About this time of year is great if you are looking for a new car. Right now, we are on the cusp of the heavy model changeover season as semis, hauling trailers full of new models drop their loads at railheads and go back for more and the trailers make the long train trip to your local dealer’s railhead and a semi ride to their new sales site.
Living on a major road will show just how big an industry the auto industry is (one in six is employed in some way by it or related to it) as two or three tractor-trailer loads of cars pass by destined for local dealerships.
This means your local dealer has a problem – it is a big one, make no mistake about it because dealerships only have so much storage on site and usually hire satellite yards to hold the continually building overflow – because dealers pay a fortune for storage costs (floor planning costs). It’s one of the bigger incidentals of the car industry.
The result is great for the consumer because, though they look like sales tricks, dealers actually have to make cars move as fast as possible and if you are in the market right now you are actually in the “driver’s” seat, so to speak. If a dealer doesn’t move all of the vehicles that he or she committed to in a period (a month or a quarter), the manufacturer will review their next inventory deliveries. This means that though the dealer has asked for all hot-selling models, he or she may find truckloads of slow-crawling models being delivered with one or two “hot” cars. Just down the road, at the same model dealership owned by someone else who has made his or her numbers, the semis are dropping off hot-selling numbers that bring in customers.
So, it is in the dealer’s favor to get you out of your current car and into a new one.
After studying the issue – spending a great deal of time on it actually – it came out on the side of leasing. Here are the reasons:
Buying versus Leasing
Buy: The car is yours when the payments are done, after five, six or seven years and the car’s value has slipped to half or a-quarter of the amount you pay for it
Lease: The car is not yours when you are finished with it, but you are not left with a vehicle that is worth much less than you initially laid out
Buy: The vehicle becomes your asset that, after six years, will need work. As an example, there is one model out there whose timing belt costs $1,200 to $1,400 to replace and unless you have some sort of wonder repair insurance package (they exist but cost a fortune), you must find the money or your car’s engine will eat itself eventually as the fiber fingers work off the timing belt.
Lease: You don’t have to worry about this expense – or any repair expense because mandatory repairs are written into leases that are on the dealership’s dime, not yours as it makes sense for them to keep their investments up.
Buy: Cars and their parts wear out and have to be replaced and after about five years, the process begins as noted.
Lease: You turn in the keys and walk away or roll it into a new lease.
Buy/Lease: Negotiations are the same, but with leasing you don’t have to worry about repairs as the dealership usually writes it into the package.
Lease: Monthly costs are lower in either type of lease the closed-end or the open-end. The key difference is that you set the number of miles you drive per year in a closed end lease and the monthly payment is based on that and the number of years for which you write the lease. If you go over the number, there’s usually a sum you have to pay at the end. In an open-end lease, though the payments are usually the lowest, you have to pay a large wrap-up fee when your lease is up. The closed end lease just has you turning the keys in and then it’s the dealer’s problem.
Buy: You take the huge depreciation hit and must buy a service warranty. If you choose this course, make sure you buy the warranty after the vehicle’s standard warranty period ends. This is because the standard dealer extended warranty begins on the day you take ownership and the vehicle has a 50,000 or 100,000-mile warranty, then all you have done is increase your car payment. So, it pays to wait.
And the winner is…
So, after all of these considerations what should the buyer do? If you are from the old school that has to own the car when the payments are up, then there’s only one solution, an old-fashioned sale (your monthly payment will be higher) where you keep the keys and problems at the end of the term. If you have read closely, though, you can probably see the answer: leasing is your better choice.