A lot of bubbles burst over the past two years besides those on Wall Street, the Banking Industry and Real Estate.  Auto Leasing companies absorbed losses in off-lease vehicles due to overly optimistic residual values, (the guaranteed amount that they agreed to buy back the vehicles for at the end of the lease which was factored in when the lease was originated), when the auto industry shrank along with the economy.  The resulting losses in the wholesale market and lack of ability for auto dealers to retail out of the lease returns forced domestic manufacturers and independent leasing companies to either cancel their leasing programs completely or to reduce their residual values so low that the payments were more than conventional financing.  Basically, for most lenders and customers, leasing effectively died last year but it is staging a recovery of sorts that shows some life in the option that might interest payment buyers and automotive advertising agencies anxious to find ways to offer more for less - per month that is.

Chrysler, for example, has announced that they will be putting their toes back in the troubled leasing waters with some sub-vented leases, (subsidized residual values above expected resale at lease end and reduced money factors), that will offer competitive payments on some of their new models.  All of the details haven’t been released but the story has been announced in the mainstream media and you can expect factory marketing campaigns to start mid-September.

Another indication that leasing is about to stage a revival is the upward trend in wholesale values at dealer auctions and retail prices heading back to pre-crisis levels.  The increased residual values that can now be projected will reduce the depreciation and the associated payments for leasing a car vs. selling a car or buying a car.  That is good news for the auto industry which has been struggling with extended length financing contracts to make payments affordable for new car buyers.  Buying a car using conventional auto financing also often requires a substantial down payment on new cars and used cars which makes selling cars to cash strapped customers difficult for car dealers.

EveryCarListed.Com offers a variety of vehicles and payment plans for new cars, used cars and even certified pre-owned cars and they will likely be the first place to reflect the new method of buying cars and selling cars using creative leasing plans.  Every Car Listed allows consumers to compare all makes and models from individuals and auto dealers selling sports cars or even used trucks with competitive pricing and payment plans that are certain to include leasing payments in the near future.

As a rule of thumb, leasing a car has certain advantages over buying cars including requiring less money down - referred to as “inceptions” plus tax, tag and title, lower payments since they are based on the difference between the purchase price and the residual value - or better described as the depreciation, and three options at the end of the lease including the ability to purchase the car for the pre-established residual value, selling the car to a private party or dealer for a potential profit or simply walking away since the lessor is obligated to purchase back the vehicle for the balance due .  An often misunderstood issue at lease end, or even at inception, is the customer’s obligation for additional wear and tear on the vehicle or excessive mileage fees.  Simply put, the customer is responsible for both of these items even if the pay cash or finance the vehicle since they will reduce the resale or trade-in value when the customer wants to change vehicles.  The difference is that with a lease you will know exactly what the excess mileage charges will be - usually 10-15 cents per mile above the agreed to amount per year - and the actual costs for repairs if needed at lease end.

The fact is that the return of leasing is a good thing since it opens up options for both consumers and auto dealers to come to mutually acceptable terms.  It can lower down payments, lower monthly payments, reduce length of contracts allowing more frequent upgrades and eliminate the probability that a customer will be upside-down, (owe more money on their vehicle than it is worth), if/when they want to trade it in.

What was will be again, and what will be is often better than what was, so I anticipate that the new leases will learn from the mistakes of the past.  The key is to select a vehicle and a dealer that will offer you an honest comparison between leasing and financing and then select the payment plan that is best for you.  Most dealers will be happy to oblige since after all, what are friends for!

This entry was posted on Monday, September 14th, 2009 at 3:50 pm and is filed under Hot Topics. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.