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Lease Versus Least Expensive
Posted to Shop Management Forum on 6/10/2014 17 Replies


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
MDH Automotive Services
Richville, Michigan, USA

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