Auto leasing revs up again
Auto leasing is getting a new lease on life.
Since falling out of favor in the early years of the decade, leasing has been making a steady comeback with people like Debbie Rubio of Boyle Heights.
Rubio, co-owner of a Long Beach public relations firm, leased a 2007 Ford Edge crossover last month. The decision to lease rather than buy, she says, was a no-brainer.
“It’s the easiest thing,” said Rubio, 52.
“You go in and you put down a thousand bucks and you’re out of there.”
It didn’t hurt that, after the down payment, the monthly cost of the three-year lease was $380. She figures the monthly payment on a straight purchase deal would’ve been more than $500.
“And after three years, all I have to do is take it back,” she said. “I don’t have to worry about trying to sell it or what kind of trade-in I’ll get.”
Leasing isn’t for everyone, of course. For instance, if you plan to drive your car for more than three years, buying is probably the way to go. Buying also makes sense if you spend a lot of time on the road. Leases typically come with limits of 12,000 to 15,000 miles a year; the 10- or 12-cent-a-mile charge above the limit can add up fast if you miscalculate.
There are other advantages to buying. By building equity in the car, you have some trade-in value when you buy a new vehicle.
And once the loan is paid off, you can enjoy the pleasant sensation of not having to write a monthly check.
But there are solid reasons to lease, experts say, especially over the short term. Unlike a house -- until recently, anyway -- a car is a depreciating asset. That means that unless it’s a Ferrari Enzo or some other collector classic, it tends to lose value year after year.
When you lease, you pay only for the portion of the car that you use. That generally means lower monthly payments, as in Rubio’s case, or a fancier car for the same monthly payment as a not-so-fancy car.
“Often a lease allows someone to get a more expensive car than their budget would allow if they were buying,” said Alex Rosten of Edmunds.com, an online automotive research site. Indeed, the 10 vehicles with the highest percentage of lease transactions are all luxury models.
Leasing can also provide tax benefits if the vehicle, like Rubio’s, is used for business. And if you’re the type who wants a new car every three years or so, leasing is definitely worth looking into.
And if you want to play the stock market, you could lease a car that you could afford to buy outright and invest the difference, said Brent Kessel, chief executive of Kubera Portfolios.com, a Pacific Palisades-based investment management firm.
For many, leasing carries a whiff of financial skulduggery -- earned back when deceptive practices were common in the industry.
“Most people think that leasing isn’t a good deal, and that’s usually because they’ve gotten a bad deal on a lease in the past,” said Ken Potter, vice president of sales for CarsDirect.com, an online automotive site.
Federal disclosure rules adopted in the late 1990s have leveled the playing field considerably, experts say.
You still have to pay attention, though. There are a slew of websites offering information to car buyers on dealer costs, incentives, options and so on. Detailed information on leasing deals is harder to come by, making comparison shopping more difficult, although sites such as Edmunds.com provide lease calculators that can help you prepare before going to a dealer.
At the very least, Potter said, potential leasers should remember that they still need to get a good price on the car.
“Do the same due diligence as you would if you were buying the car,” he said. “Consumers get too focused on the monthly payments: ‘I want a car and this payment looks good.’ ”
After accounting for close to a third of new-vehicle transactions in the late 1990s, leasing dropped sharply in the early years of this decade.
Plummeting interest rates made auto loans cheap and buying more attractive than leasing. The incentives that dealers used to goose car sales after 9/11 dented the resale market for leased cars, causing many lenders to get out of the leasing business, Potter said. And a 2003 New York law dealt a blow to leasing activity in that state.
The legal environment has since improved. Sky-high gas prices, meanwhile, are taking a bigger bite out of household budgets, making the lower monthly payments leasing can provide especially enticing to cash-strapped car shoppers. And automakers are pushing a raft of attractive deals -- all of which has helped leasing account for 18% of new-vehicle transactions this year compared with 13.9% in 2003.
Not surprisingly, there’s something in it for dealers too. More than 90% of leased cars are returned to the dealer at the end of the typical three-year contract.
To avoid penalties, customers tend to bring the cars back with reasonable mileage and in decent condition, making them prime candidates for resale as “certified” used cars -- a designation that adds an average of $1,300 to the price, according to Edmunds.com.
“You need a source of used cars and leasing provides that source,” said Tony Sorrentino, general sales manager at Honda World in Westminster.
Dealers also like the loyalty that leasing brings. Sorrentino estimates that he gets repeat business from 70% of his lease customers compared with 30% to 40% of customers who buy.
That loyalty needs to be a bit more flexible when it comes to the car itself, however.
“You still have to love what you drive,” Rubio said of her new Edge. “But I love the idea that you get to change every few years. Out with the old, in with the new.”
--
--
(BEGIN TEXT OF INFOBOX)
Getting a good deal
Pay attention to the mileage. Leases typically allow drivers 12,000 to 15,000 “free” miles a year, after which they tack on a fee of several cents per mile. That mileage restriction is a deal breaker for many long-commuting Southern Californians, and some recent lease deals have a 10,000-mile limit. Try to negotiate a limit that suits your driving needs.
Avoid a big down payment. It’s called a “capital cost reduction,” and unlike the down payment you make when buying a car, it doesn’t provide any equity in the vehicle. Many recent lease deals require a down payment of $2,000 or more, which negates one of the prime advantages of leasing: driving a new car for little or no cash outlay.
Read the contract. Laws now require dealers to divulge the information about pricing, penalties and additional fees that caught many consumers unawares back in the 1980s. But you need to read the contract to make sure you know what you’re getting into.
Make an offer. If you really, really like that car you’ve been leasing, consider making an offer to buy when the lease is up. Depending on how the residual value is calculated, you might get a bargain. If not, walk away and see what you can find on the used-car market.
Sources: Automobile Club of Southern California, Edmunds.com
--
Luxe leases
For many luxury models, leasing is the primary method of moving vehicles off dealers’ lots.
Percentage of 2007 models that are leased
BMW 5 Series: 72.7%
BMW 7 Series: 66.5%
Jaguar XJ-Series: 58.9%
BMW 3 Series: 57.6%
Audi A8: 56.9%
Audi A4: 56.8%
Cadillac CTS: 56.6%
Jaguar S-Type: 55.0%
BMW M: 54.3%
BMW Z4: 53.7%
--
Source: Edmunds.com
