The Vagaries of Leasing Your Vehicle In Today’s Economy

September 12, 2008

In the old days, leasing a car was a viable alternative to buying one. Ever since the Ford Motor Corporation instituted the policy of “planned obsolescence,” cars have been designed to go out of date fast, often losing their value and utility after as little as 10 years. If you were in the habit of buying a new car ever six years, or always wanted to always driving the latest model, leasing was a sensible option. If you liked the car, you could renew your lease after the initial time period specified in your lease’s term expired.

Recently, leasing a car, instead of buying has gotten harder, and less financially advantageous. These days, leasing a vehicle is really only a good idea if you’re absolutely certain you don’t intend to drive that vehicle for more than a few years.

Why? Here is how vehicle leasing works. When you lease a car or truck, the institution that finances your lease will purchase that car or truck for you. Then, after the lease runs out, that institution resells that car or truck. Of course, the market value of the vehicle is going to decrease over the course of the lease. That’s why, for every month of your lease, you make payments that take into account by which your vehicle is predicted to decrease in market value. Your monthly payments are intended to be enough to make up for that loss, plus leave a profit for your financier.

This past year, as anyone who drives can attest, gas prices have gone up by unprecedented amounts. As a consequence, the value of all cars has gone down, and the value of gas-guzzling vehicles such as SUVs and large pickups has plummeted. Financing companies no longer stand to profit from leasing vehicles, because they lose too much money attempting to resell SUVs and trucks whose value has so radically declined as a result of the gas crisis.

Car manufacturers used to be eager to provide customers with auto-leasing deals through affiliated financing companies. In the past, car manufacturers stood to profit from setting up leasing agreements on their cars. These days, car manufacturers are considerably less eager to lease cars to customers. Companies such as Chrysler have announced that they’ve stopped selling automobile leasing agreements entirely, because there simply weren’t enough profits. Instead, these companies now focus all their resources on facilitating customers’ purchases of cars.

More and more customers who want to lease their cars must now rely on independent unaffiliated auto financiers, unaffiliated with any automobile manufacturers. At the same time, many financial organizations want to stop offering automobile leases, as well.

The upshot? If you know that you wish to lease rather than own a car, you need to take greater care than ever before. Don’t rely on the car dealers to offer you the lease you want. Instead, shop around. Ask your bank, or check with other local financial organizations. When you sign a lease for a car, read the fine print. Look to see if the lease involves you paying additional fees, besides the monthly payments.

Remember that gas prices aren’t necessarily going to always remain this high. Once the market returns to what was once normal, maybe leasing a vehicle will begin to seem easy again.

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