In an effort to get business by establishing lower and lower monthly lease payments, many automakers set way too optimistic lease-end residual prices.
These vehicles then flooded the used market and over-supply conditions further decreased their already unrealistic values.
Net result: automakers and lessors had to suck up the difference, and suffered huge losses in their leasing portfolios. Grumpy faces all around.
They’re not going to do that again. Oh wait, they might be… Yes, Chrysler and GM are back into leasing. And other automakers that significantly scaled back their leasing efforts, like Ford, are now scaling back up.
Well leasing is back, but you can be sure that automakers have learned valuable lessons. Leasing is different now.
Generally, automakers will now be more selective on which models they offer leasing programs on, and will have self-imposed limits on their overall leasing penetration. Ford, for instance, wants to keep it around 10 per cent of their overall sales.
Luxury makes have more pressure to lease — their affluent customers like to, and can afford to, get into new vehicles more often, and leasing is a great no-fuss no-muss way to get that done. If you’re always driving a relatively new vehicle it’s going to be expensive, no matter which financing method you use.
Which brings us back to an essential point of leasing — leasing is not for everyone. In the previous era, many customers were mesmerized by those lower-then-low monthly payments, and then found out the hard way, that it didn’t suit their budget, needs or lifestyle. If they didn’t look after the vehicle properly and/or drove it a ton, they got stung at lease end with excessive kilometre and “wear and tear” charges.
By adhering to more realistic residual (or end-of-lease) values, leasing offers are better structured than they were in the past, but lost the clear-cut cost advantage they previously held over their main competitor — a financed car loan. But automakers still use attractive lease rates to move certain models, so good leases deals are out there.
Do some reading before you go lease happy. The Canadian Automobile Dealers Association (CADA) has published a useful document called, Turning the Lights on Leasing, which is accessible on its website (cada.ca).
Another resource is the software application, Expert Lease Pro, available at leasetips.com.
I asked publisher, Charles Hart, what is the most misunderstood aspect of leasing, by consumers?
“That it’s a legal contract,” said Hart. “You’re entering into a legal contract. Not just taking a loan and then purchasing something. Distinct difference… Like any contract, you need to read it and understand it, before you enter into it.”
And once you’re in, be prepared to go the distance.
Hart noted you could prematurely end a lease. “But it’s painful and expensive.”
