The pros and cons of leasing a vehicle.

[GolfAddict]

As the great man said:

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

Touché

As I don't get any of the $39, I'll spill the beans.

Some auto leases state a specific price at which the lessee can purchase the auto at the end of the lease -- others state that the lessee can purchase the auto at the end of the lease at its fair-market value. The first type of lease has an embedded call option that can be valued (using standard capital budgeting tools) if information on the cash flows for both types of leases is available.

Steve

Interesting. I've never leased and didn't even realize there are different buy out depending on the way the lease is written.

I wonder sometimes if a person that trades up cars often would be better off to lease. You take all that huge hit in depreciation in the first couple years so the trade value has really dropped. Did I lose more in depreciation than I would have paid in lease payments? But I guess you can't really know what you're going to get in trade-in value in a couple years.

Getting my mind around not owning my car would be hard...

 

[Gary Fowler]

In todays society, many folks don't even care how much a car costs, only how much the monthly payment is. If the monthly payment is within their budget, they take possession without thought to how much it really costs them.
If you don't mind a perpetual car payment and have no regard for the actual out of pocket cost of the car, then by all means lease.

Most cars will go 100,000 mile with only one new set of tires and perhaps one battery as maintenance. If you do a lot of sudden stopping, then throw in a brake job also. My wife's 2003 Olds Bravada has a bit over 100K and other than tires, windshield wipers and battery, it all original. Almost forgot, I had to have a new water pump put on at 75K.
Engine/transmission wise, 200K is about the norm before expecting to have some problems. For the 12K per year average driver (limit for most leases without paying a penalty) that is almost 10 years of almost trouble free driving even without a warranty. SO if you take the max limit of time to pay for it, 6 years, then you have another 4+ years of no payment to save for a new vehicle. Personally I don't trade cars just to get a new model. That 2003 Bravada looks no different (except for a few dings and scratches)than todays new model SUVs.

If trading out every 2-3 year is your bag in order to always drive the latest model, OR wanting to drive the high dollar cars that you cant afford to buy, then lease it out but don't even think that is the cheapest way to go because it sure as heck costs the consumer NOT the dealer.

 

[arrow]

I don't know if it still applies, but an article in the late 50's or early 60's said the most economical way to always have a newer, reliable car was to buy one that was two years old and keep it two years. Then do it again.

Bruce

Well when cars sold new between ($1700-$2800) it may have effected acquisition pricing. I will have to say that this method you describe can also work today depending on where the "price segment" is. Actually leasing originated to move product no matter what it's pricing structure. Rich folk always had the money to buy just about anything they wanted. It was when the middle class wanted to drive the same cars that it was recognized as a specialized market segment. What happened then was someone got the bright idea that time was a form of currency. On some high level cars, you could get 10 yr. paper. Volvo wanted you to believe their cars were being just broken in at the 200,000 - 300,000 mile mark. The aspect of "purchasing" just "half the car (leases) became another. Neither is a larger part of the segment with auto makers preferring to create a "price line" or "entry level" vehicle to their $50-80K model line. They discovered they can make many more sales that way if something in their model line approaches the 30K mark.
The leasing mechanism has made for some very large gains for the auto dealer which is fine. Some even have a terminology for it such as "So and so's Pretrade Program rather than say "leasing program". Sounds more enticing the other way.
Having sold autos for 19 years in another life, the individuals mentioning the "best way to buy a car" I would have to agree with if one is using certain criteria. If you want a nicer vehicle, buy the "program car" (which describes several segments, off-lease cars being one of them). You can save a minimum of 10K over the best deal one could have gotten when the car was new. Put a legitimate encompassing 5 year warranty on it for piece of mind ( and not one of these $399 warranty deals that have so many holes in it that virtually nothing is covered) and drive it until it cracks in half or you have the money to do it again the same way. There is also nothing wrong with buying a new vehicle and keeping that until the cows come home as well. I've kept cars until the 15-20 year mark putting well over 220K miles on them with nothing more than routine maintenance. What I've spent in maintenance does not nearly equate with a monthly car payment of $300-$400 for the same length of time and that includes not doing the work myself.
Also do not forget: you can negotiate anything, even leases.

Is there "value" doing it this way? By my criteria there is. Just as legitimately some may hold a "value" not measured in money which is just as important and prefer to lease or trade in on a regular basis.

I will say that if one is a "frequent car buyer", if it fits, purchase cars with the best trade in allowances such as Toyota, Honda or Subaru or ( would you believe Chevy Suburban/Tahoe and just about anything GM these days) anything where there is a high regard market value. You can keep a car like this for a long time and still get excellent value on a trade.

