Leasing the Ferrari
Jeanine says her husband is considering buying a sports car. The dealer advises him to lease the vehicle because the sales tax is $21,000. They planned to finance the $300,000 Ferrari.
QUESTION: Jeanine in Los Angeles says her husband is considering buying a sports car. He returned home and told Jeanine the dealer advises him to lease the vehicle because the sales tax is $21,000. They also planned to finance the $300,000 Ferrari because they don’t want to use their savings. Dave doesn’t think Jeanine can afford this car.
ANSWER: You should not buy a $300,000 car unless your net worth is in excess of $10 million. You’re buying too expensive a car. You can’t afford this car. You’ve got Los Angeles-itis. You’re going to buy it anyway because you don’t agree with me, but this car is insane.
There’s nothing wrong with a $300,000 car. I have a friend who bought a $400,000 car the other day, but he makes $15 million a year and wrote a check for it, and he wasn’t whining about the $20,000 in sales tax. You guys are trying to act like somebody you’re not. You don’t have this kind of money.
Hypothetically, if you had a $15 million income or you have a $10 million net worth and you want to write a check and buy a Ferrari, I’ve got no problem with that. You pay the sales tax. You would never lease a car—ever—under any circumstances. This guy is used to selling cars to people who can’t afford it like your husband. There’s no advantage to leasing. That’s why they want you to lease. They make more money on the lease than they do on the sale of the stupid car. The car goes down in value like a rock.
Do you know what a 2-year-old Ferrari sells for versus a new one? Have you ever looked at that? You probably ought to look at the depreciation in two years. I’m not against Ferraris. They’re actually phenomenal automobiles, but all automobiles go down in value. I’m going to guess and say that car’s going to lose $100,000 in value in two years. If you lease it, guess what? The loss in value when you turn it back in has to be in the lease payment or the leasing company’s losing money. And guess what? They don’t set themselves up to lose money. They’ve got to cover the loss in value in your lease payments, or they’re going to lose money.
We probably ought to get on the same page, and it probably ought to be a page that’s not insanity at the top of the page.
The lease on any car, whether it’s a Ferrari or a Chevy pickup, basically you have the value of the car—the sticker price of the car at the time you start—and then you have the depreciation—the loss in value at the time you turn the car in. The lease payments during the time of the lease have to cover the depreciation plus they have to cover what’s called in the leasing world cost of capital. Translation: Interest. When you add all of those things together, Smart Money magazine (a division of the Wall Street Journal), Consumer Reports and Dave Ramsey all tell you—and our calculators will tell you—that leasing is the worst deal, the worst possible way to drive a vehicle. They charge you more that way than they will any other way. Whether it’s a used car or whether it’s a $20,000 car or a $300,000 Ferrari, the numbers don’t work.
The bottom line is you guys are probably going to buy a Ferrari because you’re out of control, or at least your husband is. If you can talk him off this ledge, you should. He’s trying to be somebody he’s not. You don’t have the money to drive a $300,000 car. Once you do, I don’t mind you getting one, but you don’t have the money. You’re too broke to even be on that car lot. You shouldn’t even be in that showroom. Well, actually you should be. You ought to go in there and look and dream. That’s a good thing to do but not with a pen in your pocket.
Some of you are sitting there right now with your little noses in the air all snooty acting like you know so much more than that lady, and you would never make that mistake, but you leased your Chevy pickup or your Prius because you were going to save gas mileage, Al Gore. Thank you very much. So I’m going to smack you into next Sunday too, by the way. No. Listen, cars are real simple. They go down in value. Don’t finance them. And you cannot afford a brand-new one unless you have at least a net worth of $1 million. You don’t need to be in high-end luxury stuff like that unless you have a net worth of at least $10 million.
So my buddy who made $15 million last year who’s doing pretty good, and he rolls up with a crystal ashtray in this car ... $410,000. Sweet vehicle. This thing—it has stuff in it I didn’t even know man made. It was incredible, and 0 to 60 in like ... Makes a boy cry, I’ll tell you that. It was unbelievable. I won’t even tell you how fast we went in that car, but it’s nice. That’s fun. There’s nothing wrong with that. “Nobody needs a $400,000 car.” Yeah, a guy who makes $15 million can buy one because that’s like the rest of the people buying a Happy Meal. Ratio-wise, it doesn’t even show up on the thing. Just because you can’t grasp it emotionally doesn’t mean it’s not okay. That’s not the thing. But you can’t buy stuff just to look good. It doesn’t work. You’re going to blow yourself up.