[SkepTeach]

Hi everyone,

I recently leased a 2017 Volt and a 2017 BMW i3. In the case of the Volt, only around $4600 "lease cash" was allowed to be applied, but with the i3, the full $7500 was applied. I was just reading a bit about that tax credit system and it seems that the idea is that it will apply only to a certain number of cars a manufacturer sells. I'm wondering, and maybe hoping a little too naively, that GM is only passing along a certain portion of the credit in hopes of being able to reserve some in order to sell more of its qualifying vehicles for a longer duration. BMW, for what it's worth, doesn't seem to have that mindset.

So for anyone who's more in the know, how far off base am I?

 

[viking79]

The i3 didn't give full amount first year. My guess is they are probably seeing what people will go for, demand for the first year might be higer than supply. Might hold price up for a while.

 

[Joe67]

Hi everyone,

I recently leased a 2017 Volt and a 2017 BMW i3. In the case of the Volt, only around $4600 "lease cash" was allowed to be applied, but with the i3, the full $7500 was applied. I was just reading a bit about that tax credit system and it seems that the idea is that it will apply only to a certain number of cars a manufacturer sells. I'm wondering, and maybe hoping a little too naively, that GM is only passing along a certain portion of the credit in hopes of being able to reserve some in order to sell more of its qualifying vehicles for a longer duration. BMW, for what it's worth, doesn't seem to have that mindset.

So for anyone who's more in the know, how far off base am I?

it isn't GM, it is the company financing your lease.

 

[SkepTeach]

it isn't GM, it is the company financing your lease.

Granted, but I seem to remember when I was negotiating for the Volt, I found a website from GM that specified how much lease CCR was available for each model. That would suggest that GM sets the terms, the financing company just funds the deal.

 

[Bacardi]

I've said this before and said it again, this parrots many others, they feel "entitled" to the full federal tax credit amount (not a bad thing).

A lease consists of many different part, the "full tax credit" is an incentive...GM choose a reduced incentive but offers many other parts which makes the Volt attractive. Low MF (interest; I believe it's still .94%), they pay your first lease payment which is particularly attractive for $0 down offers and even the things like you only need a 620 fico score to qualify...

Point being, GM could and I do believe they should raise the incentive to $7500, remove the complimentary payment and jack up the MF...Either way they could end up with the exact same down payment and monthly payment...

 

[SkepTeach]

I've said this before and said it again, this parrots many others, they feel "entitled" to the full federal tax credit amount (not a bad thing).

A lease consists of many different part, the "full tax credit" is an incentive...GM choose a reduced incentive but offers many other parts which makes the Volt attractive. Low MF (interest; I believe it's still .94%), they pay your first lease payment which is particularly attractive for $0 down offers and even the things like you only need a 620 fico score to qualify...

Point being, GM could and I do believe they should raise the incentive to $7500, remove the complimentary payment and jack up the MF...Either way they could end up with the exact same down payment and monthly payment...

Interesting. I did get a much lower MF on the Volt lease than the i3, but they certainly didn't offer to pick up my first payment! I made it before leaving the dealership, just as I did with BMW.

 

[Joe67]

Granted, but I seem to remember when I was negotiating for the Volt, I found a website from GM that specified how much lease CCR was available for each model. That would suggest that GM sets the terms, the financing company just funds the deal.

While that may be possible, I doubt GM has much of a say at all in that. Seems that is more between the leasing company and the Federal government.

 

[acarney]

Yep, they certainly didn't offer to make my first lease payment and actually made it VERY clear that even if I kept asking for zero out of pocket at signing I would be making a payment for the first month so it would never be zero drive off. In fact, they tried to get me to roll a lot of the fee's into the drive off amount since I was going to have to make a payment anyway.

