Following the economic tsunami that toppled housing and automotive markets alike, the auto-leasing industry is creeping back, a possible sign that recovery is nearer than some thought.
Industry reports show that leasing accounted for about 16 percent of all auto sales in the last quarter of 2009 — the highest it’s been in at least two years — and local industry experts say the climb continues.
Locally, some dealerships say they expect leases to increase by 15 percent this year, an incredible turnaround from a year to a year and a half ago when leases were nearly unavailable.
That means that while consumers view auto leases as a viable and affordable way to acquire a new vehicle in a tough economy — typically, high-end makes such as BMW, Mercedes and Cadillac dominate the market — banks and other lenders see it as a strong signal that car values are beginning to hold their own again.
“We are certainly seeing more advertisements for leasing, whereas 12 or 18 months ago, all the car dealers were pushing financing deals for the new cars,” said John Sternal, spokesman for , where consumers sell or trade automotive leases. “Even a year ago, carmakers simply didn’t have the products.”
Despite the uptick, it’s a long way from the 30 percent market share leases held in the early part of the decade.
Leasing’s death knell nearly tolled when gasoline touched $4 per gallon in summer 2008. That and the dropping value of vehicles coming off leases — known as the residual value — caused banks and other credit institutions to run the other direction. Those with leased vehicles couldn’t sell them for their worth.
Leasing a moderate-priced vehicle is becoming an attractive choice for some would-be buyers who weathered the economic crisis.
“There’s been a strong push from the manufacturers, and they’re subsidizing the rates, making it very attractive,” said Rick Jones, general sales manager at Alpine GMC in Denver. “The residuals are lower, so the balance at the end isn’t high, the rates are lower and the incentives are strong. That all gives a better chance to pick up the car at the end of the lease. It’s affordability options.”
In some cases, the most attractive choice is an assumed lease — where the leaseholder sells it and the buyer picks up the remaining payments or negotiates a new deal with the bank that holds the ownership note. In these cases, the buyer can get into an affordable lease for only a few months, which is impossible for a new lease.
“A lease was just looking more attractive to me,” said Benjamin Cooke, a 30-year-old field-applications engineer in the electronics industry.
And it was a good deal. Via , Cooke bought into a BMW 528xi and assumed a lease with 11 months remaining. The previous owner, on the way out of the country, even tossed in some money to seal the deal.
That wouldn’t have happened a year ago.
“Instead of (making) a down payment, I get cash,” Cooke said.
David Migoya: 303-954-1506 or dmigoya@denverpost.com
Points to ponder
A few points to consider when deciding whether an auto lease is for you:
• Length of payment. Leases typically run for three years, new-car loans for five or six.
• Size of payment. Leases usually cost much less, but there’s nothing to show for it at the end.
• Always new. A lease guarantees a new vehicle when you sign up, but you never own it unless you buy at the contract’s end.
• Driving distances. If you drive more than 12,000 to 15,000 miles a year, you’ll pay an additional fee of up to 18 cents a mile.
• No repair costs. A leased vehicle is under warranty all the time.
• More insurance. Because a bank owns the car, most leases require minimum insurance coverage that could drive up your cost, since coverage for an owned vehicle would likely be less extensive.
How a lease works
Agree on a price.
Dealer/lender decides on the residual value of the vehicle — what it is expected to be worth when your lease expires.
You pay the difference, typically stretched out over 36 months with an interest factor.
Agree on mileage limits and a price per mile you will pay — usually in the pennies — for each mile you exceed the limit, to be paid when you return the vehicle.
On expiration, you have the option to purchase the vehicle at the residual price agreed on earlier. If the book value of the car is higher, you may be able to resell it at a profit.
Additional charges exceeding normal wear and tear might apply.
By-the-numbers comparison of lease versus buy
Here’s one lease deal being offered by GMC to qualified buyers, compared with a purchase of the same vehicle:
To lease
Model: 2010 GMC Acadia FWD SL
List price: $32,515
Lease term: 39 months
Monthly payment: $349
Due at signing: $2,799
Mileage limit: 39,000 (18 cents/mile after)
To buy:
Model: 2010 GMC Acadia FWD SL
List price: $32,515*
Purchase term: 60 months
Loan interest rate: 0 percent
Down payment: $5,072 (15.6 percent)
Monthly payment: $457.47
* Other charges may increase the price, including tax and title.
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