Why do people say Lexus vehicles have such good residual value?

GenXer · 12-29-2019, 05:37 AM

Am I reading this correctly?
https://diminishedvalueofgeorgia.com...inished-value/

Also, how is BMW residual so high?

Granted BMW financial probably inflated their leases but why aren't there an overabundance of BMWs? (OK maybe there are lots of 3 series on the lot)

So where do these lease vehicles disappear to if their values are so high. I don't see that many on the lot at high prices.

Does that mean BMW financial is subsidising both the front and back end with such generous incentives?

If that's the case, how do they make a profit. Do they inflate the MSRP that much to compensate? So the real value of a new M3 might only cost $10K to build.

Flacht3 · 12-29-2019, 02:34 PM

A lot to unpack here...Not an expert but IMO:

1// "diminishedvalueofgeorgia.com" probably shouldn't be construed as a leading subject matter expert, so take that info with a grain of salt.

2// Most auto dealerships don't make the bulk of their money on sales. They make it on the financing, add-ons, servicing and then profit margin on used car sales.

3// Noting the above, my take on BMW leases is that they're in the game of volume and scale. They make less profit per lease but enough profit to make it worthwhile and then volume makes up for it (last I checked, and could be wrong, BMW is leading sales volume in its class currently...aka beating Mercedes and the rest of them). This is how the dealer makes money. BMW corporate makes money by getting the dealers to buy as many cars as possible.

4//MSRP is of course "inflated" but not to that extent. A new M3 costs way more than $10k to produce, especially when you factor in the R&D, marketing, etc. which all go into the total cost. I'm no expert but on average BMW sells their cars at MSRP minus 7% to the dealer, so that 7% is the room for profit (before fees, financing, add-ons) the dealer can play with. I would guess it's "normal" for the car to cost 50% of MSRP to produce, but again you're probably looking at more overhead, R&D, etc. that needs to go into that.

chassis · 12-29-2019, 03:16 PM

GenXer, what are your views on the questions you pose?

- Lexus values are high, because there is demand for late model low mileage Lexus vehicles. I shopped Lexus before we bought the X3, and there was effectively zero Lexus inventory in my region, with 1-3 years of age and less than 20k miles. No supply = high demand = high value in comparison to alternatives.

- BMW values might be high, I do not have experience with this. It is in BMW's interest to set high lease end residual values, because it lowers the monthly payment, which gets consumers to sign the lease. The residual value may, in fact, be higher than what the vehicle may be resold for after the lease terminates. This is a net present value story, where BMW is prioritizing up front cash flows (lease payments from the consumer) over what may, or may not, be a loss on the resale transaction in the future. This is all known, all knowable, and all predictable by BMW.

- Is BMW "subsidizing"? If you like that word, then yes the lease transaction is being subsidized by BMW's setting of high lease end values. It is the method BMW chooses to extract value from the consumer' pocket. It gives the consumer a lower hurdle, the lease payment, to step over before signing the lease.

- How does BMW make a profit? They make money during the lease term on the lease contract and on service and maintenance. They make money on fees, if any, at the start of the lease. When the lease term is finished, they make money on selling used vehicles, with or without financing for subsequent owners.

Agreeing with Flacht3, BMW USA and dealers make profit on financing, commissions on financing, and on parts and service. The vehicle itself is simply the instrument by which they make the aforementioned profit.

eluded · 12-30-2019, 03:14 AM

Quote:

Originally Posted by GenXer

So the real value of a new M3 might only cost $10K to build

:

premier3is · 12-30-2019, 03:48 AM

A lot was asked here. But here's my opinion.

BMW probably has some sort of insurance to back up the losses they'll incurs because there is no way these lease returns are holding that 60% residual value or whatever it may be for your vehicle when you get it. They have high residuals which in turn get you in the car with a lower monthly.

On the other hand, I came from the Lexus brand, had an IS200t F-sport which I leased in 2016 which had a 61% or 62% residual if I'm not mistaken. Upon lease return, these cars had NO where near the residual I got... they were worth well below that. My dealership was telling me Lexus has so many IS returns which they lose out on money that no dealerships were willing to buy the cars off Lexus Financial to get them on their lots. The returns were just getting sent off to auctions.

