New (maybe) Porsche pricing theory

I have been thinking about the way prices have been going recently. First, this comes from a purely academic point of view since I don't really worry about things which are beyond my direct control, and this is one of them. I am just enjoying the driving/ownership experience, which has been fantastic. Having just been a 993 owner, the recent post about 993 vs 996 interested me. There were many good points made in that thread and I tend to agree that the 993 will always have a special place in the Porsche line and that fact may well support higher resale values. I can think of many sports cars (some of which I have owned) which fall into this category - for example, Austin Healey, Jag XKE, some vettes, some T-birds, etc, etc. I think the answer to this lies in the expectation of the owner. If I want a Porsche for collector purposes, it's probably a 993. If I want a car for daily current use, now and into the future, I prefer the one I have - 996 C4S. Now to my main point - I think that the prevalence of leasing has had a big impact on the resale value of 996's. In the past, I beleive that a higher % of these cars were purchased. Now the price in 3 or 4 years is virtually set by the declared lease-end value which is set by the manufacturer. I know that this process initially was a guess by the mfg. to determine what the residual should be but now I believe that their values have become market setters - to a much greater degree. I believe this because the market has a tough time determining a price which is higher than stated residuals since there are always many cars avaiable at the residual rate. With 996's, because there have been more of them sent to the market, this effect is more noticeable. When I found my current car, the option was there to lease or purchase and I chose to puchase mostly because I didn't like the interest rate. I assumed that the depreciation would be the same either way and I still think this is right. I first started leasing vehicles about 10 years ago for both personal and business uses. There were several times when I looked at residual rates and thought that I would have equity at the end of the lease. In every case except one, I was disappointed to find that the value dropped to the stated residual by the end of the lease. i don't think the system allows it to be any other way. What do you think? Is the used car price determmined by the manufacturer through lease end residual values??

Very interesting observation... and I'm sure you're on to something. It will be very interesting to see what will happen once the majority of currently leased 996s end their original lease (maybe 3 to 4 years from now?)... One thing I know for sure is that those drivers, of either leased or purchased 996s, will have enjoyed countless hours of bliss behind the wheel (as long as they didn't acquire their 996 from a Ford dealership ...) Cheers.

I suppose I will always leave the legacy of being the one with the ford dealership purchase behind me... <g> yet honestly, a 996 cab with with a $95k MSRP for $39k a year ago... (talked down from $48k) yes it was a ford dealership, but it was a damn good deal as well.. at the time <g> live and learn.. now i have an extended warranty with a $0 deductible and $40,000 in new parts that have been installed in the past 1,000 miles (thanks again porsche for helping your executives become rich off me, once again <g>).. i wont' jinx myself by asking what else can go wrong though, that's for sure well. hopefully I get my car back this week... it's been about 2 months since I last drove it... (well I did drive it a few miles after I got the new engine installed, but then the tranny blew up, sigh...) but the insurance company refused to pay for express shipping, so they sent the transmission from the slow boat to china... so we'll see.. maybe this week I will be able to enjoy "the porsche experience" (crossing fingers) once again...

What do you think? Is the used car price determmined by the manufacturer through lease end residual values?? No. It's the consummer and not the manufacturer that determines a car's selling price. You need look no further than the Porsche 40TH Anniversary edition for an affirmation of that principle. Now of course the manufacturer controls the sticker or asking price.

Although, I think your theory has merit, the prices of all commodities......IMHO....... are majorily influenced by the consumer. Using the commodity example of the 996's the prices of these vehicles and the depreciation curve are heavily influenced by the supply, the reliability of the vehicles and purchasing power of the consumer. The lease reisdual values are based on several factors including items such as: 1.The reliability, safety, and overall attractiveness of the vehicle compared with other used vehicles. We all know that the 996's have had their share of reliability issues associated with, I dare not say this too loudly..............rms leakage. 2.The supply of used vehicles. 3.New vehicles being offered within the same brand name ( ie: 997 ) and more importantly new vehicle pricing for the same brand? 4. Competitive vehciles being offered ? 5. Economic conditions. I won't go spend money on a Porsche knowing that the economy is going into the dumps which will ultimately affect my discretionary disposeable income. etc........etc.............etc.............. Ultimately the manufactures do in some way have tremendous influence because they know the production numbers, future modifcations, and introduction of similar ( slightly modified ) brand names that will ulitmately influence the values of these vehciles long term. Remeber ,residual value is only the estimated value of a vehicle at the end of a lease. The consumer will be the way one, as well as some influence by the maufacturer , who will ultimately influence the value of these vehciles........LONG TERM.

