Hi Tarry et al,

I'm looking to lease a BMW in California with following stats from the dealer:
MSRP: 53,500
Downpayment: 5,000
BMW lease cash offer: 1,000
Net cap cost: 47,500
Money factor: 0.00180
Term: 36 mos
Residual: 32,850
Monthly payment: 551.43 + tax

I suggested an agreed upon sale price of 53,000 which would give a net cap cost of 47,000 and by my calculations a monthly payment of 542 + tax.

Dealer's reply was that the "BWM lease cash offer" is going to pay DMV fees and taxes; he stated:
"There is tax of almost $400 on the "cap reduction" (down payment) plus you are not factoring almost $600 for DMV 1st year fees...As I said before, you ned to use $5000 down NOT $6000 down when you use those (internet) lease calculators. $1000 of the $6000 goes to DMV and tax on cap reduction so it's not applied as a down payment. This is California. Those lease calculators are general calculators for other states...we can't get to that payment based on your numbers! It doesn't work n California because up-front cap-reduction tax and first year lic fees!"

As to the $1000 BWM lease cash offer, the BMW websites states "Lease cash is applied to lease contract in the form of capitalized cost reduction."

I'm really confused here - I didn't request any upfront fees be rolled into the lease (although having read some posts here, maybe it's a good idea). Is the dealer trying to fleece me by stating the $1000 goes to taxes and DMV fees rather than cap reduction? I realize the diff in monthly payments ($313 incl tax over the term) is not a big deal, and maybe I should just agree.

BTW all of this has been over the internet so have not seen the actual lease papers.

Thanks for any help.

Given the dealer data:

MSRP: 53,500
Downpayment: 5,000
BMW lease cash offer: 1,000
Net cap cost: 47,500
Money factor: 0.00180
Term: 36 mos
Residual: 32,850
Monthly payment: 551.43 + tax

___________________________________

Monthly Pay = 0.00180(47500+32850) + (47500-32850)/36

yields a base payment of 551.57 + tax.

The only way for the dealer to get a payment of 551.43 is to use a net cap (adjusted cap) of 47,495.

The statutory fees (i.e., DMV Fees and Tax on the down payment) must be paid. So, I don't think the dealer is trying to fleece you. I think CA's sales tax rate is 7.75% but I'm not sure. You should check with CA's DMV to see what your DMV fees will be as $600 sounds a bit high even for CA.

For argument, let's say that DMV fees are $600 and sales tax is 8%. A down payment is a down payment and is used ONLY to reduce the cap cost and nothing else. So, if your capcost reduction is $5,000, then the tax on this amount @ 8% is $400 plus the $600 DMV fee gives a total of $1,000 to be paid upfront.

So, you'll give the dealer $5,000 upfront for which $1,000 will be allocated to paying those upfront fees and the remaining $4,000 will be used to reduce the cap cost. The $1,000 BMW cash will also be used to reduce the cap cost. And so, the total capcost reduction amounts to $5,000.

Since you and the dealer agreed to a $53,000 selling price, the net (adjusted) cap amounts to $48,000. The base payment would be...

0.00180(48000+32850) + (48000-32850)/36

or 566.36 + tax.

This may not be what you wanted to hear but it's pretty much what you can expect. Keep me posted.

Hi John,

Thank you for your quick response and clear explanation, it makes sense the way you describe it. I checked with DMV and in Calif the total registration fee will actually be $694; sales/use tax is currently at 8.75% which gives $437.50 tax on the $5000 cap reduction - so this would leave ($1,131.50 - BMW's $1,000) or 131.50 as part of the drive off costs along with the down payment, first month's payment, acquisition fee of (131.50+5000+599.68+725 = ) $6456.18.

Given that these are unavoidable costs as you point out, does the lease deal seem reasonable to you at the dealer quoted 551.43 + tax per month?
Again thank you for your help.
Paul

The only discrepancy that I can see is the dealer's 551 payment vs. my 566 payment given in my previous post. How the dealer arrived at 551 is a mystery to me so don't be surprised if they tell you that they made a mistake. Mistakes in this business happen far too frequently. As I indicated earlier, the 551 payment is a result of using a net cap of 47,495 assuming all the other data is correct. Your net cap is 48,000 (53,000 - 5,000) which results in a 566 payment if we assume, once again, that all the other data is correct.

The concern that I have is that you're (a) putting $5,000 down on a depreciating asset and (b) God forbid if you total the vehicle, you will lose most of that down payment. I wouldn't put any money down if I were you. If need be, put the money in the bank and use it to subsidize your lease payment. The interest rate on the lease is about 4.3%. So, be governed accordingly.

Let me know what happens.

Good luck!!!