[bmw_lover]

Sharad Aggarwal, head of Lamborghini India on 13 Feb, 2020 launched the new Huracan Evo in Ahemdabad. What caught my attention about this launch more than the car was the statement he made - 65% of the niche clientele who buy Lamborghini cars in India avail of the finance option. Safe to assume then that this percentage holds true for all the other super luxury marques too. He also added that the average Lambo buyer is a businessman or an industrialist, a segment that belongs to wealth creators who understand the value of money. A quick Google search depicts this goes true for dealerships around the world for high value cars and also for used cars too.

I would just like to decode these 2 statements a little with bhpians help. So that during my next purchase even i could become a suave wealth creator.

1. They buy with the finance option so as not to attract unkindly attraction of the IT Dept.

2. As told by the Lambo head, as customers are business owners, they buy cars on company books and large businesses are anyways run on debt (borrowed money). So the purchase of the vehicle is also technically financed.

3. Dealers/Manufacturer's financial services offer 0% or ultra low interest loans to move their inventory.

4. They purchase cars on loan because they know better avenues to invest their cash money where they can earn much more interest than they pay in the loan interest rate.

5. Rather than the purchase they go for lease option as they like to change every couple of years.

6. Force of habit. They just can't spend cash for a fast depreciating asset.

7. To improve their credit rating.

What do bhpians think on this. Did i miss anything. May be few owners of these fancy wheels on the forum could enlighten us on how the rich think.

[GTO]

Thread moved from the Assembly Line to the Loans Section. Thanks for sharing!

Originally Posted by bmw_lover

I would just like to decode these 2 statements a little with bhpians help. So that during my next purchase even i could become a suave wealth creator.

You have listed all the possible options. Also remember:

1. A lot of them buy in the company name. Not only do they get depreciation benefits, but the interest on the loan can be written off as an expense.

2. I can get car loans at 7 / 8 / 9 percent. But I know how to invest my own money and get minimum 12% returns. If you invest in the markets long-term, then there are huge tax savings on those returns. So why don't I take cheap loans and invest my money elsewhere?

5. Rather than the purchase they go for lease option as they like to change every couple of years.

Leasing isn't a popular option in India and none of the exotic brands offer it anyway.

[Santoshbhat]

If you are in any kind of business, it always makes sense to take a car loan instead of self finance even if you have the cash to make the full down payment. Cost of finance varies depending on the kind of loan. Most businesses have working capital loans of some kind and the cost of working capital is certainly higher than cheap car loans. Why divert "expensive" working capital to buy a car when cheap loans are available? Secondly as GTO pointed out, interest on car loan is a deductible expense. So there is some tax saving on that too. Investing smartly gets you better returns than the cost of car finance, plus if you invest in equity instruments, the returns are taxed at a lower rate (10%) compared to the tax deduction on the interest expense.

Originally Posted by bmw_lover

7. To improve their credit rating.

This is a very important for people in business. This may come as a surprise, but taking a loan and not defaulting on any installment, builds up a better credit score than never taking any loan. As a businessman, you never know when you will need finance for a new project or for expansion. A 50 or 75 basis point reduction in the rate of interest, on a big loan makes a huge difference.

[sharc_biker]

As GTO pointed out, from a business point of view, when cars are purchased on company name, you get a lot of depreciation benefits. In the current financial year, the depreciation benefit is doubled to boost car sales.

Secondly, interest on car loan is also a deductible expense and you can get 100% financing if you have a good relationship with the bank. Car loan interest rates are usually the lowest. Lower than many banks' MCLR (base rate for lending). It is cheaper than corporate term loans and working capital loans available to businesses. Also they're much easier to process as additional collateral is not required.

My organization just purchased 3 new trucks last week and we got 100% funding. But the interest rate offered for cars is even lesser.

The leasing system AFAIK is being used primarily by getting a car leased in a different country and bringing it to India via Carnet. It is a very viable option if you don't want to pay exorbitant import duties in India. Also with some creative accounting, you can claim tax deduction in form of amortization for the lease amount I think.

