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Leasing returns from the dead

By Claes Bell, CFA ·
Wednesday, January 12, 2011
Posted: 12 pm ET

If you're noticing more ads for hot auto lease deals lately, you're not imagining things. Like Jason Vorhees, auto leasing keeps dying and coming back so many times it's getting hard to keep track.

Ward's Auto has an interesting article this month on a renewed leasing push by automakers:

Leasing took a hit in 2008 when the former Chrysler LLC stopped offering it and the former General Motors Corp. curtailed it months before both entered bankruptcy.

But the reorganized Chrysler Group LLC and General Motors Co. are back in leasing.

More ambitiously, so are some international-brand auto makers with high sales goals. Those include Hyundai Motor America Inc., Kia Motors America Inc. and Volkswagen of America Inc.

"Hyundai and Kia are refocusing their sales strategy to drive the leasing business," Lyman says. "And VW really is pushing leasing. VW is the most aggressive in marketing and focusing on its lease strategy."

At the back end, auto makers also use leasing to replenish the inventories of their popular certified pre-owned programs. Those offer consumers late-model used cars with low mileage and extended warranties.

All this adds up to leasing regaining a bigger share of the marketplace in the future, thanks to sweeter deals and, of course, heavy marketing by automakers:

ALG predicts that by 2015, leasing will reach nearly 20%. Many industry experts consider that a healthy level.

I'm not surprising leasing is making a comeback, considering how used-car prices are rising and more people are in the market for CPO autos than in the past. But just because leases are a better deal for automakers these days doesn't mean they're a good deal for you. Thankfully, Bankrate has a lease vs. buy calculator that will help you figure out whether leasing is a good deal for you.

I'm personally not a huge fan of car leasing, unless you're a small business owner and can write the payments off on your taxes. While you've got to love the budget flexibility that low, low monthly payment gives you, most of the good lease deals are very restrictive in terms of the model you can get and the amount of mileage you can put on. Exceed those mileage limits, and suddenly a good deal can get pretty darn bad.

Maybe if you're the type to trade your car in every 3 years anyway for a newer model, leasing can at least minimize the financial damage of being a new-car lover. After all, unless your payments are extremely high, you're going to get little if any equity in your auto after three years of ownership anyway, so having nothing to show for all your lease payments wouldn't be a big deal.

And your total outlay would probably be less for leasing a new car every three years rather than buying a new one every three years.

What do you think? Do you lease cars? If so, why?

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January 13, 2011 at 10:28 pm

We leased our 2007 Murano because we hoped a more fuel efficient cross over would make it to market by the time the lease was up. As the article states, if we purchased and tried to sell, we would have little or no equity anyway. Unfortunately, after 37 months of our 39 month lease, nothing has popped up in showrooms that really appeals to us... so now we can either buy the thing or swap to something else. At this point, we really can't decide.

January 13, 2011 at 3:17 pm

I have never leased a car myself because I drive my cars until they die on the highway and have to get towed to the junkyard. But my father, who owns his own small business and drives a lot has had a lot of luck with leasing. Frequently at the end of his lease, he will opt to extend it or purchase the vehicle. I'm glad that American automakers are able to offer this option again now that they are in better financial shape.

Claes Bell
January 13, 2011 at 8:12 am

Lease as trial period. Interesting approach. Hadn't thought of that. Thanks, Harold!

Harold Whitaker
January 13, 2011 at 7:53 am

I lease at the end of lease if I like the car I pay cash for it,that works for me.