So what happened, Lexus 'adjusted' their residuals so it was more beneficial to them. When I inquired about another IS the residuals were around 49% lol. Stupid low. The payments on a 45k car were nearly identical to a 50k 3 series. It was a no brainer to leave as the IS is highly outdated in many ways now, especially the tech and it lacks power.

thegump · 12-30-2019, 01:44 PM

Quote:

Originally Posted by GenXer

Am I reading this correctly?
https://diminishedvalueofgeorgia.com...inished-value/
So the real value of a new M3 might only cost $10K to build.

Way off, it's obviously cheaper to make than msrp but it's not as cheap as you may think. Most manufacturer margins on mass produced vehicles hover around 15-20%. Car's like M3's will have higher profits but I couldn't see it being much more than 20%.

Run Silent · 12-30-2019, 01:49 PM

Quote:

Originally Posted by thegump

Way off, it's obviously cheaper to make than msrp but it's not as cheap as you may think. Most manufacturer margins on mass produced vehicles hover around 15-20%. Car's like M3's will have higher profits but I couldn't see it being much more than 20%.

GP or EBITDA?

I think many of you are vastly overestimating the actual profit per unit that an OEM generates on a vehicle sale. It isn't that hard to calculate and most of the financial statements are public knowledge.

For the OP - yes, BMW and other OEMs subsidize the residual to increase the benefit of leasing the car.

-------------

BMW AG Financial Results for 2018 (In Euro's) (Inc. BMW Motorcycles)

Gross Profit per unit: $5,364
Gross Margin: 18.52%

Net Income per unit sold: $1,035
Net Profit percentage per unit sold: 3.57%

F32Fleet · 12-30-2019, 02:03 PM

OP,

Compare similar models between BMW and Lexus paying attention to the MSRP and depreciation over 5 yr period.

I think you'll find the curve much steeper for BMW because of the higher purchase price.

OnlyGerman · 12-30-2019, 02:22 PM

Lexus = Zero driving pleasure

Burrcold · 12-30-2019, 04:19 PM

Quote:

Originally Posted by OnlyGerman

Lexus = Zero driving pleasure

Really not true at all...

thegump · 12-30-2019, 11:31 PM

Quote:

Originally Posted by Run Silent

GP or EBITDA?

Gross

BigHunk · 01-01-2020, 03:59 AM

Quote:

Originally Posted by OnlyGerman

Lexus = Zero driving pleasure

Quote:

Originally Posted by Burrcold

Really not true at all...

Oh yes it is, they are

Burrcold · 01-01-2020, 08:11 AM

Quote:

Originally Posted by BigHunk

Oh yes it is, they are

Wow a video to prove your point? Sure...

OnlyGerman · 01-01-2020, 10:46 AM

Quote:

Originally Posted by Burrcold

Really not true at all...

Why don't you explain then

Burrcold · 01-01-2020, 11:09 AM

Quote:

Originally Posted by OnlyGerman

Why don't you explain then

Have you driven one? I've owned several. Along with several German brands. Each has their strengths and weaknesses. What model are you comparing? The IS is more nimble and has better steering. Is it as fast? No. It's 100% got character of its own. I presume by your screen name I'm not going to convince you, so I'll leave it at that. You have your opinion and I have mine. Although mine is from ownership of several models of Lexus, Audi, Infiniti, Acura, and now BMW to compare.

G35POPPEDMYCHERRY · 01-01-2020, 11:28 AM

every car maker has their niche and buyers or they would be bankrupt. arguing which is better is futile.

that said; that article is pretty low in analysis. with all the back end subsidizing it would require quite more homework like RS was alluding to; in order to draw a conclusion

OnlyGerman · 01-01-2020, 11:47 AM

Quote:

Originally Posted by Burrcold

Quote:

Originally Posted by OnlyGerman

Why don't you explain then

Have you driven one? I've owned several. Along with several German brands. Each has their strengths and weaknesses. What model are you comparing? The IS is more nimble and has better steering. Is it as fast? No. It's 100% got character of its own. I presume by your screen name I'm not going to convince you, so I'll leave it at that. You have your opinion and I have mine. Although mine is from ownership of several models of Lexus, Audi, Infiniti, Acura, and now BMW to compare.

Yes and have owned. Never again. All it is a pretty Toyota aimed towards elderly.

Socal_R8 · 01-01-2020, 02:06 PM

Reliability is one of the reasons....

I gave my 16 year old son my 2006 is250 and it has been pretty solid no major issues and currently has over 200k on her and drives almost as smooth as the day we got it.

Burrcold · 01-01-2020, 02:27 PM

Quote:

Originally Posted by OnlyGerman

Yes and have owned. Never again. All it is a pretty Toyota aimed towards elderly.

