Lease Versus Least Expensive
Posted to Shop Management Forum on 6/10/2014
17 Replies
Greetings,
Benjamin Heil started a thread a few days ago about leasing,
linked here: (http://members.iatn.net/forums/read/msg.aspx?f=forum15&m=395047&fv=0&ar=3284). That discussion prompted this
new post from me on the same topic.
Following is a 2013 Edmunds.com analysis of leasing versus
buying new and buying used over a 6-year period. The new
vehicle in the example (a 2013) is a Honda Accord EX with a
market value of $24,500. The used vehicle is a 3-year-old
(2010) Accord EX with a market value of $17,761.
Lease: At the time this was calculated, a 3-year lease which
required no drive-off fees, carried a $344 monthly payment.
Buying New: To buy the $24,500 Honda with a 5-year loan, 20%
down payment ($5,430), at 3% interest, the monthly payment
was $390.
Buying Used: At the time a 2010 Accord EX was valued at
$17,761. With a 4-year loan, with 10% down ($1,776), at 3.5%
interest, the monthly payment was $400.
Keep in mind that this 6-year scenario requires two lease
cycles of three years each. For the new car, it would be one
five-year loan, plus one additional year of ownership with
no car payments. For the used car, it is a four-year loan
and two years without car payments. After six years, here
are the total out-of-pocket costs of each approach
(including tax and registration fees figured for
California):
Total out-of-pocket costs: Leasing: $24,768... Buying New:
$28,830... Buying Used: $20,976
Based on this, leasing appears to cost $4,062 less than
buying a new car, and buying a used car is only $3,792 less
than leasing.
However, at the end of two leasing cycles, the person who
leased doesn't own the car. He or she has to start a new
lease or buy cycle. Meanwhile, the person who bought a new
car would own a vehicle worth about $11,000; and the person
who bought the used car now owns a 9-year-old car worth
about $5,000 (values figured using Edmunds depreciation
calculator).
With equity factored in the cost picture changes as follows:
Total out-of-pocket costs: Leasing: $24,768... Buying New:
$17,830... Buying Used: $15,976
Now it does need to be pointed out that the person who
leased has escaped repair costs that car owners encounter
with aging cars. A new car buyer (in this 6-year scenario)
will likely need new tires and brakes, which (for the sake
of discussion) we'll factor in at a cost of $1,000. The
used-car buyer will have to pay for these items and possibly
some additional repairs. Again for the sake of discussion,
let's add a total of $2,000. But wait, there's more! :o)
Insurance costs more for a leased car. Edmunds estimates at
least $150 more per year, or $900 for our 6-year scenario.
With repairs and insurance factored in, the cost factors
change again:
Total out-of-pocket costs: Leasing: $25,668... Buying New:
$18,830... Buying Used: $17,976
So in this basic comparison, it cost $6,838 more to
lease for 6-years versus buying new, and $7,692 more to
lease than buying used.
Remember, this scenario based on Edmunds' figures is only
for 6-years. If you want to see some REAL savings, take this
out an additional 3-years, to where the car originally
bought new is now 9-years old and the car bought used is now
12-years-old. That's 3-more years with NO CAR PAYMENTS -- a
savings right there of more than $10,000 (on top of the
savings already realized); and don't forget that these older
cars cost less to insure and less to license every year.
Yes, repairs will be needed, but not so much as to even come
close to negating the savings realized.
I've said it before and I'll say it again. A long-term
vehicle ownership strategy may be the single best way for
the common every day working man (or woman) to accumulate
wealth and achieve financial freedom, or at least financial
stability.
Finally, I believe that this is a message that every
automotive service business ought to be promoting at the
counter (when opportunities present themselves) and with
marketing. I think it was Kevin McCartney who once said (and
this may be a paraphrase)… It's not about how happy
people are with you as a repair shop, it's about how happy
people are with their cars.
From your perspective as folks who maintain and repair cars,
it's in your best interest for your customers to own long
term (10+ years/200k+ miles) as opposed to replacing (buying
or leasing) every 3 to 5 years. AND… for most people,
it's a smart financial decision. In other words, the
proverbial WIN-WIN!
Mark Hambaum
Educator/Instructor/Consultant
MDH Automotive Services
Richville, Michigan, USA