BMW - $372M hit for rapid depreciation and defaults in leased cars!

Teknik submitted on 04/26/2008 Official Bell & Ross Timestamp: 4:14 PM
from: www.bloomberg.com

[54] user comments | category: Misc News

Tags: BMW Lease Depreciation

BMW Lease Depreciation

Bayerische Motoren Werke AG, the world's largest maker of luxury cars, will book a 236 million-Euro ($370 million) charge after the weaker U.S. economy hurt the resale value of new autos it sells under lease agreements. Read Article

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Vendetta - 4/26/2008 4:23:23 PM

+7 Boost

Cheap leases = Overinflated sales numbers

Typical BMW owner = Shallow image conscious consumer

Shallow image conscious consumer = Poor judgment

Poor judgment = Default lease payments and high debt

Default lease payment and high debt = $372M hit for BMW

I'd advice EL34's mom not to lease his toy cars from Wal-Mart anymore.

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IamEvilHomer - 4/26/2008 4:50:05 PM

+8 Boost

bmw is spending 20-25 k per lease to pump up 7 series sales alone

the US is BMW's largest market. If this market failed for them they would have major issues. Same with MB

TataPower - 4/26/2008 5:03:47 PM

+5 Boost

Well said, Vendetta. Cheap leases are what's keeping BMW afloat in the recent years. What appears to be pretty sales numbers will eventually come back to bite them when they have to reap what they sow..

EnnNorak - 4/26/2008 6:17:20 PM

+8 Boost

Same thing is happening in Canada, although more because of the much appreciated Canadian dollar today. I am walking away from an Audi A6 lease because the wholesale value is about $8K less than the residual value after 4 years.

daytonaviolet - 4/26/2008 8:00:17 PM

-2 Boost

re nicehomey:

It's so interesting that you call BMW a badgewhore company when they have sold cars under the same name for almost a century now. They've never had to change there name for marketing reasons ala lexus, infiniti or acura.

enthusiastx11 - 4/26/2008 11:14:46 PM

-1 Boost

what are you talking about? do you understand the issue?

the US economy is weak. demand for pre-owned luxury cars is down. resale values fall. bmw revenue goes down.

hate to break it to you, but this is an issue that EVERY car maker is facing right now.

enthusiastx11 - 4/26/2008 11:16:17 PM

-1 Boost

and do you any of you understand how stupid your comments are? BMW is one of the MOST PROFITABLE automakers on the planet.

great product and great residual values is what makes leases a good deal. it's basic math.

BigShow50 - 4/26/2008 5:19:03 PM

+1 Boost

LMAO!!!...Great cars and love them all!...but with crappy non-profit projected numbers, don't really show too much true success. This is a wake up call for BMW...it's all about balance!!! They obviously got carried away, and can't seem to stop. Greed will be a killer in the long run for them. On another note EL34's comments, continues to be as good as "tits on a boar!"...LOL!!!

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autopro - 4/26/2008 5:38:29 PMView My AgentSpace

-4 Boost

They have been buying business,and still getting their asses kicked by Lexus.

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Agent001 - 4/26/2008 5:49:37 PMView My AgentSpace

+6 Boost

So if that's the case, then the future of driver oriented cars days are numbered?

You shouldn't sound so happy about that!

001

LexusLion - 4/26/2008 6:00:55 PM

+7 Boost

Most people don't buy a BMW for the driving, they buy them for the badge/emblem and as a status symbol.

mscottc1 - 4/26/2008 6:17:12 PM

+3 Boost

Define "most people". I interject that you are DEAD wrong. 001 is right on the money here, and it should be a really scary thing for all of those of us who are true enthusiasts. Even for those who aren't BMW lovers, you'd be a fool to not give credit to them for dragging other automakers into the fray of making "real" drivers' cars (or at least trying to). And that's not to mention the countless technological innovations (I'm referring to the good ones here, not the horrible older versions of iDrive & active steering).

BMW's severe losses = bad news for all of us in this marketplace.

ghosthunter - 4/26/2008 6:25:53 PM

+5 Boost

there's a lot of "driver oriented cars" at BMW 328/325 price. EVO, STI for instance. hell. even a GTI is more of a driver oriented car than a 325.

i respect people who get M cars, or 335, but i laugh when i see people get 325/328 can claim their car is a 'sport' car.

Vendetta - 4/26/2008 6:44:56 PM

+3 Boost

No, the future of driver oriented cars is just fine.