Lastly, just about everyone is making a much better car now a days but some models have a rep or even a perception of superiority with reliability, durability and things like (don't laugh) Blue Tooth connectivity coming to the fore as purchase requirements. These are the cars one should have in their sights for ownership if economics looms large for the purchaser.

 

[KennyG]

I don't know if it still applies, but an article in the late 50's or early 60's said the most economical way to always have a newer, reliable car was to buy one that was two years old and keep it two years. Then do it again.

Bruce

With the quality of today's cars, I think that could be amended to say buy one that's 4 years old and keep it for four years.

 

[The Fred]

With the quality of today's cars, I think that could be amended to say buy one that's 4 years old and keep it for four years.

I beg to differ. Today's cars are overpriced, over-engineered and designed with obsolescence in mind.
A Volvo 240 say 1991 would run 300k with few issues and unplanned maintenance. A 2005 Volvo for comparison's sake has little chance of going that distance without major repair considerations. Parts prices are outrageous, example being rear differential module (common failure) that has a list price of over $2,000 dollars. If you think this is just a Volvo issue think again as this same exact part is shared with the Ford Freestyle AWD and the Ford part is even more money.

Virtually all of these added subsystems are networked and need support of some type from the manufacturer; unlike vehicles even 15 years ago.

OEMs will only support their designs for a limited time. Ask virtually ANY Ford dealer about keys for a Ford product, their proprietary transponder codes are kept on record for 10 years. If you need a key for a Ford older than 10 years you'll need to call a locksmith, IF he's got the right equipment to do the job.

The days of buying new and keeping for 20 years are quickly going by the wayside. I've seen many many folks that bought used Volvos thinking they were a safe and excellent choice only to be drained of all their car fixing money by guys like me. These same folks have quickly moved into Subarus and other Asian brands for the time being. It's a cycle that repeats itself among manufacturers.


Though I have never leased a vehicle in my life I think the idea might not be so bad if the numbers work out.


Good luck whatever your choice may be, Fred

 

[The Suburban Farmer]

Virtually all of these added subsystems are networked and need support of some type from the manufacturer; unlike vehicles even 15 years ago.

I agree, and it frustrates the heck out of me. Ever since they started computerizing cars, they have built-in some obsolescence, I think. Some parts just aren't fixable without shelling out major bucks to a dealer.

Back when I was younger (and dumber) I had an old Porsche that I could work on with nothing but a set of metric sockets (which I thought was elaborately crazy at the time) and it ran for years-and-years-and-years without so much as a hiccup. Now, it seems like you can't even fix a budget-priced vehicle without shelling out money for your own code reader. On some cars you can't even turn off the "change oil" notice on the onboard computer after you do your own oil change without a trip to the dealer or a special code. Now THAT is frustrating.

 

[Capricious]

Well when cars sold new between ($1700-$2800) it may have effected acquisition pricing. I will have to say that this method you describe can also work today depending on where the "price segment" is. Actually leasing originated to move product no matter what it's pricing structure. Rich folk always had the money to buy just about anything they wanted. It was when the middle class wanted to drive the same cars that it was recognized as a specialized market segment. What happened then was someone got the bright idea that time was a form of currency. On some high level cars, you could get 10 yr. paper. Volvo wanted you to believe their cars were being just broken in at the 200,000 - 300,000 mile mark. The aspect of "purchasing" just "half the car (leases) became another. Neither is a larger part of the segment with auto makers preferring to create a "price line" or "entry level" vehicle to their $50-80K model line. They discovered they can make many more sales that way if something in their model line approaches the 30K mark.
The leasing mechanism has made for some very large gains for the auto dealer which is fine. Some even have a terminology for it such as "So and so's Pretrade Program rather than say "leasing program". Sounds more enticing the other way.
Having sold autos for 19 years in another life, the individuals mentioning the "best way to buy a car" I would have to agree with if one is using certain criteria. If you want a nicer vehicle, buy the "program car" (which describes several segments, off-lease cars being one of them). You can save a minimum of 10K over the best deal one could have gotten when the car was new. Put a legitimate encompassing 5 year warranty on it for piece of mind ( and not one of these $399 warranty deals that have so many holes in it that virtually nothing is covered) and drive it until it cracks in half or you have the money to do it again the same way. There is also nothing wrong with buying a new vehicle and keeping that until the cows come home as well. I've kept cars until the 15-20 year mark putting well over 220K miles on them with nothing more than routine maintenance. What I've spent in maintenance does not nearly equate with a monthly car payment of $300-$400 for the same length of time and that includes not doing the work myself.
Also do not forget: you can negotiate anything, even leases.

Is there "value" doing it this way? By my criteria there is. Just as legitimately some may hold a "value" not measured in money which is just as important and prefer to lease or trade in on a regular basis.

