Don’t be TRAPPED into Leasing For the Rest of Your Life

I’ve written several articles on which is the better choice, leasing or buying your next car. As a rule of thumb, I recommend buying because it’s less complicated and offers fewer opportunities for car dealers to deceive you. I also issue a special warning to seniors who, because of health issues, may not be able to drive at some point during their lease contract. They, or their *estates, are still obligated to make the remainder of the payments.

However, there is another negative on leasing which I was remiss in not mentioning in prior articles, and this applies to all age groups. When you buy a car, you’re building equity ownership in the car you’re driving; leasing is just like renting and you build zero equity. If you buy a new vehicle and finance it for 36 months, you can build equity from 50% of the original cost to has much as 70%. The average new vehicle today costs about $40,000, leaving you with an asset worth from $20,000 to $28,000!

Why is this important? According to USA Today, 40% of U.S. adults don’t have enough savings to cover a mere $400 emergency! The median amount of the average American’s savings account is only $4,830. When you buy a home or a car, you’re forced to save. More and more Americans are renting their apartment or homes and leasing their vehicles.

The auto manufacturers and auto dealers are focusing almost exclusively on leasing rather than selling today, for good reasons. Car dealers make substantially more money when they leaseinstead of sell, over $1,000. The likelihood of you repeating with the car dealer and the manufacturer is much higher when you lease vs. buy. Why? You must return the lease car to the car dealer, and the dealer begins soliciting your next lease about 6 months before your current lease expires. If you don’t repeat with that dealer/manufacturer, there’s a penalty called the “lease disposition fee”, about $350. There’s also the likelihood that you will be charged more for “above normal wear and tear” if you buy or lease a different brand. It’s easy for manufacturers and dealers to lure you into leasing, because almost everybody thinks in terms of monthly payments, not the purchase price. If you feel like you can fit the car into your monthly budget, you don’t care what the purchase price is.

That’s why so many people are now caught in the “lease trap”; not just the lease trap but forced to repeat with the same make of car they leased previously. They have no equity for a down payment on a purchase and are penalized if they switch to a different make of vehicle.

When you’re caught in the “lease trap”, you’re also precluded from buying a used car. Leasing companies and banks won’t lease used cars. A good, late model used car is a better value than a new one. It retains its value much more than a new care. Many people with limited savings and income should be buying used cars instead of new ones, but cannot if they were lured into the lease trap because of a low monthly payment.

If you’re fortunate enough to have a substantial savings or investment account that allows you to make the necessary down payment when you purchase a vehicle, that’s great and this article doesn’t apply to you. Unfortunately, it does apply to many people that are being lured into the LEASING TRAP.



*Legal pre-arrangements can be made to protect the lessee’s spouse from liability

Why Even “Honest” Car Dealers Lie to You

If you owned a business that employed a lot of people, including family and friends, that all depended on their earnings from that business to support themselves and their families, how important would the SURVIVAL of that business be to you? Of course, you and your family also depend entirely on the earnings from that business to provide housing, food, medical care, and education for you and your family. Arguably the strongest instinct in all living creatures, including humans, is SURVIVAL. Would you break the law, act unethically, or deceive someone if it was necessary to provide food, shelter, or medical care for you and your loved ones?

All retail businesses must advertise their products to sell them. Arguably, the most important factor in the consumer’s decision to buy is the LOWEST PRICE. Granted, quality and reliability of the product are important too, but once a buyer has decided on the best product, she begins looking for the lowest price. Most car dealerships each sell one brand of cars and a few sell several. Once the consumer chooses the brand, they begin shopping for the lowest price. A Ford, Honda, Jeep, or Toyota at one dealership is the same as those at all other dealerships. Furthermore, the car dealers all pay the manufacturers the same price for their cars. Despite what car dealers may tell you, large volume dealers don’t pay less for their cars than small volume dealers.

Consumers learn the lowest prices from car dealers advertising…online-digital, TV, radio, newspapers, email and snail mail. This is where the problem arises. If you’re in the market to buy a New 2019 Jeep Wrangler Unlimited Sahara 4X4 with an MSRP of $53,940, you’re going to check prices at all the Jeep dealerships in your market first. Usually there are at least 3 dealers for each brand in a market, but when you add shopping online a buyer can shop prices at DOZENS of dealerships. You’ll buy your Jeep from the dealer that gives you the biggest discount from MSRP, the lowest price.

All car dealers, of course, know that you will visit the dealer with the lowest price, so they must be sure their advertised price will be either lowest or close to it. They can only ensure that you won’t find a lower price by pricing their Jeep lower than they can afford to sell it, often below their true cost. This is how HIDDEN FEES, aka DEALER FEES came to exist. These hidden charges aren’t fees at all…at least not legitimate government fees; Hidden dealer fees are PROFIT TO THE DEALER which are not revealed to you in the advertising or the prices quoted to you online, by phone, or in person. A car dealer with $1,000 in hidden fees (average in South Florida) can advertise a car for $1,000 lower than he can afford to sell it for and still make a profit after he adds his hidden fees.

HAVE YOU EVER BOUGHT A CAR FOR THE ACTUAL ADVERTISED PRICE? Most people will say “no” and those that say “yes” probably were tricked into believing the hidden fees that were added were legitimate government fees like sales tax and license plate. Dealers can “name” a hidden fee anything they like. They typically choose names that sound “official” like tag agency fee, electronic filing fee, doc fee, notary fee, doc stamps, administrative fee, dealer handling fee, and dealer prep fee. Often, buyers never see the fees because they aren’t added until you’ve signed the dealer “worksheet” which you thought was a purchase agreement. It’s not a legal document and this disclaimer is in the fine print. Dealer do this, so they don’t have to disclose all of their hidden fees. These are printed out on the real buyer’s order in the Finance Office, along with reams of other paper and fine print that nobody has the time to read.

