Auto leasing is back — and better? How so?
July 23rd, 2005 | by mbhunter |If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
Auto makers are hyping the lease again. This MSN Money article:
Auto leasing is back — and better
talks about the new incentives that car manufacturers are conjuring up, as well as how it benefits the manufacturers with a potential oversupply of vehicles looming on the horizon.
However, after perusing these “deals” that the manufacturers are offering, they’re really just avenues to snatch the customer back for another purchase or lease. Three of the four incentives mentioned in the article make the incentive contingent on buying or leasing another car.
Despite the recent extra sugar-coating of leases by the car companies and the showrooms, leasing is, was, and always will be a very expensive way for consumers to use a car. The selling points — lower payments and “sidestepping” the depreciation issue at resale — though true, distract the consumer from the realities of leasing a car — that they’re paying the depreciation, and much more, through their monthly payments and down payment, even though they never own the car! The dealerships will make sure of that. They protect themselves further from high depreciation when they get the car back: You drive the car into the ground and take a cross-country trip every month, you pay for the extra mileage. You damage it, you pay to fix it.
Near the end of the article, Mike Chung, pricing and marketing analyst for Edmunds.com, warns that “[t]he consumer really needs to do her due diligence.”
Absolutely. This is true for any major purchase, but especially true if you’re considering a car lease. Be sure to run the numbers for not only a lease, but also for buying a car, new or used, either with cash or with a car loan. (My vote is for buying a quality used car using cash, because a steepest part of the depreciation has been paid by the previous owner(s), and there is no interest being paid to a lender.) You’ll probably find that most of these options have a higher initial cost, but lower overall cost, than leasing, even when you add some repairs to the mix.
So if you get a hard sell from a salesperson for leasing, remember that leasing is the most lucrative option — for them.
3 Responses to “Auto leasing is back — and better? How so?”
By Jimmy J. on Jul 26, 2005 | Reply
In my mind leasing comes down to two things: How long you are going to keep the car and how much mileage you expect to accumulate every year. If you are a person that usually gets a new car in less than four years and drives less than 15,000 miles per year; leasing is for you. If you keep a car for five plus years or drive more than 15,000 miles per year then buying is the way to go. And when you buy you shoudl really try to keep the car for eight years or more. The numbers can be deceptive because, if you trade a used car in on a new purchase, you are likely to get much less than the car is worth. If you sell your old car yopurself you may, I repeat, may get what the car is actually worth. All in all, the main thing to remember that a car is transportation and nothing more. When people buy cars for any other reason they probably pay way more than they should. So, whether buying or leasing, the cost is for the necessity of transportation and should be looked at on that basis only.
By mbhunter on Jul 27, 2005 | Reply
Some excellent points in your comment, Jimmy. Thank you!
Under certain circumstances, leasing probably does make sense. Under a lot of other circumstances, though, it doesn’t. It certainly pays to run the numbers for a bunch of different scenarios to see what you’re getting into. You’ve hit on some key considerations: How long do you want the car? How much will you drive it? What will you get for the trade-in? Some others are cost of gasoline, cost of financing the purchase (if any), and expected cost of maintenance and repairs.
So you can get a cost per mile for each case. If other factors are important to you (such as a low monthly payment or having the latest and greatest) then you can see up front how much this will cost you relative to other options.
Thanks again for your comment!