The thing I don't like about this is that the incentive isn't there just as a nice "you're special" kinda of thing. It's there to get people to buy these cars (or be able to afford to buy them) and get them on the road. The government (or at least the people that backed the federal rebate) wanted as many EV's on the road replacing gas burners as possible and this was a way to promote that/make it cost effective for buyers. With GM or the finance company taking a chunk of that it waters down the exact reason this incentive was put in place by the government. Just look at the states that have carbon limits and require manufactures to sell a certain amount of EV's, there are huge dealer discounts ($4000+) and state level rebates and etc etc. A lot of other states "Oh, it's at invoice, we're not making any money on this car... take it or leave it."

It honestly should have been a direct sales price reduction that was the same for lease or buy. I would have only qualified based on my income and existing tax benefits to collect about $4600 of the rebate, so for me lease/buy was a wash so I went with the lease. However, if they had knocked the price $7,500 off the sales price (or lease), I probably would have gone for buying, and really, if they're "paying out" the $7,500 to the finance company, the government is kinda getting screwed over here since they would have only "lost" ~$4600 in my case because that's all that I would have saved in not paying taxes. GM/Finance company probably loves this little trick and if anyone at the government level actually wanted to take the time to look at the efficiency of this, leases are probably on average costing them MORE in lost tax revenue then if they were dealing directly with the person taking delivery of the car.

It's not set up well to get as many cars on the road as possible, or to be as efficient as possible (in the sense of costing the least in lost tax revenue).

Edit: Also, the MF would have to be INSANE to make up that extra ~$2,900 tax credit amount. Especially because if all $7,500 applied as a CCR then the MF would apply to a smaller capital and thus be lower to begin with.

 

[DonC]

So for anyone who's more in the know, how far off base am I?

More than likely very far off base. The federal tax credit is available only once, so it applies to the life of the car. You can calculate this in one of two ways. First, the most straightforward, is to simply take the credit off the purchase price and then -- this is the tricky part -- to calculate the residual using MSRP minus the credit. The second way is to calculate the residual based on the MSRP and to then use part of the credit as lease cash (cap reduction) or to inflate the residual.

The way you do this doesn't change the monthly payments. For example, if a car lists for $37,500, then, if you subtract the $7500 credit, the residual (50%) would be $15,000. Payments for depreciation over 36 months would be $416.66 (($30,000 - $15,000)/36). If you simply calculate the residual based on MSRP without considering the tax credit, then the residual would be higher at $18,750. In this case the depreciation payment would be $520.83/month (($37,500 - $18,750)/36). However, you'd have $3750 in lease cash which is $104.17/month, which would bring your payment down to .... $416.66.

I've used the following example that might make the concept clearer. Imagine you and your brother are buying the Volt. He's in the service and going to be be stationed abroad for three years. So you agree you'll buy the car together, you'll use it for the first three years, and he'll get it afterwards. How do you split the tax credit?

With GM or the finance company taking a chunk of that it waters down the exact reason this incentive was put in place by the government.

Think more globally. If it worked as you're suggesting the lessor would just lower the residual. The point you're missing is that the lessor is buying the car. It's their car. You're only leasing it for three years. At the end of those three years the lessor doesn't want a car whose lease payments and FMV end up being less than it paid for the car in the first place. So the tax credit is apportioned between the lessor and the lessee and ends up creating leases with lower monthly payments, which gets more cars on the road.

 

[Charge]

Don't forget BMW changes their residual values every month. This alone can change the monthly payment in a big way. My 2016 X5 had a residual of 60% in August when I leased it and the 2017 had a residual of 57%! BMW also tweaks the lease cash each and every month on the 40e - it's gone from zero to $5K to $3500 to $3K and everywhere else. The credit amounts to around $4600 on the X5 40e but I considered the $3500 lease cash good enough with the pumped up residual. They also have options credits that change every month - they are the masters of the lease.

GM seems to have raised the residual on the Bolt to 60% from 50% and I assume that makes up for not getting the entire $7500 credit. Maybe they are doing the same thing on the Volt?

There are many, many ways to discount leases and it gets even more confusing as to where the discount money is coming from with the EV incentives.