[D33-PAC]

I think a lot of the Lamborghini clients in India unlike the West or US are cash poor and asset rich.

I doubt most Lambo buyers in India have more than 15 crores in cash max, excluding all other assets like land/residential/commercial properties.


In the US a cardiologist or radiologist makes about half a million USD. That's roughly 2.5 crores.

What kind of job in India pays 2.5 crores per annum ? Doctors in India don't get that much I think. 2.5 crores should be enough to buy a decent Lamborghini.


Also don't forget, Lambos in India are indeed expensive more so than anywhere else due to import duty.

The Aventador S in India costs almost 5 crores, as much as a premium villa.


And lastly, a little OT, but certainly relevant. A lot of Indians are big game talkers. If you've ever tried to sell anything worth 4-5 crores in India you know this. People tell tall stories about offices in Dubai and show nice cars but when it comes to doing the deal they seldom part with the cash asked or don't at all.

Lambo buyers in India certainly could be rich but I suspect a good chunk are showbusiness + cash poor/asset rich types.

[V12Doc]

It always makes sense to buy it on Loan instead of cash as leverage is one of the best ways to make and keep your money. It always easier to pay over a few years while reaping the benefits of enough write off on taxes. Just the tax savings from buying is lamborghini per year at a 15% depreciation would be equal to a tax savings on 75,000,000 and tax on interest for around 25,00,000. Thats a total of tax saving on 1,000,000/year, would pay for the interest itself and put some money on your pocket. Believing everyone buying a lamborghini is a 49% tax bracket( 30%+15%surcharge+4%cess) you are looking at an annual savings of 49,000,000. It makes good sense to buy a Lamborghini !


Well You would be surprised how much money doctors make and how many people I personally know who make way more than 10cr even in small cities and they dont drive 5cr cars. barely even 1 cr cars. I feel they are not financially educated to managing their money . They are not able to change their quality of life even after earning so much because they have no idea how to save taxes while improving their quality of life.

Indians aren't really big game talkers, they do have one of the highest saving rate in the world. You barely see cars being repossessed in India whereas its a routine in US even with cars like Rolls-Royce. Regarding parting with cash the major problem with real estate market in India is all based on cash due to highest possible transfer taxes and that keeps the values depressed. Nobody wants to pay 7-8% stamp duties on real estate purchases and then pay 12% interest on real estate loans with 3-4% origination costs. According to this the property you bought for 1cr on Loan costed you 1.12cr without interest payments. By year 2 that property would have costed you 1.30 cr and I dont think you would catch up your cost with appreciation unles that property is really giving you a good return on the business.


You have no idea how many people i see in US owning bentleys, rolls royce and these supercars and barely have $1000 in their accounts.

My Family used to buy cars cash until I was old enough to manage the money and taxes and we realized that by buying better cars on loans just the depreciation and interest would save us enough taxes that cars would be paid off just by tax savings and at the same time free up the cash for investments.

[AnInternetUser]

Originally Posted by V12Doc

. Believing everyone buying a lamborghini is a 49% tax bracket( 30%+15%surcharge+4%cess) you are looking at an annual savings of 49,000,000. It makes good sense to buy a Lamborghini !

While I 100% agree with the points you've mentioned, I don't think the 49% is that simple. The surcharge has different slabs too + marginal relief. Additionally, the cess is calculated on the tax payable and not on the entire amount. This would mean that the total would be much lesser than 49%.

I'm not a CA or tax expert by any means, so don't quote me on this. But if my Tax classes in uni from two years ago serve me right, the figure would actually be much closer to 35% or so.

While the specific amounts in the calculation would be pretty different, the point still remains. But just thought I'd point this out

[D33-PAC]

Originally Posted by V12Doc

I personally know who make way more than 10cr even in small cities and they do not drive 5 cr cars, or barely even 1 cr cars!

What occupation in India makes 10 crores in small cities? Dividend income people?

