Leasing becomes more attractive as auto prices rise
ORLANDO, Fla. -- I have never leased a vehicle, but then I've never played poker, drank a martini, eaten sushi or seen "Avatar," and all those seem popular enough without my participation. And while I might go to my grave without eating sushi, le...
ORLANDO, Fla. -- I have never leased a vehicle, but then I've never played poker, drank a martini, eaten sushi or seen "Avatar," and all those seem popular enough without my participation. And while I might go to my grave without eating sushi, leasing a vehicle seems more and more appealing.
"Customers tell me all the time they'd never lease a vehicle," said Ian Riding, a sales manager for Sun State Ford in Orlando. "They say they'd rather own. I tell them, 'Fine. Can I see the title to your car, then?' And they typically say, 'I don't have the title. The bank does. I'm still paying it off.' And I say, 'See? You've been leasing all this time, and you didn't even know it!' "
Riding is a huge proponent of leasing but only under the right circumstances. He insists that leasing -- while still a minority of the business Sun State Ford does, at perhaps 15 percent -- has doubled in the past year or so.
"Leasing is definitely on the rise," said Chad Rogers, general manager of Orlando's Classic Mazda and Holler Hyundai. "Especially on certain models."
So why is leasing suddenly appealing? Because, if you haven't noticed, the price of most new vehicles has risen. I don't necessarily mean the sticker price -- I'm talking about the advertised price, and the ultimate transaction price. Discounts are smaller. Manufacturers have cut back on production so much that dealers no longer have to rely on fire-sale prices to clean out the inventory. The most common complaint I hear from dealers: They can't get enough new cars and trucks to sell.
Another reason, said Jesse Toprak, chief analyst for California-based TrueCar.com, is that more manufacturers have confidence in their vehicles' residual value. When you lease a car for, say, 36 months, the manufacturer, and whoever finances the deal, must guess what that car will be worth in three years. Guess too high and base the lease payments on that, and the manufacturer loses money -- suppose they figure your vehicle will be worth $15,000 after three years, and it's only worth $9,000, and they have a problem. It's one reason the car companies got into the mess they were in.
But as the economy slowly rebounds, manufacturers have confidence in their residual predictions. But they still need to move merchandise. There are two central ways: Offer big rebates and low-interest financing so you'll buy, or offer sweetened lease deals.
For the manufacturer, leasing makes more sense, Riding said. Big rebates tend to poison resale value, and generally look bad, as if the manufacturer has to pay you to buy its products.
Leasing, though, doesn't carry that stigma. And it has two huge advantages, especially for the dealer. "It guarantees you a shot at the customer after 24, 36, 42 months -- however long the lease is. They will need a new vehicle," Riding said. And with most manufacturers, the lease vehicles are returned to the dealer, thus guaranteeing a steady supply of good used vehicles.
Leasing may have lost its luster a couple of years ago for most manufacturers, but it has always remained strong for premium European brands. John Spann, sales manager for Fields BMW in Winter Park, Fla., says that leasing is actually down a bit at his store, but still remains very strong. "It's probably 60 percent of our business," Spann said.
Why? Because even when the recession was at its worst, resale value for vehicles such as BMW and Mercedes-Benz remained relatively strong. And because BMWs and Mercedes tend to be expensive, and a lot of customers who can't afford to buy can afford to lease.
One thing Riding and Rogers agree on is under what circumstances leasing makes sense. Rogers says he asks customers how long they keep their vehicles -- if they buy new, and keep a car for years, until it dies a natural death, leasing may not be the right move. Or if they drive many more miles than usual -- most leases give you, say, 15,000 miles a year, and you pay extra for additional miles.
Leasing does not make sense, Riding says, without manufacturers' contributions. Unless they kick in lease money, buying may be your better choice.
Also, keep the lease length fairly short. "About 42 months seems to be a sweet spot," Rogers says. Riding says he has seen some customers carrying a 66-month lease, "and that's ridiculous," he says. "You'll pay a fortune by the end of that lease, and have nothing to show for it."
Bottom line: Do the math. Figure out your costs for leasing, and for buying. If your salesperson seems reluctant to help you make the right choice, choose another salesperson.
You do that, and I'll watch Avatar -- when it comes on cable TV.