 

[Bacardi]

Don't forget BMW changes their residual values every month. This alone can change the monthly payment in a big way. My 2016 X5 had a residual of 60% in August when I leased it and the 2017 had a residual of 57%! BMW also tweaks the lease cash each and every month on the 40e - it's gone from zero to $5K to $3500 to $3K and everywhere else. The credit amounts to around $4600 on the X5 40e but I considered the $3500 lease cash good enough with the pumped up residual. They also have options credits that change every month - they are the masters of the lease.

GM seems to have raised the residual on the Bolt to 60% from 50% and I assume that makes up for not getting the entire $7500 credit. Maybe they are doing the same thing on the Volt?

There are many, many ways to discount leases and it gets even more confusing as to where the discount money is coming from with the EV incentives.

Would appear zero Bolts will be delivered in November, whenever the new month starts (some automakers wait until the first Monday vs the 1st) there could be new Bolt lease numbers...We haven't heard a peep about a "$XXX per month with $XXXX due at signing!"

 

[Bacardi]

they certainly didn't offer to pick up my first payment!

Yep, they certainly didn't offer to make my first lease payment and actually made it VERY clear that even if I kept asking for zero out of pocket

Check your lease long sheets, see if it states 35 or 36...

The thing I don't like about this is that the incentive isn't there just as a nice "you're special" kinda of thing. It's there to get people to buy these cars (or be able to afford to buy them) and get them on the road. The government (or at least the people that backed the federal rebate) wanted as many EV's on the road replacing gas burners as possible and this was a way to promote that/make it cost effective for buyers. With GM or the finance company taking a chunk of that it waters down the exact reason this incentive was put in place by the government. Just look at the states that have carbon limits and require manufactures to sell a certain amount of EV's, there are huge dealer discounts ($4000+) and state level rebates and etc etc. A lot of other states "Oh, it's at invoice, we're not making any money on this car... take it or leave it."

It honestly should have been a direct sales price reduction that was the same for lease or buy. I would have only qualified based on my income and existing tax benefits to collect about $4600 of the rebate, so for me lease/buy was a wash so I went with the lease. However, if they had knocked the price $7,500 off the sales price (or lease), I probably would have gone for buying, and really, if they're "paying out" the $7,500 to the finance company, the government is kinda getting screwed over here since they would have only "lost" ~$4600 in my case because that's all that I would have saved in not paying taxes. GM/Finance company probably loves this little trick and if anyone at the government level actually wanted to take the time to look at the efficiency of this, leases are probably on average costing them MORE in lost tax revenue then if they were dealing directly with the person taking delivery of the car.

It's not set up well to get as many cars on the road as possible, or to be as efficient as possible (in the sense of costing the least in lost tax revenue).

Most automakers and the cruise industry are notorious for having inflated MSRPs and change their incentives often...Theory is exposure; constant changes gives you a reason to advertise...With that being said, the average salesmen hopes you have no idea there's any incentives at all...

Edit: Also, the MF would have to be INSANE to make up that extra ~$2,900 tax credit amount. Especially because if all $7,500 applied as a CCR then the MF would apply to a smaller capital and thus be lower to begin with.

Yes but they could also adjust the residual...

 

[acarney]

The way you do this doesn't change the monthly payments. For example, if a car lists for $37,500, then, if you subtract the $7500 credit, the residual (50%) would be $15,000. Payments for depreciation over 36 months would be $416.66 (($30,000 - $15,000)/36). If you simply calculate the residual based on MSRP without considering the tax credit, then the residual would be higher at $18,750. In this case the depreciation payment would be $520.83/month (($37,500 - $18,750)/36). However, you'd have $3750 in lease cash which is $104.17/month, which would bring your payment down to .... $416.66.

I don't think that's correct... from how I understand the way you figure out a lease by hand is this...

MSRP: $34,000
Residual: 50%
Money Factor: 0.00040

To figure out depreciation you take selling price of the car - the residual divided by the total months of the lease.

To figure out finance charge you take Capitalized Cost of the car (the amount financed) + the residual all multiplied by the money factor.

In this example the dealer is an ass and won't budge at all from the MSRP. Chevy doesn't offer any rebates and you are broke and don't have any money to pay as down payment.

Full Tax Credit of $7,500 being passed onto the buyer...

