New incentives heat up auto leasing

After dropping off the radar screens in 2001, automobile leasing is back with a twist.

Manufacturers, eager to relive 1999, when leasing contracts comprised nearly 40 percent of their deals, are tempting consumers back with offers such as making it easier to break a lease and sign-up incentives.

General Motors, for example, dangles the Freedom Lease, where Californians itching to drive a Buick LaCrosse, Chevy Cobalt, or Pontiac G6 can break their lease for any reason within the first 12,000 miles and only forfeit the $1,500 down payment.

GMAC smart-lease customers, on the other hand, could skip their remaining payments, as long as they lease or buy another GM vehicle.

Not to be outdone, Toyota tapped a select group of 40,000 customers and offered to waive the last six months or less on their lease payments and forgo a security deposit if they'd lease or buy a new vehicle.

Mercedes-Benz doesn't mess around: the Loyalty Accelerator program allows customers who opt out of a lease early to either apply a credit, equal to three payments, toward their current contract or slap it on a new lease for a C240, C320 or CLK 320C Coupe.

It's simple marketing, says Art Spinella, president of CNW Marketing Research. "Most people see it as a gimmick more than anything else, but they're willing to take a flyer at it because it doesn't matter. A lease is a lease," he says.

Why lease?
Indeed, his data shows the Freedom Lease accounts for approximately 12 percent of General Motor's leasing deals. Overall, leasing levels have crept up to 15.8 percent as of May 2005, reports Mike Chung, pricing and market analyst for Edmunds.com.

That's because leasing once again provides the consumer advantages that enticed Americans in its heyday -- lower payments and a way to sidestep the depreciation issue at resale, says Jonas Samuelson, executive director for GM North America sales, service and marketing.

But mostly, it's the lower monthly payments. After all, some lucky drivers are tooling around town in minivans for $140 a month.

Among car shoppers at Autobytel.com who are considering a lease, 75 percent say it's because leasing allows them to upgrade to a better vehicle, as opposed to the 25 percent minority who lean on this avenue because it's the only way they can afford something decent. (Although in total, folks here still lean 62 percent to 38 percent toward car ownership.)

Mark Perleberg, the lead auto expert at NADA Guides, used this route to put his future stepdaughter into a brand-new Honda Civic for the $7,000 her family budgeted. "Now that short-term interest rates have shot to close to 6 percent on a purchase agreement, the differential between what it costs to own that vehicle and to lease it has spread," he says.