WERE F. Scott Fitzgerald alive today, he might be surprised to learn that the very rich are not always so different from you and me, at least in how they pay for their cars.
As it turns out, some people wealthy enough to pay cash for the most expensive vehicles on the planet sometimes choose to lease rather than buy them outright. It’s not that these customers are short of cash: for the cars they are acquiring, the down payment is more than the mortgage on many homes.
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.
“If you think you can make more on your money than the cost of the lease, then you ought to lease, especially on an appreciating asset like the Bugatti,” Mr. Durham said in late July, as he prepared to drive the 1,001-horsepower Veyron in the Great American Run, a coast-to-coast rally.
Mr. Durham said his collection of more than 70 cars was filled with models that had sentimental value to him, including an Aston Martin DB5 like the one James Bond drove in “Goldfinger.”
But he still drives a sharp bargain when it comes to acquiring them: he had a lease lined up for the Veyron with a company that specializes in financing Ferraris and other expensive cars when a competing offer landed. The deal he finally agreed to reduced his down payment by about $300,000 and came with an interest rate about 0.5 percent lower, he said.
Donald Fort, a collector in Ponte Vedra Beach, Fla., said leasing his acquisitions had allowed him to build his collection twice as fast. Mr. Fort, 60, said that for the first dozen years, he paid cash for his cars, starting with a 1948 Ford woody station wagon. His collection now includes rare American sports cars like a 1963 Corvette Z06.
About seven years ago, he connected with Putnam Leasing, a finance company based in Stamford, Conn., Mr. Fort said. Since then, he has leased cars like a Shelby Cobra over five years, then bought them at the end of the lease, he said. Typically, the down payment is 20 percent to 25 percent of the purchase price.
“We’ve got much better resources for our money,” Mr. Fort, a developer of commercial real estate in Florida and Georgia, said. He added that he expected the models in his 20-car collection, including the latest addition, a 1953 Corvette, to appreciate.
But Steven Posner, chief executive of Putnam, said that many of his company’s first-time customers leased for the opposite reason.
“Why invest so much money in a depreciating asset?” Mr. Posner said, referring to the possibility that the exotic brands on which Putnam built its business do not always gain value, especially when first introduced.
About two-thirds of the people leasing a new Ferrari do not keep it until the end of the lease, Mr. Posner said. Many of them decide to trade up to a newer or more expensive model, he said, while some others decide that they have had their fling with hot Italian models.
“You’ll get a young man in his 20s on Wall Street” who leases a Ferrari 355, Mr. Posner said. “As he makes more money, he will trade that in for a 360. In the interim, he’ll get on a list for a 430.
“Within two years, you’ll see a guy go from one car to the next to the next,” he said.
To accommodate capricious enthusiasts, Putnam allows its customers to trade out of one car into another under the same lease, charging no penalty, just the difference between the wholesale value of the first car at the time and Putnam’s price for the new one, Mr. Posner said.
But leasing a superluxury item like a Bentley or a Bugatti would be too pretentious for most people in some regions of the country, said Mitch Katz, chief executive of Premier Financial Services, a finance company based in Woodbury, Conn.
“They feel that to own a toy like this, if they can’t write the check, they shouldn’t own it,” Mr. Katz said, “That’s more the prevailing feeling in the Midwest and New England.”
Only about one-fourth of these very expensive cars are leased, Mr. Katz estimated. About half are bought for cash and the rest are purchased with the help of a bank loan, he said. About half of the leases are held in the names of corporations, whose owners have found a way to claim some or all of the cost as a business expense, he added.
Mr. Katz said his company sent representatives to major auctions of collector cars, offering financing to successful bidders. The biggest lease Premier has extended was for a 1962 Ferrari 250 GTO with a value of $8 million, he said.
Location is also an important factor in the financing because many states allow leaseholders to pay sales tax month by month. New York and New Jersey are two that do not, Mr. Posner said. For example, a customer who lives in Manhattan and registers his car there pays 8.375 percent tax on the entire lease value upfront; that would come to more than $130,000 on Mr. Durham’s Bugatti (and there is no credit if the lease is broken early). But Mr. Durham, the Indianapolis financier, can pay that state’s 6 percent tax with each lease payment.
Still, Indiana does have its disadvantages for a collector who likes to take his prized possessions out for a regular spin.
“Of course, I drive a different one every day,” Mr. Durham said. “Unless it’s snowing. Then, I drive a Hummer.”