Okay cool.

premier3is · 01-01-2020, 02:31 PM

Quote:

Originally Posted by Burrcold

Quote:

Originally Posted by OnlyGerman

Yes and have owned. Never again. All it is a pretty Toyota aimed towards elderly.

Okay cool.

Can't change the mind of someone who's name is 'OnlyGerman' lol.

I was much more comfortable hitting tight corners in my IS than I am in the G20.

Burrcold · 01-01-2020, 02:37 PM

Quote:

Originally Posted by premier3is

Can't change the mind of someone who's name is 'OnlyGerman' lol.

I was much more comfortable hitting tight corners in my IS than I am in the G20.

Exactly lol. So far I love my M340i but if Lexus improved their tech and and some extra power, I wouldn't hesitate to get another one. I don't have much brand allegiance I go for what's most dynamic and to me that's the G20 right now. To say the IS is boring and for the elderly makes me think whether he's ever driven one let alone owned one.

premier3is · 01-01-2020, 02:43 PM

Quote:

Originally Posted by Burrcold

Quote:

Originally Posted by premier3is

Can't change the mind of someone who's name is 'OnlyGerman' lol.

I was much more comfortable hitting tight corners in my IS than I am in the G20.

Exactly lol. So far I love my M340i but if Lexus improved their tech and and some extra power, I wouldn't hesitate to get another one. I don't have much brand allegiance I go for what's most dynamic and to me that's the G20 right now. To say the IS is boring and for the elderly makes me think whether he's ever driven one let alone owned one.

Me you and EXE46 are all the same lol. No brand allegiance, as long as I enjoy the car and like it, I wouldn't hesitate either. But that's just words, the 4IS would have to be extraordinary for me to consider it now, the 3IS is ancient now and every year they barely made any changes to it since its inception.

But man, it really handled well. it was lower compared to the G20 but like I said I never had fear hitting those corners. And for its time and also today, the looks are incredibly sharp.

The G20 is a perfect balance of everything I need.