Ever heard of a companies called Lamborghini, Ferrari, Aston Martin, Maserati, Alfa Romeo, Lotus, TVR, Noble, Porsche, Infiniti, Audi, Mazda, Nissan, Subaru, or Mitsubishi?

enthusiastx11 - 4/26/2008 11:18:15 PM

-3 Boost

really autopro? bmw is very profitable. got any profit numbers on lexus? oh, that's right, toyota doesn't disclose profit on lexus. wonder why....

enthusiastx11 - 4/26/2008 11:19:44 PM

-6 Boost

lexuslion: you're confused. lexus is bought for the badge...it's just a toyota underneath.

a bmw isn't posing as anything. it's just a great handling, wonderfully fun to drive car with a great engine. jealous? ; )

LexusLion - 4/27/2008 3:08:16 AM

-1 Boost

mscottc1: "I love ironic statements such as "Most people don't buy a BMW for the driving, they buy them for the badge/emblem and as a status symbol" by6 some one with Lexus in their name."

If I wanted to buy a car for the badge/emblem and as a status symbol or for image, I probably would have bought a BMW or a Mercedes-Benz since those two are pretty much the default choices for people trying to make a statement. I used to be a big fan of European cars. My first car was an '84 Audi 5000S... my first and only European car...so far. I'm not ruling another one out... European cars are nice, don't get me wrong, I just prefer something different.

I chose to go with a Lexus mainly because of their superior and legendary quality, the classic, timeless design (of the SC) and because Lexus is kind of the underdog and a relative newcomer to the luxury and now performance classes.

---

enthusiastx11: "lexuslion: you're confused. lexus is bought for the badge...it's just a toyota underneath.

a bmw isn't posing as anything. it's just a great handling, wonderfully fun to drive car with a great engine. jealous? ; )"

A Lexus isn't posing as anything other than a great and refined automobile. Of course Lexus is made by Toyota. Do you think Lexus owners are somehow ashamed of Toyota and legendary Toyota's, such as the Supra, Soarer (SC), etc.? Do you think I mind if you call my old Lexus SC 400 a Toyota Soarer or even a Toyota Supra. I actually prefer to think of it as a Toyota Soarer for various reasons: they came with optional twin turbos and had advanced electronics and technology, etc.; ironically a lot of Soarer owners prefer Lexus SC or Lexus Soare (everyone wants what they can't have). I prefer either Lexus or Toyota, or hell, even Scion if you really want. Just, please, don't call my car a Toyota Supra!!! I can't believe the SC is related to that beast... that legendary beast... I'm so ashamed. ;o) The new Lexus Supra (;-P LF-A) is coming... Let's talk about jealousy now: the baddest, fastest and most expensive Lexus ever that some drivers are trying their best to contain but the new beast cannot be stopped... in its final testing phase now and will be tested at Le Mans soon and being refined and perfected... why perfected? Because it's a Lexus. Expect nothing less than perfection. But I guess for some drivers they're just satisfied their cars start...sometimes...LOL :-)

stash84 - 4/27/2008 12:40:04 PM

+5 Boost

i agree with LexusLion..but there are also people out there that buy/lease them for driving pleasure

amazinBimmer - 4/26/2008 6:26:22 PM

+2 Boost

more idiots.. looks like more audi (vw drivers with P*nis envy).

if you are not aware with what is going on in the personal credit markets you are foolish. MB and every other auto company will take these charges. Short story is that there will be huge writedowns (small relative to banking) as the consumer credit markets dry up.
but why would i epxect high school drop outs to know that?

vendetta, whcih Mcdonalds do you flip at?

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Teknik - 4/26/2008 6:30:42 PM

+2 Boost

Go back to school little kid, and get back to me when the BMW's you buy aren't from the Wal-Mart toy section.

Vendetta - 4/26/2008 6:37:41 PM

0 Boost

Why?

Did you lose your job at your current McDonalds position? Sorry, I guess you will have to work at Taco Bell or Wendy's now.

High-school dropouts like yourself are exactly the poseurs who get into cheap BMW leases, and now it has backlashed.

S4cabriofoxone - 4/27/2008 2:36:19 PMView My AgentSpace

0 Boost

"more idiots.. looks like more audi (vw drivers with P*nis envy)."

I don't understand how you could constantly call Audi models "cheap" when they are, month-to-month, more expensive to lease than their BMW competition. I personally don't lease my cars, but I'm sure you do, and you probably couldn't afford an Audi lease if you wanted to get one.

PerformanceGuy - 4/26/2008 6:27:05 PM

+5 Boost

Not really surprised that this is happening. Cars like the G37 and new A5/S5 are out shining their volume selling 3 series.

