why is everyone saying "lease because of depreciation"

[Doobster6]

i'll start by saying i have extensive experience in corporate finance but have never leased a car nor looked into it with a lot of detail

i see a lot of people say to lease new EV's (and the Mach E specifically) because of the steep depreciation (no need to discuss the $7500 tax credit, the stated reason is depreciation).

this makes no sense to me. depreciation is factored into the lease, and the fact that it is steep means consumers are paying for the steepest part of it when they lease. a lease can be created synthetically by buying the car, pre-agreeing today on the future 36th month resale price, and financing the transaction for 36 months. why would steep depreciation = better to lease? you'd almost think the opposite...

the only reason leasing would be better is if the actual depreciation is even steeper than the calculated depreciation today. when i did the math 3 years ago, the lease was implying ~70% of the value would be depreciated so i decided to just buy.

in my opinion, leasing is just a pre-bundled finance + trade-in package. if you are planning to do both anyway, take a look at leasing. if you weren't going to trade in your car every 3 years nor get financing, unless you have some kind of crystal ball about car values, i cannot understand why the steepness of depreciation would make you want to lease.

Had I bought my car instead of having leased it, my monthly payment would have been around $700/month instead of $400/month. That’s part of the appeal for leasing; you’re supposedly only paying for that part of the car you’re using for which, as you identify, the depreciation is also the steepest early on. Nevertheless, there is absolutely a cash-flow component to the decision. When my lease is up in July of 2027, I can then buy the car for the pre-determined price of $27k. Well, if the dealer mis-guessed, the car might only have a market value of $23k and so I will give them the car back whereupon I can then offer to buy it for the lower market price. If the opposite happens and the car is actually worth $32k, you can buy it back on the spot for $27k. In either scenarios I’ve enjoyed the lower monthly payments for 36 months and given myself the best options at term end.
More importantly for me, EV design is changing rapidly driven by growing competition among manufacturers and increasing consumer demand for the cars. I didn’t want to find myself trying to sell/trade-in a car after some years with clearly outdated technology that reduces its appeal and market value. Already, the 2025 Mach-E will come with a heat pump and ventilated seats that weren’t available on the 2024s. What else will Ford add in the next two model cycles that will improve the car’s market appeal while simultaneously decreasing the value of older models?
Lastly, leasing for 36 months means the car is under warranty the whole time. That’s especially important to me as these cars race up the technology-maturity curve that ICE cars have already climbed. I have several ‘big-box’ used car dealerships near me that offer lifetime warranties on all their ICE cars’ engines. This is possible because as complicated as ICEs are, they’ve had more than 100 years of development and refinement to ‘perfect’ them. These dealerships are obviously betting that the cars they sell will change hands before they have to honor the warranty, and it is the quality and reliability of the engines themselves that allow such offers in the first place. Electric motors, and now also the HVBs themselves, may already be in this territory, but the inverters and charging electronic hardware probably is still catching up. Until the entirety of the EV drivetrain has climbed that reliability curve, I for one will want the comfort of knowing the car’s major systems are a still under warranty.

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[DaddyDeuce]

I have never heard of a deal like this. Is it widespread?

A deal this good isn't widespread but it was possible. At the lease board I hang out at people are regularly getting 24-month leases on Equinox EVs for around $3k-$4k up front and zero monthly payments. At a $4k one-pay you are equivalent to $166/mo.

How many miles can you drive before there is a penalty? And what is the penalty for exceeding the mileage?

I can drive it 12,000 miles a year for 24,000 miles total over 24-mos. Penalty is $0.25 per mile after that. I can certainly stay under as it isn't my daily driver.

How does seller make any money on this?

I believe the dealer made no money on this particular deal, but it helped them reach a sales quota with GM that brought them some bonus or improved allocations.

 

[Mach1E]

Leasing (or Ford Options) may have saved me money had I done it……. But I’m glad I didn’t.

Why?

I still own my car currently. Had I leased? I wouldn’t have bought it at the end as I would be overpaying.

But then I wouldn’t have to go find another one or buy another car. And I don’t want to. I want to keep mine.

