Car buyer's market still has problems

Leasing deals vanishing

Manufacturers and their finance subsidiaries have been burned by the sharp drop in residual values for vehicles -- mostly SUVs -- that are now coming off lease. That means they are dropping lease plans for some vehicles, or, as is the case with Chrysler, getting out of the leasing business altogether.

Japanese and European manufacturers have not been so quick to abandon leases, but lease payments are likely to rise because the deals will involve lower residual values -- the amount the finance company estimates the vehicle will be worth at the end of the lease: The lower the residual value, the higher the monthly payment. For consumers used to leasing expensive vehicles for monthly payments far below what it would cost to finance and buy outright, there are few options. You can bring down the monthly lease payment by paying what essentially is a down payment at the start of the lease -- called a capital cost reduction. But that's money you'll never see back in the form of equity in the vehicle because you don't own the car -- you're essentially renting it.

The best advice is to shop around for the lease deals that are still out there and expand your shopping to include a wider range of vehicles. If you like the vehicle and want to hang onto it, you're in a good bargaining position with the leasing company. Unless your leased car is a Toyota Prius or other fuel-sipping vehicle, chances are the leasing company doesn't want to take it back because it's likely worth far less than the residual value stated in the lease contract.

Normally, the leasing company would let you buy the car for the residual stated in the lease, but since values have fallen, you may be in a position to offer far less than the residual and the leasing company may jump at it.

Prices up on small, used cars

If you're after something that goes a long way on a gallon of gas, you'll pay a lot more than you might have in 2007. But a glut of SUVs on the used-car market means those vehicles are going at what would have been considered bargain prices not so long ago.

So what you save on a gas hog may cover the additional cost at the pump. And if gas prices fall even a little bit, it could be a good buy.


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