12-29-2019, 05:37 AM	#1
GenXer Major 1396 Rep 1,031 Posts Drives: Like a bat out of hell. Join Date: Apr 2019 Location: here and there iTrader: (0) Garage List 2017 Chevrolet Volt [0.00] 2020 Chevrolet Tahoe [0.00]	Why do people say Lexus vehicles have such good residual value? Am I reading this correctly? https://diminishedvalueofgeorgia.com...inished-value/ Also, how is BMW residual so high? Granted BMW financial probably inflated their leases but why aren't there an overabundance of BMWs? (OK maybe there are lots of 3 series on the lot) So where do these lease vehicles disappear to if their values are so high. I don't see that many on the lot at high prices. Does that mean BMW financial is subsidising both the front and back end with such generous incentives? If that's the case, how do they make a profit. Do they inflate the MSRP that much to compensate? So the real value of a new M3 might only cost $10K to build. Last edited by GenXer; 12-29-2019 at 05:46 AM..
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12-29-2019, 02:34 PM	#2
Flacht3 Not Enough Garage Space 1138 Rep 721 Posts Drives: STO /765LTS/ Macan Join Date: May 2016 Location: Yay Area iTrader: (0)	A lot to unpack here...Not an expert but IMO: 1// "diminishedvalueofgeorgia.com" probably shouldn't be construed as a leading subject matter expert, so take that info with a grain of salt. 2// Most auto dealerships don't make the bulk of their money on sales. They make it on the financing, add-ons, servicing and then profit margin on used car sales. 3// Noting the above, my take on BMW leases is that they're in the game of volume and scale. They make less profit per lease but enough profit to make it worthwhile and then volume makes up for it (last I checked, and could be wrong, BMW is leading sales volume in its class currently...aka beating Mercedes and the rest of them). This is how the dealer makes money. BMW corporate makes money by getting the dealers to buy as many cars as possible. 4//MSRP is of course "inflated" but not to that extent. A new M3 costs way more than $10k to produce, especially when you factor in the R&D, marketing, etc. which all go into the total cost. I'm no expert but on average BMW sells their cars at MSRP minus 7% to the dealer, so that 7% is the room for profit (before fees, financing, add-ons) the dealer can play with. I would guess it's "normal" for the car to cost 50% of MSRP to produce, but again you're probably looking at more overhead, R&D, etc. that needs to go into that. __________________
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12-29-2019, 03:16 PM	#3
chassis Colonel 8005 Rep 2,495 Posts Drives: 9Y0 Cayenne S Join Date: Mar 2019 Location: Einbahnstraße iTrader: (0) Garage List 2020 Porsche Cayenne S [7.69]	GenXer, what are your views on the questions you pose? - Lexus values are high, because there is demand for late model low mileage Lexus vehicles. I shopped Lexus before we bought the X3, and there was effectively zero Lexus inventory in my region, with 1-3 years of age and less than 20k miles. No supply = high demand = high value in comparison to alternatives. - BMW values might be high, I do not have experience with this. It is in BMW's interest to set high lease end residual values, because it lowers the monthly payment, which gets consumers to sign the lease. The residual value may, in fact, be higher than what the vehicle may be resold for after the lease terminates. This is a net present value story, where BMW is prioritizing up front cash flows (lease payments from the consumer) over what may, or may not, be a loss on the resale transaction in the future. This is all known, all knowable, and all predictable by BMW. - Is BMW "subsidizing"? If you like that word, then yes the lease transaction is being subsidized by BMW's setting of high lease end values. It is the method BMW chooses to extract value from the consumer' pocket. It gives the consumer a lower hurdle, the lease payment, to step over before signing the lease. - How does BMW make a profit? They make money during the lease term on the lease contract and on service and maintenance. They make money on fees, if any, at the start of the lease. When the lease term is finished, they make money on selling used vehicles, with or without financing for subsequent owners. Agreeing with Flacht3, BMW USA and dealers make profit on financing, commissions on financing, and on parts and service. The vehicle itself is simply the instrument by which they make the aforementioned profit.
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12-30-2019, 03:48 AM	#5
premier3is Major 1650 Rep 1,011 Posts Drives: 2019 BMW 330i M-Sport Join Date: Jul 2019 Location: CA iTrader: (0)	A lot was asked here. But here's my opinion. BMW probably has some sort of insurance to back up the losses they'll incurs because there is no way these lease returns are holding that 60% residual value or whatever it may be for your vehicle when you get it. They have high residuals which in turn get you in the car with a lower monthly. On the other hand, I came from the Lexus brand, had an IS200t F-sport which I leased in 2016 which had a 61% or 62% residual if I'm not mistaken. Upon lease return, these cars had NO where near the residual I got... they were worth well below that. My dealership was telling me Lexus has so many IS returns which they lose out on money that no dealerships were willing to buy the cars off Lexus Financial to get them on their lots. The returns were just getting sent off to auctions. So what happened, Lexus 'adjusted' their residuals so it was more beneficial to them. When I inquired about another IS the residuals were around 49% lol. Stupid low. The payments on a 45k car were nearly identical to a 50k 3 series. It was a no brainer to leave as the IS is highly outdated in many ways now, especially the tech and it lacks power.
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12-30-2019, 02:03 PM	#8
F32Fleet Lieutenant General 3905 Rep 10,604 Posts Drives: 2015 435i Join Date: May 2005 Location: Southeastern US iTrader: (0)	OP, Compare similar models between BMW and Lexus paying attention to the MSRP and depreciation over 5 yr period. I think you'll find the curve much steeper for BMW because of the higher purchase price. __________________ "Drive more, worry less. " 435i, MPPK, MPE, M-Sport Line
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12-30-2019, 02:22 PM	#9
OnlyGerman Major 379 Rep 1,310 Posts Drives: Too many German broads Join Date: Jul 2019 Location: Sunshine State iTrader: (0)	Lexus = Zero driving pleasure
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01-01-2020, 11:28 AM	#16
G35POPPEDMYCHERRY Banned 5006 Rep 4,135 Posts Drives: F80 Join Date: Dec 2015 Location: Philadelphia iTrader: (1)	every car maker has their niche and buyers or they would be bankrupt. arguing which is better is futile. that said; that article is pretty low in analysis. with all the back end subsidizing it would require quite more homework like RS was alluding to; in order to draw a conclusion
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01-01-2020, 02:06 PM	#18
Socal_R8 Major 2549 Rep 1,393 Posts Drives: 981CS/428/is250/JLU Rubicon Join Date: Jul 2017 Location: Center of the Universe iTrader: (1)	Reliability is one of the reasons.... I gave my 16 year old son my 2006 is250 and it has been pretty solid no major issues and currently has over 200k on her and drives almost as smooth as the day we got it.
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