I will say that if one is a "frequent car buyer", if it fits, purchase cars with the best trade in allowances such as Toyota, Honda or Subaru or ( would you believe Chevy Suburban/Tahoe and just about anything GM these days) anything where there is a high regard market value. You can keep a car like this for a long time and still get excellent value on a trade.

Lastly, just about everyone is making a much better car now a days but some models have a rep or even a perception of superiority with reliability, durability and things like (don't laugh) Blue Tooth connectivity coming to the fore as purchase requirements. These are the cars one should have in their sights for ownership if economics looms large for the purchaser.

I can agree with most of the above, except:

1) I have never found that I could buy "program" cars for "a minimum of 10K over the best deal one could have gotten when the car was new." I am talking about vehicles in the $20,000.00 to $25,000.00 range, no more than 3 or 4 years old, and I cannot save $10,000.00 (or more) over their cost new. Possibly if these were $60,000.00 vehicles, but that is way out of my league.

2) I would NEVER buy an extended warranty. Over the last few decades* I have declined the extended warranties on vehicles, appliances and the like to the extent that the savings in the costs of these extended warranties far exceed any repairs I have had to pay for. I could take a major "hit" on a vehicle and still be ahead.




(* I can still remember the first time a sales person tried to sell me an extended warranty- it was on a brand new 1988 Plymouth Horizon I was buying (for cash) for a woman I was engaged to at the time** Only the second new vehicle I had ever purchased)



(**Married over 25 years now)

 

[arrow]

I can agree with most of the above, except:

1) I have never found that I could buy "program" cars for "a minimum of 10K over the best deal one could have gotten when the car was new." I am talking about vehicles in the $20,000.00 to $25,000.00 range, no more than 3 or 4 years old, and I cannot save $10,000.00 (or more) over their cost new. Possibly if these were $60,000.00 vehicles, but that is way out of my league.

2) I would NEVER buy an extended warranty. Over the last few decades* I have declined the extended warranties on vehicles, appliances and the like to the extent that the savings in the costs of these extended warranties far exceed any repairs I have had to pay for. I could take a major "hit" on a vehicle and still be ahead.




(* I can still remember the first time a sales person tried to sell me an extended warranty- it was on a brand new 1988 Plymouth Horizon I was buying (for cash) for a woman I was engaged to at the time** Only the second new vehicle I had ever purchased)



(**Married over 25 years now)

There is a GM dealership in my area selling program Malibus and Impalas in model years 2012-2014. Program cars also include "rentals". These cars had anywhere between twenty seven to low thirty K price tags. If a mean price can be established at 28K for the lot, these cars can now be purchased between 15-17K. Every one of them has less than 36,000 miles on them. Cars that sold new between 20-25K also have less room in them for negotiation. He has these cars between 11.9 and 12.9K. This should at least give you an idea about what this particular automobile as a program car can be purchased for.

2. A warranty for some is a good idea especially as the program car nears it warranty termination. A warranty certainly provides "peace of mind" for many whether they use it or not. Here, peace of mind becomes the purchase rather than the warranty. Granted, some sales vermin "prey" on these kind of concerns. It is simply not the right way to treat people. I would hesitate to sell a warranty to a person putting on 5000 miles per year or the person who has a relative in the auto fix it business or if a car showed no tendencies for failure or the purchaser was quite adept at fixing their own stuff. No one I ever sold a vehicle to who I felt didn't need a warranty, had to say "no" to an additional warranty purchase. As I stated before, there are different values for different people not always measured in dollars. For that single mother of 3, or the spouse whose partner is infirmed or disabled or the person who puts 36,ooo miles per year, a warranty may have more application to. For some, "peace of mind" is rather priceless as they have plenty of other stuff to be concerned about. While it doesn't work for you, my counsel had more of an overall view to it.

As a sales person, I always took into account as to who was buying the car as to whether or not I'd advise a warranty if the subject got brought up as a concern by the purchaser. For some, a warranty is senseless. For others, it is an important part to them and certainly has paid off for people. I've had people thank me for not selling them a warranty or even bringing it up if they hadn't and have had people wanting to kiss my feet because they did purchase one and saved a ton of money as a result. There are "specifics" and as a result, it would be wrong to paint with a broad brush either way.

 

[Capricious]

"... A warranty for some is a good idea especially as the program car nears it warranty termination. A warranty certainly provides "peace of mind" for many. While it doesn't work for you, my counsel had more of an overall view to it..."


What is the cost of these warranties?

 

[Capricious]

"...A warranty certainly provides "peace of mind" for many..."





"..I feel like I probably paid too much for peace of mind..."

Consumer Reports: Extended Warranties for Cars - Consumer Reports