 

[StevenC56]

My wife and I are considering ordering a 2025 Premium MME. We have owned 17 different vehicles during our almost 48 year marriage. We have never leased. When we buy a vehicle we truly like, we keep them for 8-10 years. We just purchased a Lightning last fall. 0% 60 month Ford Financing. Quite a few incentives as well and a good price from our Dealer. Probably the last truck I'll ever own. We love the truck! The MME would replace my wife's 2017 Explorer. So I see that there's not much in the way of rebates on the 25 MME currently except for a $7500 one, but only if we lease. We know nothing about how leases work. Has us wondering if we lease and end up buying it after the end of the lease, would that be better or worse than purchasing given this $7500 lease rebate?

 

[DaddyDeuce]

Without exception, when we saw how they wanted to figure the residual value, we all told them, they were going to loose their asses.

Yeah, GM is offering as high as 89% RV for a 24/12 on the Silverado EV WT. How's that going to work out for them?

 

[excitebike82]

My vote would be for buying used. Take advantage of the depreciation or lease that someone else took the hit on. The trade in value on them is atrocious, so I took advantage of the 2nd hand market.

My example:
I bought my 2022 GT (no BC option) this summer, 2 years old, with 10,600miles on it for just shy of $37k OTD with a 150k b2b warranty ($50 deductible). The window sticker in the glove box showed $67k new.

No accidents, no door dings, no road rash on the wheels, no significant maintenance issues on the Carfax when purchased.

 

[T1328]

the only reason leasing would be better is if the actual depreciation is even steeper than the calculated depreciation today. when i did the math 3 years ago, the lease was implying ~70% of the value would be depreciated so i decided to just buy.

1. Car makers have been artificially increasing residual values of their cars to “sell” more cars now and pay for it later for decades when they need to get rid of inventory, or show immediate financial gains.
See this 1997 article, of which you can find many more examples including current ones. https://thesystemsthinker.com/car-leasing-are-automakers-gambling-away-their-future/#:~:text=in order to remain competitive,order to at-tract customers.

2. The EV space is not like ICE, and the current time is one of great uncertainty for the EV industry. All EV manufacturers, and particularly those whose EVs don’t qualify for the $7,500 tax credit, which will soon be all of them, are artificially increasing the residual values of their EVs on leases, and doing so by huge amounts, to at least temporarily increase sales, and compete with Tesla, which has far higher profit margins than any other manufacturer.

3. Why uncertainties in the EV space that lead to real residuals being so terrible compared to ICE vehicles?

a. Tesla has lowered their prices every few months to such an extent, that, in ‘22, a Tesla Model Y LR AWD cost $66k with no extra options, while today, the identical car MSRPs for $46,630, a 30% price decrease. This has caused used Tesla’s resale value to tank, and has caused all other EVs resale values to tank too. The lease rate on that ‘22 Model Y in July ‘22 was approx $500/month. Its residual value was $48k. Yet by 3 years in, the $48k was higher than the price of a brand new, equivalent Model Y. Tesla has broken the rules of the game by reducing their pricing so dramatically, and that has impacted the entire EV market.

b. Unlike advances in ICE vehicles, advances in EVs year over year, but even more so, across a space or 3 years, are astounding, or certainly have the potential of being astounding, which makes 3-year old EVs completely outdated in critical areas like range and supercharger charging speeds. See example below of Audi e-tron - current model year range is up from 207 miles to 280 miles.

c. As a result, most EV owners are severely under water on what they owe vs. what their cars are worth today.

4. Almost every EV on the market today is a 1st gen vehicle, including the Mach-E. Their manufacturers have learned so much about what worked and what didn’t since launch, that while they’ve been making fairly decent changes over each model year, when they come out with the real next gen of their car, like the Mach-E v2, the advances will be huge, and will make the resale values of their gen 1 cars much lower. Those advances could include new batteries with newer battery technologies that are increasing range and charging speeds by 50 to 70% and up to half the charging time for 20-80% (The Hyundai Motor Group adopted a charging structure that supports this from day 1, and they take half the time to charge to 80% at a super charger than the Mach-E. Ford knows this and will modify their next gen to support this in order to remain competitive. This will make the current gen Mach-E’s 2nd hand resale value even lower. Current residual values are not factoring that in. When I leased my ‘24 Mach E GT-performance, not only was the residual value around $40k after 39 months (will never happen), but they also took $12k off the MSRP before even beginning the lease calculations, but used the full MSRP for residual value calculations.

