Wednesday, August 22, 2007

Borrowing for a Bugatti?

I always ignore the automotive section in the NY Times-- I am one of those New Yorkers who may never own a car-- with public transportation, taxis, and the occasional rental, there's no real reason for me to buy a car, and no reason for me to read most newspaper articles about cars. But here's one that caught my eye, from the August 12th issue.

Exotics on the Easy Payment Plan: "some people wealthy enough to pay cash for the most expensive vehicles on the planet sometimes choose to lease rather than buy them outright."

Timothy S. Durham, a financier with a 45-space garage at his home near Indianapolis, said he put down about $400,000 on his latest acquisition, a black-on-silver Bugatti Veyron that sells for more than $1.5 million. His monthly payments on the five-year lease, he said, would approach $20,000 -- or, about enough to buy a new Honda Accord every 30 days.

Why would a multimillionaire submit to the paperwork and other obligations of leasing when he could simply write a check for the full amount?

In Mr. Durham's case, there were two important benefits: he had other uses for the money and, by stretching the payments over several years, he could put off paying some of the sales tax. For a car in this price bracket, taxes alone can run to $130,000 or more, depending on where the deal is struck.

''One of the biggest things is you're deferring your tax because the sales tax is getting stretched over some period of time,'' said Mr. Durham, whose investment firm, Obsidian Enterprises, controls several industrial companies as well as National Lampoon.

Although he expects to buy the Bugatti by the end of the five-year lease term -- at an additional cost of several hundred thousand dollars -- Mr. Durham said he would rather invest the difference in the meantime. He also said he expected that in coming years the Bugatti would be worth more than he has agreed to pay for it.

On the one hand, you can scoff at people who have nothing better to do with their money than collect dozens of million-dollar cars. But on the other hand, it's a good lesson that you should never stop thinking about the best ways to get the most for your money, no matter how much money you have.


Josh said...

There really is a lot to the notion that people get rich by being smart about money and staying that way, although their real bucks usually come from some form of theft. In the hedge fund world, which I write about, the managers who buy $40 million apartments and the like usually make back their money and a profit on what others consdider splurges.

mOOm said...

IMO leasing cars makes sense for financially savvy people relative to buying a new car. It doesn't make sense if you just use the lower payment to buy a more expensive car than you would do otherwise which is how most non-financially savvy people use leases. Still, we'll buy a used car in Australia can't afford a new one :)