Selling price of $26,500 ($34,000 - $7,500 fed tax credit) with a 50% residual leaves the residual at $13,250. Lease terms are 36 months so the monthly payment to just cover their "loss" from depreciation is $368.05 a month (13,250/36)

Finance charge is capitalized cost of $39,750 ($26,500 + $13,250) times the money factor of 0.00040 which equals $15.90/month.

No with no other fees or taxes the total cost per month for the car (which covers the loss in value and the charge to loan you the money) is $383.95/month. Total cost over 36 months is $13,822.20 (ya, the finance company only makes $572.20 off this deal)

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

Now with $4,600 of the federal tax credit and the rest going to the finance company.

Selling price of $29,400 ($34,000 - $4,600 fed tax credit) with a 50% residual leaves the residual at $14,700. Lease terms are 36 months so the monthly payment to just cover their "loss" from depreciation is $408.34 a month (14,700/36).

Finance charge is capitalized cost of $44,100 ($29,400 + $14,700) times the money factor of 0.00040 which equals $17.64/month.

No with no other fees or taxes the total cost per month for the car (which covers the loss in value and the charge to loan you the money) is $425.98/month. Total cost over 36 months is $15,335.28 (the finance company only makes $635.04 off this deal PLUS the $2,900 that's left over from the tax credit.)

Now of course, that's taking the tax credit as a dollar to dollar value to the finance company. I'm not certain that's the case but it would be the same with other companies.

 

[Charge]

Funny thing about leases - MOST people have no idea of residual or MF.

Both my brother and I had different salesman say "No one asks what the money factor is...". Even my BMW SA said "No one asks about MSD's either...". Maybe they should as my lease rate is 1.63% - whoop.

 

[acarney]

Check your lease long sheets, see if it states 35 or 36...

My GmFinancial account is showing 32 payments left. I took delivery of the car on 8/23/16. I made a payment on the day I signed the paper work, a payment in September, October, and just the other day for November. From my understanding that means I've made four payments so far and have 32 left for a total paid by me of 36. Was this a national offer? Did my dealer screw me over? (They were already a HUGE pain in the ass with giving my WA state tax exemption and WOULD NOT go lower then "invoice" and told me a million times they weren't going to make any money on the deal, which I know is all BS. Did they also pocket an extra ~$315 because I "waived" my first payment or some crap without knowing it?!?!?)

 

[Bacardi]

Funny thing about leases - MOST people have no idea of residual or MF.

Both my brother and I had different salesman say "No one asks what the money factor is...". Even my BMW SA said "No one asks about MSD's either...". Maybe they should as my lease rate is 1.63% - whoop.

Yup, heck, some theorize that's why it's called the MF because it's confusing...Most people care about down payment and monthly payment and don't care how they get there and that's why you lease ads with "$XXX/mo with $XXXX due at signing" with no mention of the res., MF, etc...

My GmFinancial account is showing 32 payments left. I took delivery of the car on 8/23/16. I made a payment on the day I signed the paper work, a payment in September, October, and just the other day for November. From my understanding that means I've made four payments so far and have 32 left for a total paid by me of 36. Was this a national offer? Did my dealer screw me over? (They were already a HUGE pain in the ass with giving my WA state tax exemption and WOULD NOT go lower then "invoice" and told me a million times they weren't going to make any money on the deal, which I know is all BS. Did they also pocket an extra ~$315 because I "waived" my first payment or some crap without knowing it?!?!?)

I'm not entirely sure if it was a national offer; I can say of the ten L.A. dealers I shopped around a Volt for back in the spring, they all state it was a 36 month lease with 35 payments...

 

[DonC]

I don't think that's correct... from how I understand the way you figure out a lease by hand is this...

I left out the money factor because it unnecessarily complicates things and doesn't significantly change the numbers. The critical point is that you need to apportion the tax credit over the life of the car so apportioning all of the credit to the first three years disproportionately apportions the credit to the lease period. I just used $37,500 because it's a nice round number after subtracting the $7500 tax credit. You can use any numbers you want but there won't be a difference in payments between calculating the residual using the tax credit to reduce MSRP or by using half the credit as lease cash. In both cases the depreciation will be the same.