Finally, Audi e-Tron example. I had a ‘19, which I paid $58k for in late ‘22 with 10 miles on it. It retailer new for $88k, so I thought I was getting a good deal. It was hit by an idiot driver, and declared a total loss in April ‘24. Insurance then valued it at $32k (it had 29k miles by then). Luckily I had gap insurance. But have a look at this listing for a ‘21 e-tron with 23 kmiles on it selling for $29k. It sold for $80k when new as specced. It’s lost 64% of its value in 4 years. You are likely to be able to negotiate the price down $25k…. I thought you would like this Used 2021 Audi e-tron Premium Plus w/ Premium Plus Package for $28980 on Autotrader http://atcm.co/S2PVDP/2C05E32D.

 

[VannDamage]

I believe for majority of them it’s because they don’t view a vehicle as something they will keep for more than 3 years so “upside down” on a loan matters.

On the other hand if you’re driving the thing 100k+, keeping it for 10 years, etc. The depreciation will not be relevant.

This right here. I got mine well knowing it will be a 10+ year vehicle for us. I don't care about depreciation. If you are, don't even bother with an EV, cell phone, fridge, TV, etc.

 

[nickloveslions]

i'll start by saying i have extensive experience in corporate finance but have never leased a car nor looked into it with a lot of detail

i see a lot of people say to lease new EV's (and the Mach E specifically) because of the steep depreciation (no need to discuss the $7500 tax credit, the stated reason is depreciation).

this makes no sense to me. depreciation is factored into the lease, and the fact that it is steep means consumers are paying for the steepest part of it when they lease. a lease can be created synthetically by buying the car, pre-agreeing today on the future 36th month resale price, and financing the transaction for 36 months. why would steep depreciation = better to lease? you'd almost think the opposite...

the only reason leasing would be better is if the actual depreciation is even steeper than the calculated depreciation today. when i did the math 3 years ago, the lease was implying ~70% of the value would be depreciated so i decided to just buy.

in my opinion, leasing is just a pre-bundled finance + trade-in package. if you are planning to do both anyway, take a look at leasing. if you weren't going to trade in your car every 3 years nor get financing, unless you have some kind of crystal ball about car values, i cannot understand why the steepness of depreciation would make you want to lease.

Without getting political I think it helps protect against government and market instability in a product that stirs social issues. Plus with battery tech changing rapidly, I decided to lease as it was 9/23 and I Was able to get the second half premium with slightly diff features ……think onboard 12v And placement is different. But even without a background in finance it’s still cheaper to own. I’m just stupid and single. Leasing helps protect that too.

 

[ChehRob]

The other side of that for someone who doesn't drive much, and retired, those insane 0% interest rates, invest the cash in bonds, and at the end of 4 years you have had the use of the car (mostly insured time), 20% more cash than you started with, and a car that because of low mileage is worth at least half the original price to one of your friends or relatives.

The lease that would make sense to me would be a late model medium miles used car, and an an extended warrantee. Of course that would make a lot of sense for a lot of people.

 

[Mr Breeze]

i'll start by saying i have extensive experience in corporate finance but have never leased a car nor looked into it with a lot of detail

i see a lot of people say to lease new EV's (and the Mach E specifically) because of the steep depreciation (no need to discuss the $7500 tax credit, the stated reason is depreciation).

this makes no sense to me. depreciation is factored into the lease, and the fact that it is steep means consumers are paying for the steepest part of it when they lease. a lease can be created synthetically by buying the car, pre-agreeing today on the future 36th month resale price, and financing the transaction for 36 months. why would steep depreciation = better to lease? you'd almost think the opposite...

the only reason leasing would be better is if the actual depreciation is even steeper than the calculated depreciation today. when i did the math 3 years ago, the lease was implying ~70% of the value would be depreciated so i decided to just buy.

in my opinion, leasing is just a pre-bundled finance + trade-in package. if you are planning to do both anyway, take a look at leasing. if you weren't going to trade in your car every 3 years nor get financing, unless you have some kind of crystal ball about car values, i cannot understand why the steepness of depreciation would make you want to lease.