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theoptimisticpessimist - 4/26/2008 7:13:28 PM

-3 Boost

Look at the number and review there not.

theoptimisticpessimist - 4/26/2008 7:23:12 PM

+3 Boost

Boy this article is just a "love fest" for BMW haters.

The title is inflammatory and misleading, nowhere in the article does it mention "rapid depreciation". it does say;

I love ironic statements such as "Most people don't buy a BMW for the driving, they buy them for the badge/emblem and as a status symbol" by6 some one with Lexus in their name.

I'm waiting for the other manufacture to follow BMW on this, don't worry they will.

"The charge, to be booked in the first quarter, takes into account an increased risk provision for lease vehicles and a higher level of bad debts and payment arrears, Munich-based BMW said in a statement today. The company reiterated that it still plans to boost pretax profit this year."

I'm waiting for the other manufacture to follow BMW on this, don't worry they will.

Go on hating as much as you want BMW still is making money and to quote Bloomgerg, "the world's largest maker of luxury cars"

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NItePhire - 4/26/2008 7:44:01 PM

-1 Boost

Anyone have any idea who leases out the most cars every year? Maybe the top five?

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cdoke - 4/26/2008 9:14:17 PMView My AgentSpace

+2 Boost

Well, the only information I can find is from leasecompare.com and it is this:

Most Popular Leased Cars

The following vehicles received the most new car lease inquiries:

1. BMW 325 Series
2. BMW 330 Series
3. Chevrolet Corvette
4. BMW 5 Series
5. Infiniti G35
6. Acura TL
7. Honda Accord
8. Honda Odyssey
9. Mercedes-Benz E-Class
10. Porsche 911 Carrera

I am not entirely sure on the date on this- the other reports for this statistic are for a quarter,a nd they don't way which it is.

Porschinator - 4/29/2008 1:37:20 PM

0 Boost

That list just proves that people want BMWs and must lease to afford it.

daytonaviolet - 4/26/2008 7:56:50 PM

-2 Boost

It appears that amazinBimmer and I are the only ones that actually read the entire article.

The article does not say anything about BMW losing money overall, it states that they are losing lots of money on lease end values. And this will happen across the board when the economy slows down. It does mean that they are losing money overall.

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mac075 - 4/26/2008 9:20:54 PM

-2 Boost

"...get into cheap BMW leases...."

WHERE? Find me a cheap BMW lease please!!! Everything I've looked at is t least $500/month. How is that cheap?

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ghosthunter - 4/27/2008 3:56:40 AM

+3 Boost

328 is about 350 dollar per month here at so cal.

BMW4me4ever - 4/28/2008 10:18:59 AMView My AgentSpace

0 Boost

plus tax ... ifyou roll all the money down into the lease and the applicable taxes, then I dont know of a BMW that one could get into for $350 a month. No matter where you live.

gsh23 - 4/26/2008 9:42:21 PM

+2 Boost

this is awesome for someone looking for a pre-owned BMW.

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no1listensanyway - 4/26/2008 9:48:42 PM

+2 Boost

Leasing is awesome, if you do not drive much. You can got a hot car at cheap price, your not liable for any mechanical/warranty issues. I pay an extra 10 a month on my lease for 5,000 worth of scratches dents and any blemishes on the car when i return it. The best part is that I can drive a new car every two years. If you do not need the excessive miles, leasing is a no brainer.

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DiamondJim - 4/27/2008 9:41:28 PM

+2 Boost

i like that $10 clause ;-)

kablaam - 4/27/2008 12:08:32 AM

+3 Boost

"Buy what appreciates, rent what depreciates"

If you have an oz. of financial sense, it is one of the cardinal rules.

Why would anyone want to own a depreciating asset? I'll take that extra money and put it into my IRA, thanx.

Plus you lessen your tax liability :-)

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MeanVulcan - 4/28/2008 12:56:28 PM

+3 Boost

Easy. Not everyone buys a car as an investment.

In line with your logic why do people smoke, drink, eat fast food, are sleep deprived, etc, etc, if it does not make any sense or has any type of benefit? the answer is simple, and it applies to car buying... the experience enhances the senses. If all the choices we made were logic, we might as well be boring robots.

I, personally, have no problem with making an emotional decision if I can afford to deal with depreciation. It does not mean my IQ is 40, it simply means that I choose not to be controlled only by logic, there is simply more to life than saving money, there is enjoyment and happiness. Some people choose to use logic and some do not. Actually many of those that choose emotion can actually afford to "loose" money on their investment and are more successful than the ones that choose logic. Otherwise how can you explain all those rich people that buy Ferraris, Lamborghinis, Aston Martins, etc.

