Ever thought about driving a BMW or a Mercedes in India? Now you can, and that too at just about 50% the cost of the car with an option to get a new one after three years. Sounds too good to be true, doesn’t it? But that’s what car users in the U.S. and U.K. have been used to, and now similar schemes are available in India.
But it’s not that easy. These car lease plans with an option to purchase aren’t widespread in India and only a couple of luxury car companies such as BMW and Mercedes have started offering it to individuals. (Luxury car leases to corporates has been in place for nearly 10 years, with companies such as Leaseplan and Orix offering it.)
BMW, through its arm BMW Financial Serivces, has decided to offer car lease options to individuals as well, where a customer could drive a BMW for three years and end up paying just half the showroom price. BMW would then take back the car from the individual, refurbish it and sell it in the second-hand market with a BMW warranty. During the lease period, the company would take care of routine service and maintenance costs on the car, while the customer only had to bear the running costs and monthly lease rental (like an EMI).
Mercedes too offers a similar scheme to individuals through its Star Lease program, where any of its cars can be leased for a three-year period at just about 50% the cost. Of course, the monthly lease still works out pretty expensive. At the end of three years, the company will take back the car and give you the option to either lease out a new one or if you do get attached to your car, you can pay the balance residual value (resale value) and own the car (which would amount to taking a fresh car loan for the balance). Mercedes Benz leases cars through a tie-up with its financial services arm, Daimler Financial Services India. This has been set up in Chennai with an initial equity capital of $50 million.
How car leasing works
Corporates have been leasing cars for sometime, where an agreement is signed between the company and the car-leasing company such as Leaseplan or Orix, and employees are given cars for a fixed tenure. This is often provided as a company perquisite.
But as an individual if you want to own a swanky car, you can. You have to pay about 50% of the car’s value, which again is divided into equated monthly installments for a three year period. Similar to a loan, you have to pay a down-payment on the car, and the balance in EMIs for only 50% of a car’s value. (For instance, a BMW 320D costs Rs. 26 lakh, but you will end up paying only Rs. 13 lakh and that too on EMIs.)
At the end of three years, the car company’s finance arm will take the car back from you when the lease ends. You don’t have to pay anything or are owed anything, but you have the pleasure of having used the car for three years. Also during that three-year period, routine service is taken care of by the car company. You then have the option to opt for a fresh lease on a new car for another three years.
Some leases though may have a cap on mileage, like you can’t drive more than 60,000 km in three years time. If you do exceed this, then you will have to pay extra for the excess mileage clocked.
For instance, in the U.S. Mercedes offers the E350, which has a retail price of $49,400 (about Rs. 23 lakh), for a 33 month lease at $ 589 per month (about Rs. 26,500), adding up to about Rs. 8.75 lakh in monthly lease rentals over a near three-year period. At the time of signing the lease, an individual needs to make a down payment of $4,680 (about Rs. 2.2 lakh) on the car, taking the total outflow for the car to just about Rs. 11 lakh on a Rs. 23 lakh car.
The lease rentals may cost about twice as much in India, but is still worth it, if you are really looking for a good car.
How this benefits individuals
If you are a person who likes good cars, but would like to change cars every three years, a lease-plan makes sense, as you get to upgrade every three years. In financial terms it doesn’t impact you too much as it’s the same as paying EMI’s on a new car, but for only half the price. The downside is that you never get to “own” the car and can’t modify it or customize it the way you may want (but with a BMW or a Mercedes that’s not really an issue).
If you are a business owner or a company interested in leasing cars as an employee perquisite, it makes more sense as operating leases from companies like Mercedes Benz can be written off against taxes, as you can claim higher depreciation.
How this benefits car makers
Such lease plans make expensive cars accessible to a large audience and increases sales for the company. At the end of three years, the company still benefits as it can get a good resale value for the cars and end up making a profit, sometimes more than what it would have made on a new car sale. It also benefits from interest on the lease rental paid by the individual leasing the car.
So are you ready to drive a Bimmer or a Merc? Let us know what you think.