The problem with purchasing new (MME) is the minute you drive away you’re down 15k and I’m speaking from experience. I purchased a new 23 MME premium with extended battery in June 24 stickered at almost 55 I negotiated the price down to 41500 and put down 5k took the 0% financing and thought I did great. Was looking at the 25 last week and was offered 28 on trade to step up. I just said really, 28 Im good. Ad far as EV I won’t purchase new again 2 years old minimum for mr let someone else take the hit.

 

[StevenC56]

The problem with purchasing new (MME) is the minute you drive away you’re down 15k and I’m speaking from experience. I purchased a new 23 MME premium with extended battery in June 24 stickered at almost 55 I negotiated the price down to 41500 and put down 5k took the 0% financing and thought I did great. Was looking at the 25 last week and was offered 28 on trade to step up. I just said really, 28 Im good. Ad far as EV I won’t purchase new again 2 years old minimum for mr let someone else take the hit.

Does CarMax offer you more or less than $28K? Dealerships will always give you a lowball offer at first.

 

[mkhuffman]

Very helpful example.

Is not the entire difference from the $7500 incentive under the lease but not the financing? Said another way, can you just take 7500 off the loan calculator and show me what the difference would be compared to the lease, I'd do it myself but didn't know where the calculator was from.

Lease: 574 x 36 = $20,664 + $5,579 = $26,243
Purchase: 735.76 x 36 = $26,487.36 + 5,509 = $31,996.36
Difference: $5,753.36

$23,514.14 + $5,753.36 = $29,267.50

That is a more reasonable value of the MME at the end of 3 years. However, will the trade in value be that high? If you try to sell it, can you really get that for it? Maybe. Maybe not. Seems like if you want to keep the car, purchase it at the residual value or make an offer that is more in line with the market, if that is appropriate and you come out the same as if you financed it.

 

[MonkeyNutz]

i 100% agree with this. but is it still unexpected when everyone knows it at this point?

again dealers knew it back in 2021 when i bought this car too, like i said the residual value being implied was 30%, the reality was actually better than that...

The leasing companies know that EV depreciation is a higher rate, it's all accounted for. All things being equal, there would be a certain logic to leasing an EV vs. buying due to the expected tech advancements and faster depreciation. But Nope, the leasing companies have that all built in.

 

[MonkeyNutz]

I have never heard of a deal like this. Is it widespread?

How does seller make any money on this? I see they have avoided paying property tax on a vehicle sitting on their lot, and basically given you the car for two years to pay the property tax. Then they get it back, worn and depreciated, to sell again. Is that their motivation? Seems like a money loser.

It doesn't seem that amazing to me. It's a 24/ month lease and he's paying a total of $12,614.02 -- which equates to $525.58/month. The dealer sells his trade-in for a profit and has 2 years of lease payments up front. They forgave would would be the down or money at signing due to the trade. And he probably can't drive it more than 10,500 miles/year -- the standard for Ford's leases on these.

I didn't see a quote for leasing a GTPE when I was shopping late last year, but did get a quote for a lease of a Premium eAWD with extended battery. MSRP applied to the lease after discounts and incentives was $43K (if I recall) and with $2500 down it would have been $385/month for 36 months, could drive it 10K miles/year. Guy was really pushing to get us to trade our Model Y for the deal -- but at the time it should have been worth $27K as trade. Told him that wasn't going to happen for a lease, we didn't talk numbers on the Y, but I'm sure he wanted to really lowball it. We'd get our 3 years with the MME for "free" while he pockets $8K+ on the sale of the Y. ...This lease deal above shows almost $12K in trade-in. Not sure if the guy said what he traded and there could be a lot of number fudging going on there.

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