Porsche Leasing

[RonaTD]

Hi All -

Sorry if this is something of a rant. Leasing my new Cayenne e-hybrid should be the obvious play, because you taxpayers would kick in $7500 for me. Turns out Porsche Financial Services USA takes so much out of you that it negates that advantage, particularly if you opt for a single payment lease.

Leasing calculations, despite all the obfuscation foisted on us by car dealers and finance companies and their partners at the state and federal regulatory agencies, should be pretty simple. The finance company is depreciating the car on a straight line from the purchase price to the residual value, so you just take the average of those two values and multiply that by the interest rate to get the amount of interest. Add the interest to the depreciation (purchase price minus residual) and that's how much your total payments should be.

In a single pay lease, you can just multiply the monthly lease payment amount by the term, which is what Porsche does. But, if you're at all educated about money, you ask, "Wait a minute, if I give you all that money up front, why should I pay interest on it?" Great question. Porsche's answer is, "Okay, we'll drop a few basis points off the interest rate." If you're a little more educated about money, you answer, "Well of course you should drop a bunch of basis points off the interest rate because you no longer have any credit risk. The interest rate you charge should be the same as a US treasury. And you're still charging me interest on money you received up front." To which they answer, "Yeah, too bad, that's how we do it."

Now, to make matters worse, suppose you have a trade-in or you want to throw in some money up front to reduce the interest amount. The trade-in and/or the up-front money are "capitalized cost reduction", meaning that the interest rate is multiplied by the average of (purchase price - cap cost reduction) and the residual. If your total cap cost reduction amount is the total amount of depreciation, then the interest should be based only on the residual. That's the same as a one-pay lease, in theory, and many (most?) finance companies do it that way. Porsche, on the other hand, says "Nein, we don't allow any cap cost reduction on a one-pay lease!" Which _also_ means that you don't get any sales tax benefit (5.9% here) on your trade-in.

Add in the lease fees and the required PSMP, and the $7500 EV credit goes "poof".

And the finance manager's only response is, "Porsche offers a really great money factor on the one-pay lease."

[dr bob]

With no direct knowledge of Porsche's leasing contract language...

-- Most states are hesitant to allow the trade-in to discount the purchase price they tax and register. They want to treat the trade-in dollars solely as a partial payment towards however you decide to pay for the car. In many states you pay an annual property and/or excise tax on your car, so that purchase value is important to them.

-- Based solely on your post language, I'm not sure the benefit of a single-payment lease to the dealer especially if the cost of money is discounted effectively to zero in your ideal situation. You and Porsche are gambling against each other on the depreciation. There's no upside for Porsche dealers if they can't cover a portion of that risk with points on the 'financing'. The instant sales commission on the car goes higher with the lease included, so the sales team has zero or less incentive to eliminate or even discount those points.

-- There are third-party leasing companies that might offer you better terms. Use care, as a true lease has a fixed residual value at lease end, which effectively eliminates their risk of getting stuck with a steeper depreciation curve than they predicted. They will happily charge you that shortage at termination, but won't give you anything if in fact the FMV is higher then.

-- In the end, no financing offer will include the possibility of them losing money. How they cover their risk varies but not by a lot. 'Pay me now, pay me later' has never been more true than in negotiating financing.


Good luck with your purchase, end enjoy the new Cayenne!

[RonaTD]

-- Most states are hesitant to allow the trade-in to discount the purchase price they tax and register. They want to treat the trade-in dollars solely as a partial payment towards however you decide to pay for the car. In many states you pay an annual property and/or excise tax on your car, so that purchase value is important to them.

In Wisconsin the trade-in amount directly reduces the taxable amount of the transaction, and there's no subsequent excise tax.

Understood about the assumption of residual risk, but they pick the residual value and they charge a lease acquisition fee, so my perspective is that's where they cover that risk.

[blueline]

If referring to straight, non-lease purchases, as of 2017, 41 states allowed trade tax breaks, taxing only the difference between the trade-in allowance and the new vehicle selling price. However, it appears that number is now up to 47 states charging tax only on the difference, with MI capping the tax break at $10k and OH allowing the tax break only for new vehicle purchases. Best I can tell, CA, HI & VA are the only remaining holdouts.

Buying a $150k vehicle while receiving a trade allowance of $100k against that price results in a taxable amount of $50k. With auto purchase tax rates ranging from 5% to over 11%, that's a sizeable savings.

Regarding Leasing/Fleecing, it will always be an option, especially for payment-conscious-only customers, albeit one fraught with gray areas, complexity, risk and (usually) greater costs. That's especially true if not fluent in the many different and arcane methods used by the lessors.

[Stormy_Monday]

When we picked up the 718 GTS two years ago, the dealer's finance guy was really pushing leasing. Must have a profitable item for them. We already have the financing we needed.