[boniver]

Originally Posted by AnInternetUser

While I 100% agree with the points you've mentioned, I don't think the 49% is that simple. The surcharge has different slabs too + marginal relief. Additionally, the cess is calculated on the tax payable and not on the entire amount. This would mean that the total would be much lesser than 49%.

Correct! Although marginal relief won't apply in any tax slab except the lowest one.

The correct tax rate is 30% plus 15% of 30=34.5% plus 4% of 34.5=35.88%

[dealer]

Originally Posted by V12Doc

My Family used to buy cars cash until I was old enough to manage the money and taxes and we realized that by buying better cars on loans just the depreciation and interest would save us enough taxes that cars would be paid off just by tax savings and at the same time free up the cash for investments.

Any sources that you would recommend reading more about this on? I've always had an interest in understanding how the elites have been able to do this but haven't found any detailed explanation yet.

[narayan]

One more important point:

If their business is not doing well, they will simply stop paying EMIs and eventually allow the car to be repossessed. A salaried person will think a lot before stopping to pay EMIs.

In fact, there are many of us who are paying home loan EMIs even when the builder has ditched the project and there is no asset created.

[v1p3r]

Originally Posted by D33-PAC

I think a lot of the Lamborghini clients in India unlike the West or US are cash poor and asset rich.

I doubt most Lambo buyers in India have more than 15 crores in cash max, excluding all other assets like land/residential/commercial properties.


In the US a cardiologist or radiologist makes about half a million USD. That's roughly 2.5 crores.

What kind of job in India pays 2.5 crores per annum ? Doctors in India don't get that much I think. 2.5 crores should be enough to buy a decent Lamborghini.

Also don't forget, Lambos in India are indeed expensive more so than anywhere else due to import duty.

The Aventador S in India costs almost 5 crores, as much as a premium villa.

And lastly, a little OT, but certainly relevant. A lot of Indians are big game talkers. If you've ever tried to sell anything worth 4-5 crores in India you know this. People tell tall stories about offices in Dubai and show nice cars but when it comes to doing the deal they seldom part with the cash asked or don't at all.

Lambo buyers in India certainly could be rich but I suspect a good chunk are showbusiness + cash poor/asset rich types.

When you mean cash poor, do you mean cash that is accounted for? Because it's getting very hard to use black money to buy a car. So yes, even an extremely wealthy person will not have 15 cr sitting around in white money, because it can be put to work at 12-15% quite easily. That will pay your Lambo EMI, assuming a rich person wants to buy a Lambo.

I would be surprised if any doctor who owns a small hospital makes LESS than 2.5 crores a year. I'm not sure where you're getting your income figures from, but I know enough salaried professionals who make more than that. And that's not even the real bulk money, which is with businesses in Tier 2 cities.

Also, 2.5 crores will nowhere be near enough to buy a decent Lamborghini. At a 2.5 cr income, you get about 1.6 cr in hand. A Lamborghini costs upwards of 4 cr. No one wise spends more than 20% of their income on a car. So you're looking at a maximum of 35 lakhs a year (assuming taxed income) being spent on EMIs. Suddenly, you're looking at something around the S Class level.

No one becomes, or remains (hello Anil!) rich by throwing money around on toys. You'll also notice that almost no self-made billionaires in India drive fancy cars themselves. If anything, it's their children who drive them. This is unlike the US and Europe, where people have a passion for cars. Put that down to us not having a car culture.

Originally Posted by V12Doc

It always makes sense to buy it on Loan instead of cash as leverage is one of the best ways to make and keep your money. It always easier to pay over a few years while reaping the benefits of enough write off on taxes. Just the tax savings from buying is lamborghini per year at a 15% depreciation would be equal to a tax savings on 75,000,000 and tax on interest for around 25,00,000. Thats a total of tax saving on 1,000,000/year, would pay for the interest itself and put some money on your pocket. Believing everyone buying a lamborghini is a 49% tax bracket( 30%+15%surcharge+4%cess) you are looking at an annual savings of 49,000,000. It makes good sense to buy a Lamborghini !