If you use a higher residual you pay a small penalty since the base is larger, but that's balanced out by using more than 50% of the tax credit as lease cash. Basically it's a wash. The bigger issue is you're stuck with a higher residual if you want to buy the car at the end of the lease, though this is a different issue.

 

[bro1999]

Yup, heck, some theorize that's why it's called the MF because it's confusing...Most people care about down payment and monthly payment and don't care how they get there and that's why you lease ads with "$XXX/mo with $XXXX due at signing" with no mention of the res., MF, etc...



I'm not entirely sure if it was a national offer; I can say of the ten L.A. dealers I shopped around a Volt for back in the spring, they all state it was a 36 month lease with 35 payments...

Non-CARB staters don't get the 1st month free.

 

[acarney]

I left out the money factor because it unnecessarily complicates things and doesn't significantly change the numbers. The critical point is that you need to apportion the tax credit over the life of the car so apportioning all of the credit to the first three years disproportionately apportions the credit to the lease period. I just used $37,500 because it's a nice round number after subtracting the $7500 tax credit. You can use any numbers you want but there won't be a difference in payments between calculating the residual using the tax credit to reduce MSRP or by using half the credit as lease cash. In both cases the depreciation will be the same.

If you use a higher residual you pay a small penalty since the base is larger, but that's balanced out by using more than 50% of the tax credit as lease cash. Basically it's a wash. The bigger issue is you're stuck with a higher residual if you want to buy the car at the end of the lease, though this is a different issue.

So what part of my math is incorrect? I'm being honest, I'm struggling to figure it out. Apply the money right away does factor it into the life of the car. It's not s discount that they are offering, its money coming from a third party and into their pocket. It's just how much they pass that down to the buyer. Residuals would be lower (car is cheaper to buy at end of the lease) AND payments would be lower (get more people into the car for a monthly lease) and the finance charge would be a very small change. That's all from the exact same MSRP.

 

[DonC]

So what part of my math is incorrect? I'm being honest, I'm struggling to figure it out. Apply the money right away does factor it into the life of the car. It's not s discount that they are offering, its money coming from a third party and into their pocket. It's just how much they pass that down to the buyer. Residuals would be lower (car is cheaper to buy at end of the lease) AND payments would be lower (get more people into the car for a monthly lease) and the finance charge would be a very small change. That's all from the exact same MSRP.

The big factor in a lease is depreciation. The money factor is minor. Forget it for the moment we'll pick it up at the end.

Start with your $34000. Take off $7500. That's $26500. Half of that is $13250 for the residual and half is for depreciation. So depreciation is $368.05 a month. Now do it the other way. Start with $34000. Half of that is $17000 for the residual and half is for depreciation payments -- $472.22/month. But now you have half of $7500 or $104.66/month in lease cash payments. Subtract $104.66 from the $472.22 depreciation payments and you get $367.56. Basically the same number as the $368.05.

Now let's turn to interest aka money factor . The big difference between the two ways to do the leases is that, since the residual is higher, you are paying interest on a higher number. The difference in residuals is $17000 - $13250 or $3750. You get the interest rate by multiplying the money factor by the lease factor which is 2400. At your stated MF you're paying 1%. Multiply that by the $3750 difference in residuals and you're getting $112.50. Now you also have to pay interest on the part of the car you haven't purchased. Assuming no down, that would be another half or $56.25. (at 1.5 years you've paid for a quarter of the car or half the depreciation you're on the hook for during the lease period). So you're out $168.75. However, you don't get half the tax credit as lease cash. You get more than half. I don't really know the exact number, but if you get $4600 that's half the credit PLUS $850, which is more than the extra interest you have to pay.

I just don't see any unfairness much less manifest unfairness. You're getting the better of the deal.

FWIW the money factor just represents interest on the part of the car you haven't paid for plus the part you'll never buy (the residual). Like a mortgage, every time you make a payment the interest goes down since you're paid off more of the principle.