Seven Dirty Little Auto Leasing SecretCar Dealers Don’t Want You to Know

You may have noticed that almost all new car advertising today focuses on leasing. A few years ago, leasing a car was rare…less than 10% of total sales, and usually done by businesses. Businesses lease often because of tax deduction and balance sheet considerations. Business leases virtually never required a down payment. Following are the reasons that retail auto leasing to individuals has surged to more than one-third of all car sales. Some dealers are leasing over half of all their sales.

I’m not suggesting that a lease can never be as good a value as a purchase or even better. To the informed, sophisticated lessor, leases can be the way to go. Manufacturers do sometimes offer special lease rates and residual values which can make a lease cheaper than a purchase. But fewer lessors/buyers can navigate the following “complications and deceptions” of leasing.

• Car dealers make more than TWICE as much when they lease you a vehicle rather than selling it. This is largely because they can attract you on a falsely low monthly payment, and your focus isn’t on the actual total cost of leasing.
• Every advertised lease you see has a large down payment hidden in the fine print.
• Customers are coerced and enticed to lease or buy another car from their dealer after their first lease. This is because the dealer never loses contact with you. You must return the lease car to him and he remains in close contact with you every time you make a lease payment. If you don’t buy or lease another vehicle from the dealer/manufacturer, you’re penalized with a “lease disposition fee” of several hundred dollars.
• There are many more hidden fees in a lease contract than a purchase contract. There’s an “acquisition fee” for several hundred dollars, lease disposition fee at the end of the lease, charge for above “normal” wear and tear when you turn in your lease car, and a mileage charge for exceeding a certain number of miles per year. Of course, the dealer still charges the same hidden dealer fees he charges you when you buy the car. Most of these charges should be included in the monthly lease payments up front, but they aren’t.
• Despite popular belief, you must make all the lease payments you signed the contract for. It doesn’t matter if you decide you don’t like the car or if it breaks down a lot and/or runs terribly. The leasing company (usually owned by the manufacturer) is separate legal entity. You still must make every lease payment even when the reason you can’t drive your lease car is the fault of the manufacturer or dealer. You also must make all the lease payments even if you’re disabled and can’t drive or die (your estate is liable for all remaining lease payments). The leasing company will insist that you make your monthly car insurance payments even if you can’t drive the car and it’s sitting in your garage.
• Because your monthly lease payments build no equity as they do on a purchase, you will always have to make a large down payment when you buy or lease another vehicle. Basically, once you lease a car, you can be trapped into leasing again and again. Today’s new vehicles are so reliable and maintenance free that many buyers are keeping their cars for five years and more. Furthermore, they have no more monthly payments!
• The dealer that leased you the car and other competing car dealers will be calling you to lease or buy another car when they know you have only a few more payments left. They’ll also tell you not to worry about the remaining lease payments because they’ll make those to the leasing company for you. Yes, they will pay the leasing company the remaining payments that you owe, but WITH YOUR MONEY, because they add those payments onto the price of the next car they lease or sell you. Remember that the dealer, the leasing company, and the manufacturer are all separate legal entities. Each has their own selfish interests, and you’re not one of them.

Auto Dealers Think and Act Differently from their Manufacturers

A new car dealership is a franchise unlike any other. Most franchised businesses are rigidly controlled by the parent company like Marriott, McDonalds, Ace Hardware, Century 21, Midas Muffler, H&R Block, and Tire Kingdom. New car dealers are more independent and able to do business the way they want to than any other franchised business.

This is important for you to know and understand, because what a car dealer tells you and how he treats you isn’t always the way his manufacturer would have it. If you have problems with your dealer you should communicate your dissatisfaction to his manufacturer and consider trying another dealer of that same franchise. The manufacturer will communicate your dissatisfaction to the dealership owner and/or general manager, and will sometimes (off the record) direct you to a better dealership. The manufacturer has no power or control over the dealer to force him to do the right thing, but sometimes the mere communication to the dealership management can have a positive effect. Your best bet is to simply try a different dealer. He might be a better dealer, but, if even if he’s not, he’ll be competitively motivated to make you see him in a more favorable light.

Fortunately for you, there’re lots of car dealerships that sell the same make you want to buy. There are about 18,000 new car dealerships in the US. If you’re a Chevy buyer, there’s about 3,000 to choose from, and probably 3 or 4 nearby. Online, you have an almost unlimited number of dealer choices.

The lack of the ability of auto manufacturers to control their dealers is unique among all other franchised businesses. The control and protection of new car dealerships is in the hands of our 50 state governments. Each individual state government department of motor vehicles insulates new car dealers from any real control by auto manufacturers. This was accomplished in the first half of the twentieth century by powerful dealership lobbying groups to protect dealers against unfair and punitive bad behavior directed at car dealers by auto manufacturers. This legislative protection against manufacturers has had the unintended consequences to protect dealers from control against bad behavior by them against car-buyers.

You might be wondering why the states don’t do a better job of protecting car buyers against predatory car dealers. The answer lies in the same powerful lobbying that insulated dealers from their manufacturers. Car dealers, their PACS, and associations are numerous, very wealthy, and very politically powerful.

You can file a complaint with the state Attorney General and/or Department of Motor Vehicles, but that’s time consuming and it’s often after-the-fact. Your best bet is, after you’ve chosen the right car, invest some time in choosing the right dealer.