Let’s make a deal: The time is ripe for leasing cars

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Want a late luxury car, sport utility or truck but can’t afford the down payment?

Well, for the next 60 days, auto buyers can make the lease of a lifetime on vehicles being turned in from leases, says Art Spinella, vice president and general manager of CNW Market Research in Bandon, Ore. Used car prices are lower than they have been in six or seven years.

Because 3.5 million leased vehicles are being turned in this summer, “there is a window of opportunity while the supply lasts. This won’t happen again for three or four years,” said Spinella, who follows the vagaries of the auto market with an eye toward helping consumers make the best deal.

Because of the glut, Spinella said, many of these still-lease-worthy vehicles — including the popular Ford Explorer, Chevy Blazer and Jeep Cherokee — are being dumped on the market for fewer dollars than they normally would command.

Now is the time to negotiate
Spinella said the glut should last through August, “so it will be tougher to get a really good shot at an off-lease vehicle after August. And if you have a lease ending, there never was a better time to negotiate a lower monthly payment, if you want to keep the car,” Spinella said, pointing out that automakers Ford, Toyota, General Motors and Nissan have the best lease financing on used vehicles.

After that, try a local bank or a large independent finance organization, he said.

Randall McCathren, vice president of Nashville, Tenn.-based
Bank Lease Consultants, which provides advice to the vehicle leasing industry, said the situation has been created by three factors:

  • Overproduction of new cars.

  • Too many new vehicles coming off lease this summer.

  • A drop in the value of the Japanese yen compared to the dollar, which has caused 1998 cars to sell for less than 1997 vehicles.

This has translated into a 5 percent drop in the value of the average used car, he said.

Supply and demand
“Basically, this is a problem of supply and demand,” said McCathren, explaining that no one could have anticipated this would happen two and three years ago when lessors predicted what leased cars and trucks would be worth in 1998.

A Consumer Bankers Association 1998 automobile finance study speaks to the problems facing the leasing industry. The Arlington, Va., organization found that three out of four returned leased vehicles lost an average of $1,756 in resale value.

For 1997, one out of 10 vehicles coming off lease sold for less than the lessor anticipated. “Lessors thought these cars would be worth more than the auto evaluation books said they would be,” said association spokesman Kenneth Reed.

Pricing pressure
Dick Schliesmann, an executive vice president of San Francisco-based
Wells Fargo Bank, said lessors should have anticipated the collapse of the used car market when the Japanese yen dropped in value in comparison to the dollar.

This put pressure across-the-board on new car pricing.

Add to that the enormous new car production — building 70 million vehicles when there was only a demand for 50 million — “making it very hard to predict what car prices would be in the future,” he said. The same cycle occurred in the 1980s and early 1990s, he said.

While the water is fine for leasing a used car, watch out for the sharks, Spinella warns, pointing out the so-called superstores usually charge 4 percent more than your friendly neighborhood auto dealer for the same vehicle.

These superstores tend to buy “second or third pickings among the cars coming off lease, so they are not the best cars,” Spinella said. “The dealers take the cream of the crop to put on their lots.”

Incredible deals
Currently, Spinella said there are “incredible deals” to be had on sport vehicles leased two to four years ago. But he warns not to lease any used vehicle for more than three years.

“It’s not wise to get caught in a vehicle that will be older than five years at the end of the lease,” he said, pointing out that even those upscale vehicles such asBMW and Mercedes start requiring a “fair amount of money” to keep up as they age.

Spinella said the key things to watch for in leasing a used car are:

  • Make sure the car had been leased to a private party — not to a company that used it for fleet service. Ask the dealer to show you the paperwork history on the car before leasing it.
  • If the car has more than 45,000 miles on its speedometer, chances are it was not in private use.
  • Always counter the first offer. You can make a better deal and possibly shave a point or more off the interest rate, especially in this glutted environment.
  • Lease the vehicle for the shortest period of time possible and for the lowest monthly payment.
  • Never worry about the annual percentage rate on the lease. What counts is your monthly payment — not whether the interest rate is 90 percent or 2 percent.
  • If you know you will average 20,000 miles annually, negotiate a price for additional mileage upfront. If it’s not all used, the balance is refundable.
  • Paying for excess mileage at the end of the lease can cost more — the average is 12 cents a mile.