly plausible that in 3 years Nissan will have used all its tax rebate allotment, but that a new one will have been cost reduced enough that it is about what a new one costs today minus the rebate (ie they will have reduced the MSRP by 7500). I also think that it having an increased range and increased performance is a certainty. How much? I'd put the probably ceiling at 2x the range and 50% more power and the likely increase at 50% more range and 25% more power. Either way, how will your 3 year old LEAF look on the market? If you plan to hold on to it, you don't care.

There isn't a single best answer for everyone.

you got it

Nissan's plan is basically the same as Tesla's which is to introduce a Vehicle that is more "mainstream" as far as amenities and have a bit more range at a price that is at or BELOW the current price AFTER incentives.

this cannot be done with 50% more range, etc. what we need to know is 50% more range requires 75% more battery. we wont see that much improvement. We will see some and we will see more options as far as pack size but Nissan is not looking to market upscale vehicles designed to sell 4-5,000 a year. They are looking at 75,000-200,000 a year market and the price has to be right.

The current LEAF has become invaluable as a data source of real life needs and experiences. So ya, longer range is inevitable but not significantly so. look for the "sweet" spot to be just over 100 miles of "real" range during slightly less than ideal conditions.

 

[edatoakrun]

The unknown probability of the events is precisely the weakness of your argument.

Hmm ... so you know the probability of you getting into an accident this month ?...

Obviously my insurance company thinks they do, and sets my premium accordingly, including a markup to provide them a profit.

Auto leasing works the same way. The Lessor takes on the insurance role, and accepts the downside pricing risk over a given period of time, and charges a higher price intended to produce profit on the transaction.

And while many single "insurance" contracts for the lessor may turn out to be unprofitable, just as my insurance company's premium will be if I have an accident this month, these industries both are highly profitable.

quote="evnow" ...None of us know the probabilities - we just need to estimate. My estimate is that lease is financially better for me than buy.

There is another entire industry base on individuals assumptions that they can "estimate" probabilities better than the risk underwriter.

It's called gambling...

pgrokkos

...if you assume range in 3 years goes from 100 miles (optimistically) to 150 miles...

IMO, If you think that BEVs with 150 mile freeway range at the same ~$20,000 net purchase price that the 2013 LEAF is at now, and that the necessary DC infrastructure to recharge them on the road will be installed, and both will be widely available to American drivers in three years, you should be much more worried bout the imminent and rapid decline in value of any ICEV you own, than that of any 2011-13 LEAF acquisition.

 

[Sublime]

this cannot be done with 50% more range, etc. what we need to know is 50% more range requires 75% more battery.

I agree if the additional battery capacity comes from cost reducing its production. Its likely to come from a combination of increased energy density and production cost reduction.

If you increase energy density by 50%, you'll get a 50% increase in range. If you increase energy density by 100%, but only care about a 50% increase in range, the compounding effects of reduced weight and cost start working in your favor. However a 100% increase in density is probably more like 5-10 years off, not 3. Who knows though, material science for batteries has really kicked into high gear the last couple years.

 

[wantonsoup]

Even if they come up with a new battery pack in 2 years time (which is totally over the rainbow thinking) it won't be in a Nissan in 3 years' time. The battery technology in the Leaf right now isn't brand new, they aren't going to gamble on something brand new in a production car. So best case scenario is realistically maybe another 10-15% additional range in 2016 because they'll find a few more efficiencies that they can utilize. If, and it's a big if still at this point, electric cars become popular, I'd expect 150-200 mile range in a car the size of the Leaf at it's current cost in 2020.

So be realistic - battery technology is improving. But is the battery in your phone that much smaller, lighter, or more efficient than it was 3 years ago, or 5? And there are exactly 45 zillion cell phone batteries sold every single year. Talk about your economies of scale. Yet we hear every 6 months about the new better battery and still no cell phones use it. Why would a car company be so much more adventurous than Apple, who would LOVE to have a battery that's cheaper, lighter, and lasted longer?

Just be realistic here. In 3 years, not much will change. If anything, the improving economy could create a bit of inflation and the price of cars in general will climb a bit in 3 years.

 

[jfon101231]

I tend to buy slightly used and drive them into the ground. With the LEAF there are enough incentives to look at new and enough uncertainty about what will be out in 3 years for me to not buy.

So ya, longer range is inevitable but not significantly so. look for the "sweet" spot to be just over 100 miles of "real" range during slightly less than ideal conditions.

I agree on both of these points. I usually fix my own cars, and see much more value buying an ICE car around 80k miles and driving it to 250k. My '98 Accord @ 293k still runs fine and gets same or better mileage than my wife's '07 Mazda 6 with the same size 3.0L V6 (bought new). Have never leased a car either, and usually sell my cars/trucks myself at the end of their life. Not the same with a BEV. I do think that a lease is a form of insurance, but I think the amount being paid for it is slightly closer than a comparable sale, but its YMMV for sure at this point as there is not enough data on the value of used Leaf sales yet. With a used one, you have to plan on having even less of the "stock" range available, which will make the potential targeted population smaller. Lower demand = lower price. I really wanted a 2012 with the lease deals they had, but decided to wait for the 2013 so I could get the faster charger and hopefully a bit more range. Plus, if we get to a point at work where the single (2 port) L2 charger we have is taken by the Volt owner and someone else, with the faster charger I can bump someone for several hours and get a meaningful amount of juice.

Also, from a range perspective, I drive 76 miles round trip to work (where we have a L2 charger), and it will be my primary car for late fall thru Spring. These means colder temps here in New England and more headlight use during commuting hours, both of which decrease range to the point where I can't make it roundtrip on a single charge. If it was 100 miles of real-world range in ideal conditions, there is less $ I need to spend on electricity at home, which helps the ROI/payback analysis. It also would help people who make "moderate" trips worry less about the advance planning needed to travel to a friend's house who now lives 90 mins away. In short, it will help alleviate anxiety and inconvenience, which real or imagined, are a hurdle to EV ownership for some people...

 

[Sublime]

But is the battery in your phone that much smaller, lighter, or more efficient than it was 3 years ago, or 5?

Motorola Droid from 2010 had a 1400mah battery and weighed 6oz
Motorola Droid Razr MAXX in 2012/3 has a 3300mah battery and weighs 5.2oz

 

[wantonsoup]

The battery technology didn't change - they just shrunk everything else in the phone to make room for a bigger battery pack.