This is one of the main reasons I choose to stay out of most of this forums' posts. The discussions are simply dumb (to put it mildly) when each side tries to convince the others that their choices are wrong. I can almost guarantee that 95% of people here do not switch loyalties because they were convinced to do so in this forum. So why bother arguing (as opposed to discussing) stupidly about which car is better?

kablaam - 4/29/2008 1:40:56 PM

+1 Boost

<Easy. Not everyone buys a car as an investment.>

Exactly....

<In line with your logic why do people smoke, drink, eat fast food, are sleep deprived, etc, etc, if it does not make any sense or has any type of benefit? >

What does consuming vices have anything to do with purchasing/renting?

<the answer is simple, and it applies to car buying... the experience enhances the senses. If all the choices we made were logic, we might as well be boring robots.>

So, if you lease a vehicle you do not get the benefit of it? When you lease a vehicle, you are paying for it's depreciation over the lease term(rent charge, plus some finance fees). If you look at a purchased vehicle and a leased vehicle over the lease/finance term, the majority of the time you will come out on top(not including any tax benefits) with the lease route. Now if you look past 6 years or so, you will start to reap the benefits of purchasing as depreciation starts to diminish. Personally I have never kept a car past warranty, that is my personal decision, neither right nor wrong.

<I, personally, have no problem with making an emotional decision if I can afford to deal with depreciation. It does not mean my IQ is 40, it simply means that I choose not to be controlled only by logic, there is simply more to life than saving money, there is enjoyment and happiness. Some people choose to use logic and some do not. Actually many of those that choose emotion can actually afford to "loose" money on their investment and are more successful than the ones that choose logic. >

Those who make financial decisions on emotion are doomed to fail.

<Otherwise how can you explain all those rich people that buy Ferraris, Lamborghinis, Aston Martins, etc.>

Through personal experience, most of the truly rich gentlemen(100m+) that I have come in contact with do not buy Ferraris, Lamborginis, Aston Martins etc. It's usually the people whom have a networth of 1-10 million who want to impress total strangers that do.

amazinBimmer - 4/27/2008 10:02:02 AM

0 Boost

vendetta, how do you enjoy the evening GED catch up sessions you are currently attending.

again, provide email, will send you a copy of my cars and wharton MBA degree...

so answer.. what do you drive, what do you do, and where did you go to school, schmuck!

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S4cabriofoxone - 4/27/2008 2:37:18 PMView My AgentSpace

0 Boost

amazinBimmer, how about putting up an AgentSpace and showing us pictures of your 318is? I'm going to put mine up later today.

TauronB2G - 4/27/2008 12:20:27 PM

+1 Boost

I'll tell you. I am not the biggest fan of the current BMW line up. But I also think they make good cars with great engines. I think the lease rates have been artificially low in the name of high sales numbers and that needs to be corrected. That combined with numerous engine swaps and mild restyles have created a market where they are always clearing out inventories of their cars. This process lowers resale value. I know for me it would be a hard choice to buy a previously owned german car with 30 or 40 thousand miles and little warranty left. I would be scared of the mainainence costs. I would have to negotiate down. Funny thing is thats one of the reasons people lease cars. They can't afford to keep them running in the long term so why not lease it, abuse it and then get another one in two or three years.
T

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huu76 - 4/27/2008 2:33:47 PM

+3 Boost

That's what happens when your existence is based on FOB leases to people who have no money.

I guess BMW offering 1% financing on used cars wasn't out of the goodness of their hearts.

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_43LE - 4/27/2008 10:30:28 PM

+6 Boost

What does EL34 usually say in times like this, something like tangled webs and being deceiving? But he won't, this time it's about BMW, that's why.

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farabira1 - 4/28/2008 1:35:44 AM

+1 Boost

Yeah i'll agree with the comment made earlier, No matter how irritating BMW fanboys may be, BMW is the only luxury car company that was pushing the envelope about 5-7 years ago to stay true to their performance heritage, when reliable and luxury cars(Lexus, MB) were selling in lots and was threatening to become the norm for luxury automakers: just create a reliable and good looking luxury car, don't even bother about performance, and you'll sell them by millions. But with time, the passing of that old generation gave rise to the new young professionals who had a sight for performance, and slowly but surely BMW and it's unbreakable vow to make the ultimate driving machine gained great popularity and acceptance. It is because of this insistence on performance by BMW that companies like Infiniti had to radically revamp their lineup and effort to start making cars that are true to a driver's spirit. Soon Lexus, Audi, and Mercedes Benz followed. And it is still the innovations of BMW motors and their efforts to make their car's even more supreme that we have car's that are probably the best of the lot in the last couple decades. I may not like BMW very much, but i have to say the truth, and BMW is the only company that can show us to the future of driving pleasure(not considering niche players like ferrari), and a loss to them will not be good news for enthusiasts.

