Lease the car first; buy it later.......and save money
New cars will continue being a bargain. Question: how best to
minimize long-term car ownership?
Simply put... Lease the car you always
wanted...............................then buy it later..
In the past, the auto manufacturers moved cars by subsidizing
leases. Without getting into the math, the monthly lease cost
was lowered by increasing the residual value, thereby selling
(leasing) more cars. But the value of the vehicle at the end of
the lease was almost always less than the contracted residual
and each of the off-lease cars then had to be sold in the
wholesale market at a loss of several thousand dollars.
Hence several of the big backers of lease financing, Chrysler,
some New York banks, and others, each lost several hundred
million dollars in each of the past two or three years because
they had to sell the off-lease cars on the open market for less
than the residual value.
So why lease a car now instead of buying one right now?
Because by initially leasing a car, the maker is essentially
offering a price that can't be beat. It's actually lower than
the "employee cost" widely advertised. Then buy the car at the
end of the lease.
At the end of the lease the company financially backing the
lease most likely will sell the car on the open market at a
loss. Why not intervene at that point and buy the car for less
than the residual value and put that "loss" into your pocket as
money saved?
Future trends favor the consumer Pity the automotive industry.
Whereas the airlines are hurting under unsustainable wages and
benefits, i.e. health insurance and pension contributions, they
are likely to reduce them both in coming negotiations, whereas
the Automotive industry is saddled not only with these same
problems, but worse, not enough customers and too many plants
worldwide making vehicles.
If China's car industry enters the United States in three or
four years with the "Cherry" automobile, a talked about vehicle
made in China with Chinese wages, the situation will only get
worse.
Compounding the problem for some of the manufacturers is that
their labor contracts are so juicy that they are better off
continuing to give away cars rather than to close a plant and
pay continuing benefits to laid off employees.
This situation will not change for several years until
consolidation, plant closings, or bankruptcies have cured the
problem. And plant closings will be a last resort. Therefore the
glut of new cars will likely continue for a few years and the
subsidized lease will continue to be offered.
A true-life example:
A business friend of mine had a three-year-old leased car with a
contract residual value of $28,000. Looking at the used car lot
he found he could buy one just like it for $24,000. He assumed
the company that financed the lease would loose at least $2,000
in selling it.. Through the dealer he offered $22,000 to buy the
car and his offer was promptly accepted, including 3%, 3 year
financing. His dealings, all by phone (no face to face
negotiations needed) were with the company financing the lease.
So lease the car of your dreams today if you ultimately want to
buy it. Let the companies financing the lease continue to
subsidize your monthly lease payment. About three months before
the end of the lease, cruise the used car lots and notice what
your car is being offered at and then buy the car (no
commissions paid to anyone on this transaction) at the end of
the lease and keep several thousand dollars in your pocket.