The guys at Silver Star in LI told me that Porsche is discounting all remaining 40th anniv cars by 17K, other remaining 996 models may follow. The only exception so far is the C4S cpe/cabs, they are currently the best selling 911's. No data on 997 sales so far, but they are anecdotally slow for whatever reason. I have leased many a car, it makes sense tax-wise for me, but it's not for everybody. RBL makes a good point about leasing/ sales and 996 depreciation, should be interesting. Chris

Isn't the residual value one of two ways a manufacturer subsidizes a lease to make the terms attractive? One alternative is a low money factor. The other is a high residual. Both work to lower the monthly payment. When they set the residual too high, they accept their loss when the car sells for less than the residual on the secondary market. In the end, nothing is bigger than the market. AS

This question is to Bob or anyone else who has an extended warranty. I am thinking about purchasing my 03 C4S after it comes off lease and am concerned about the potential for expensive repairs that would follow. What companies have you used where a claim has been made where the service was good.

I have yet to use the extended warranty, as my car is sitting in a repair bay without a tranny, which makes it a bit hard to drive :> i'll let you guys know how it goes as soon as something goes wrong... Another note is, consumers do drive the used car market... while car shopping for a 99-01 740iL Sport for my folks, I noticed that the resale value of these has remained very high, which is rare for a sedan which has a 3 year old outdated design. Many people simply do not like the way the new model looks and want the best, lowest mileage of the old 740 e38... I think this remains a factor with the 996, 997 as well. The people that grew up with always wanting a porsche, dreamed of the old body chasis.. The 996, is basically a brand new car, with the porsche badge on it... I don't think it embodies the true original "porsche marque" as the 993 and previous models once did when released.... especially since porsche started releasing a look-alike boxster, a cayenne, etc... basically I think many enthusiasts feel porsche sold out... kind of like how an underground music group loses respect from some of it's fans when it signs a label and goes mainstream... Although fun to drive, I really don't think it has that "porsche dream machine" going for it, that the 993, 964, etc.. once had... when you see 20 year olds driving boxsters, and soccer moms picking up their kids in an suv with a porsche badge on it... especially with all the competition out there from all the other manufacturs that beat the porsche in most any other test, for 1/2 the price... not to dishearten the 996... but many of these factors could contribute to the resale decrease.. the 993, is before porsche finally sold out in many peoples hearts... of course simply an opinion of mine, which many here don't seem to like too often

excellent point Bob. I think that is a plausible explanation. Sad, but true.

From what ROwen have said and others have pointed out I think that both of you are right. Banks and companies who set the residual values of these vehicles have actuaries and experts working full time to best determine what the vehicles will be worth at the end of the lease. Yes, from time to time there will be cases where they will be wrong, but most of the time they will be right and, as a result, you will find that lease-end buy-out prices are likely to be very similar to the vehicles market values. Right now, I am at the tail end of a 36 month lease. My 996 2002 C2 Cab has a buy-out price of $57k. What is the market value of that car with 38k miles on it? Can anybody help me out?

Well, Porsche has been smart enough not to offer a lease on the $450k Carrera GT. Residuals from Putnam ($175k after 5 years) and Chase ($122k after 5 years - pretty nasty for 2, 3, and 4 years as well), would suggest why Porsche isn't! Not sure they'd move many of em if folks knew what the market is pricinig these cars at. I suspect non-warrantied problems on this car will make Bob's experience look almost nice.