Can you run that maths once again? Little confused with the tax rate and the switch between crore and million.

Originally Posted by V12Doc

You have no idea how many people i see in US owning bentleys, rolls royce and these supercars and barely have $1000 in their accounts.

The phrase for this is 'hood rich'.

[D33-PAC]

Originally Posted by v1p3r

When you mean cash poor, do you mean cash that is accounted for? Because it's getting very hard to use black money to buy a car. So yes, even an extremely wealthy person will not have 15 cr sitting around in white money, because it can be put to work at 12-15% quite easily. That will pay your Lambo EMI, assuming a rich person wants to buy a Lambo.

What I meant is that there is a huge difference across the world auto markets.

If you take into account

Absolute after-tax income/a person's net worth based on assets (FDs, Houses, et cetera), this number is much bigger in the Western world as far as the average consumer in the market for cars is concerned.


If you add up most of the white collar jobs in the US alone, you've got a decent salary bracket which affords the monthly auto-pay on a nice E class, A6, or BMW 5 or 3 series.

This is why the US is the world's largest premium car market.


A high median income figure always does well for a market.


-------------


Lastly, let's not forget the cases of Deccan Chronicle, Vijay Mallya, Nirav Modi, HDIL, blah blah blah.

It amazes me how many businessmen in India have firms with little net worth mostly liabilities in little margin businesses yet they need a fancy Euro car to show their status. There's a fair chance you'll hear about them 10 years later in the news while they're being raided by the CBI . My point is, they're simply not rich.

The Deccan Chronicle guy had 23 Bentleys all registered on company name as company cars financed by HDFC, this was at a time when he was double forging his shares as collateral to get loans which he invested in unviable enterprises.

Unbelievable some people in India are.

I'd like to see the CBI/ED/IT seized Lamborghinis/Bentleys/Roll-Royces. I'm sure it'll rival the entire Indian inventory.

The same goes for the private jet market in India. HDIL comes to mind.


This is probably broad brushing but the point here is made. I recently saw that a famous heir to a South India based hospital empire got a 911 GT3 RS. It's nothing for someone like him.

[oxyzen]

Originally Posted by GTO

2. I can get car loans at 7 / 8 / 9 percent. But I know how to invest my own money and get minimum 12% returns. If you invest in the markets long-term, then there are huge tax savings on those returns. So why don't I take cheap loans and invest my money elsewhere?

Well, the 7 / 8 / 9 percent that you can save is guaranteed. However the market returns could be highly unpredictable. So to a lot of the conservative investors, the additional (12-9) = 3% is not a good enough incentive to take the additional risk.

I believe most Indians are very conservative and to them a 9% fixed deposit is a great investment. Take PF, VPF and PPF as examples.

[CarJunki]

This is simply the difference between salaried class vs professionals or business owners.
I have clubbed the professionals with business owners for one simple reason, both can claim business expenses as tax deductible not so with salaried class.
GST paid on automobile is simply claimed as input tax credit for businesses.

Business private finance can easily provide returns exceeding 16% a kind of dream with FD and blah blah. If one just invests in USA based Index ETF, the average returns in last 10 years have been 14-15% (or in 10 years your money is basically 4x). Thus if the financed cost of Lambo is working out 7-10%, there are still avenues which will out perform and provide better returns making a financed deal even more sweet. Keep in mind we are talking about entities who can repay such hefty EMI's and thus have eligibility for such deals.

I have known some doctors in tier-3 cities making money which will put many small business owners and head honchos to shame. There was a doctor in one of tier-2 cities (the person is no more), once IT raid (around year 2000) at his house revealed 8Cr in cash neatly stacked. He used to own a Fiat Padmini for all you cared.
There are tuition and coaching centers which will put even large listed Indian companies to shame both in revenue and profits. Try looking at earnings of Aakash Coaching or similar you will be surprised.

Never guess the amount of cash one has based on their rides.