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BMW4me4ever - 4/28/2008 10:28:56 AMView My AgentSpace

+2 Boost

I agree with you . Here is the thing. BMW is not the only player that is going to be taking a hit like this. Lexus will, Mercedes will, Infiniti, Acura already is, Audi will ... They all will. The economy is low right now and people are downsizing their cars more than getting into the luxury car segment. Lexus has really good leases on the RX, ES models. Those models account for about 70% of the vehilces lexus sells per month. Audi has made the 2.0t A4 and the 3.2 leases very attractive due to a restyling. Right now, the only truly superb lease that BMW has going on is the 7-series & that is mostly due to a new body style due to arrive. What you see advertised, read the fine print, is $350 a month with $2500 down + taxes. You roll that in and you are at $450 a month for a base 328. put options on it and you are at $600 a month. Most of the 3-series sold in the US price out at $40k to $50k. BWM sells more 335 sedans, 328 coupes, 335 coupes, & 3-series conv, than they sell base model 328's. Try and lease a 335 or 328 coupe for under $600 a month. not going to happen ......

people on here kill me

bimmer - 4/28/2008 1:14:23 PMView My AgentSpace

+1 Boost

@farabira1

Finally.... someone with straight thoughts... +1

vladyxa - 4/28/2008 1:00:28 PM

+1 Boost

LOL! This article should be called "BMW Haters - Unite!"

So what that BMW records 372M hit?

That is at times when many companies record write-offs of billions. So, I say 372M is not too bad.

Every manufacture will be hit with similar type of losses and write-offs, whether they call it "rapid depreciation", "defaults", or anything else.

LOL at all financial geniouses on this site.

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TheBoss - 4/28/2008 1:14:38 PM

0 Boost

Economies got nothing to do with poor BMW sales. BMW head hunchoes already said that bad economy only effects poor people, not people who shop in BMW price ranges. It's the same with this high gas price thing, rich people ain't gonna start selling their premium fuel guzzling SUVs and luxury cars due to high gasoline price, only poor people are effected by this.

BMW poor sales is a classic case of people waking up to the reality that they've been dooped. Why would so many people break lease deals when the deals are already so good? It's cheaper to lease a 3series than a loaded camry. People finally woke up and realize the cars underperfomed relative to what BMW ads claim. Badge whores are also realizing that BMW cache just ain't good enough. Nobody seem to care that one drives a BMW anymore. Women ain't throwin booties your way just cause you got a BMW. The initial thrill of owning an overpriced and underperforming big name euro car was cool to the uninitiated, but for those who actually owned it quickly realize how over rated it is. In the end, many chose to dump the POS and now BMW in trouble.

Has anyone looked at the price of a certified pre-own BMW? It's only a few grand less than brand new, there's the other half of the problem.

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Dr550 - 4/28/2008 5:40:29 PM

+1 Boost

Boss, you need therapy. The vast majority of BMW, Lexus, Infiniti, Benz, etc. owners buy and are loyal to auto makers for different reasons. That is what you need to understand. You are in the "denial" stage. Get help.

BMW4me4ever - 4/28/2008 6:06:20 PMView My AgentSpace

+1 Boost

The Boss - I believe is Gobama or michael taylor in disguise. They love to hear themselves talk about nothing. At least we may all get a good laugh.

Porschinator - 4/29/2008 1:35:38 PM

+1 Boost

So everyone that buys a BMW just wants the badge and status symbol?!? BS!!! So tell me will you drive a used Hyundai just so you are not classified as a badge Whore? I sure as hell would not.

The majority of my friends with BMWs love the Driving feel and performance of the BMW auto. As well as having a nice car. The badge whore comments are retarded. If I can afford a nice car then I will buy one.

The Boss is obviously a Lexus fan boy. All auto companies have their ups and downs. It is the way of the business.

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huu76 - 4/29/2008 10:40:55 PM

+1 Boost

Profit growth at BMW has been stagnant for 2 years now (remember one time sales of parts of Rolls Royce to pad the bottom line?), so finally seeing pretenders having their cars repo'd is no surprise.

BMW sure stayed true to their roots alright by offering their brand on ever cheaper cars to help enhance their "uniqueness".

What BMW needs to do is invent new, cheape car categories that nobody asked for (i.e. sports activity sub-compact), or they can continue on the strategy of cannibalizing their own sales.

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