I don't really think a company like Porsche will accept residuals which put them at any risk. I have seen it with Ford trucks a few years ago, but not Porsche, it's just too expensive to be wrong. For that reason, I think Porsche tends to keep low residuals, but unfortunately I also think that their choice also becomes a self-fulfilling prophesy when there are a large number of the same vehicles leased - it's the lease-end supply exceeding the demand. I chose the C4S for many reasons - obviously, the AWD, and I think this car has a very attractive (curvacious) body shape, like the 993 and I believed that it has the best chance of holding it's value. When I see how many C4S's there are out there now, I couild easily be proven wrong. I didn't know that the vehicle was so popular. I had thought that it was like the 993's. I would be interested in seeing production numbers on these compared to C2's. Cheers

I asked my bother-in-law about your theory. He has a large car truck leasing co. in OH. his reply is as follows: Steve-I don't agree. The leasing industry, especially the banks, have gotten beaten up badly by residuals on exotic cars being set too high. They lost too much during those years and are being very conservative about how they set the residuals. Residuals are down for everything. I don't think that they are setting the market, but rather following it.

I think lease residuals may have a small impact on the market, but the other direction. 1. If demand is hot for the car, a low lease residual won't impact the price at all -- the price will stay high, because people are willing to pay more than the lease residual. Think about it -- if your lease residual was less than the market value, you would buy the car at the end of the lease and turn around and sell it for a profit. 2. If, on the other hand, the lease residual is higher than the market value of the car, it may provide a "floor" (albeit a soft one) that holds the price up a little bit. Psychologically, it will hold people back from selling the car for less. Ultimately, the market will dictate and the price could drop, but it's a psychological barrier that might slow that drop down a little bit. So, I think lease residuals won't make the market price drop, and in fact might have a small effect in keeping the price higher. Any economists around to provide different insights?

As an outsider ie from Australia looking in, you cant really have it both ways. What do I mean by that? You cant expect a dealer to offer massive discounts and not have the vehicle depreciate ridiculously as well. Unlike Australia there is virtually no discounting on the Porsche brand. I bought my 02 Cab for virtually sticker US$170K. What is my car worth today? Well as an indicative price for my car at the moment is $130-$139K. That is a loss of $31K, a percentage loss of 19%. When dealers are discounting cars by 17% off the bat you cannot expect the price of the car to do anything other than head south! In 98 when I bought my 993 I paid $139K for an 18 month old cab and sold it three years later for $115K. Granted I lost $25K, but in the grand scheme of things I lost $16K on my MX6 in 3 years and that was on a US$34K car! I would rather take a similar hit in $$$ terms than in percentage terms. From where we, the outside world stand, irrespective of the depreciation value of you current Porsche it still is cheaper to buy a Porsche in the US than anywhere else in the world and you are still further ahead even with the big hit you take on resale. This is due to the huge consumer base and I am envious of that. You never buy cars as an asset anyway so why worry about the depreciation hit If dealer discounting was eliminated from the Porsche brand I would hazard a guess that car values would be a bit more stable over all, but not by much. My wife works for GM and she mentioned that dealer discounts cost the organisation millions each year and one of the contributing factors to organisation making a loss virtually every year (well the cars might have something to do with it too )

We just like to bitch and moan... It's the American way.

Porsche has started a program that some of the dealers particpate in, where they will sell you the car at market value instead of residual(or at least sell the dealer back the car at mv). This is apparently in an effort to retain customers and avoid porsches going to auction, which Porsche Germany can't stand. I found this info in an internal dealer newsletter, I'll dig it up.

Hey, let's not make this too complicated. It's the market and not the manufacturer that determines a product price. Consumers don't care what the manufacturer spent in developing and making a product. All they care about is the value they see in the product and the price charged for that value. When Porsche established its residuals on the 996, they used history as their guide. It doesn't look like history will prevail with respect to the 996 value. At least in my area dealers aren't getting anywhere near the asking price for 996s. It's kind of funny because as soon as I ask about a 996's price, the salesman immediately tells me that I can get it for a few thousand less than advertised and that's before I even have a chance to tell him that the price is a little too high. Back in 2000 when I was looking for a 993, the salesman would never lower the asking price. They would tell me that if I wouldn't pay the asking price someone else would, and they were right because 993s never lingered on lots in my area. Granted my sample size is tiny and it could be that my area isn't typical for Porsche sales, but it does seem to fit in with what others are experiencing.