Who’s to blame for this sad state of affairs? The answer is our legislators and regulators, both federal and state. The political contributions by auto manufacturers, car dealers, and their associations dwarf that of the gun manufactures and NRA and rival those of Big Insurance. If the auto manufacturers and dealers don’t want a politician elected, he just must find another line of work.

About the only thing you can do to get the best price on a car is to outsmart the car dealer, and I have tool that you can download that will help you. It was invented by Nancy Stewart, my wife and co-host of my consumer advocacy radio show, “Earl on Cars”. Download this form at www.OutTheDoorPriceAffidavit.com. It is a legal affidavit that you insist your car dealer sign before you sign to buy any new or used vehicle. The car dealer is swearing that the price he advertised or quoted is the true out-the-door price plus government fees only. If the car dealer won’t sign it, buy your car from the dealer that will.

Seniors… Think Twice Before Leasing

Leasing a new vehicle is very different from renting. When you sign a 36-month or 48-month lease, you obligate yourself for 36 or 48 monthly payments, even if you can no longer drive. You’re also responsible for maintaining insurance on the leased vehicle, even if it’s not being driven. You may become incapacitated or your driver’s license can be revoked. If you die, your estate is obligated for the remaining payments.

It’s possible to have your lease assigned to another person, but this must be approved by the leasing company. There are companies that, for a fee, specialize in finding people to assume lease payments, but these people must have the approval of the leasing company.

You may have noticed that most new car advertising is for leasing, not buying. This is becausecar dealers average a much higher profit from a leased car than a purchased car. Also, the car dealer has a much better chance of keeping you as a customer if you lease. You must return the car to the dealer at the end of the lease. The car dealer and leasing company (usually the manufacturer) have monthly contact with you, because your making lease payments. Leasing companies penalize you with a “lease disposition fee” if you opt not to buy or lease another car of that make.

For all the above reasons, the car dealers and manufacturers will encourage you to lease rather than buy. Be forewarned that unscrupulous salesmen will give you bad advice to persuade you to change your mind about buying and leasing instead. They earn much higher commissions on leases, and they’re more likely to lease or sell you another car. The expression used by car salesmen when they attempt to do this is called the “Lease Flip”. The sales manager will instruct his salesman who is having difficulty making a big profit on a car purchase to “Flip her to a lease”. The salesman will try to focus your attention on the lower monthly payment of a lease and not mention the fact that you are building no equity when you lease like you do when you purchase. He won’t mention the higher cost of insurance, excess mileage charge, lease inception fee, lease disposition fee, or the charge at the end of the lease for excessive wear and tear. Some sales people will imply, or say, that you can return a lease early without any penalty. Too often your trade-in is undervalued or not valued at all on the lease contract. Lease contracts are very complicated compared to purchase contracts. There’s lots of fine print and variables that affect the total cost. The main numbers you have be aware of are the lease factor (interest rate), residual value (estimated value at the end of the lease) and the capitalized cost. The capitalized cost should reflect the fair credit for your trade-in and should represent the discounted price if you were buying the car.

With all that said, a lease can be just as good a value as a purchase, but leases are far more complicated. This gives the car dealer, manufacturer, and car salesman more of an upper hand. There’s an old joke that goes like this…” If you sit down at a poker table, look at all the other players, and can’t figure out who the sucker is…it’s probably you. Always be extra careful when you’re playing somebody else’s game.

$100,000 DEALER FEE CHALLENGE

Debate the Resolution to Make Dealer Fees Illegal


WHAT? DEBATE RESOLVING THAT DEALER FEES SHOULD BE MADE ILLEGAL
WHEN? ANY SATURDAY MORNING 8AM TO 10 AM
WHERE? TRUE OLDIES RADIO STATION, 8895 N MILITARY TRAIL, PBG, FL

The first car dealer to accept my challenge will debate me for about one hour on my regularly scheduled Saturday morning 8-10 AM radio show (WSVU, TrueOldies 95.9 FM & 106.9 FM; Stream www.EarlOnCars.com) The audience will judge the debate, hearing both sides of the dealer fee issue and vote for the winner. The loser pays the winner $100,000. If I win, I pledge to contribute the $100,000 to Big Dog Ranch Rescue (www.BDRR.org).

DEBATE RULES: 

1. Earl Stewart and the Car Dealer will jointly agree upon, and choose a neutral, unbiased moderator; if no agreement can be reached, a flip of the coin will allow the winner to pick the moderator.

2. The Car Dealer must be a legally appointed dealer, named in the franchise agreement between him or her and the manufacturer of the vehicles he or she sells. 

3. Earl Stewart will open the debate, explaining to the audience why the dealer fee should be made illegal. The length of time will be 5-10 minutes.

4. The car dealer challenging this proposition will take 5-10 minutes explaining why dealer fees should remain legal. 

5. Earl Stewart rebuts the car dealer challenger for 5-10 minutes.

6. The Car Dealer rebuts Earl Stewart for 5-10 minutes.

7. Earl Stewart has a second 5-10-minute rebuttal.

8. Car Dealer has a second 5-10-minute rebuttal. 

9. There can be no interruptions of either speaker.

10. The listening audience will cast their votes for the winner by texting their votes or posting their votes to Facebook, Twitter, YouTube, or Periscope. All votes must be accompanied by a name and phone number for verification. Any employee of a car dealership, car dealer association and family members of either are ineligible to vote. 

I invite all challengers to contact me directly on my cell phone, 561 358-1474 or email me at Earl@EarlOnCars.com. If I receive more than one challenge, the participating challenger will be “drawn from a hat”. The $100,000 prize will be deposited in the escrow account of an attorney mutually agreed upon by both parties at least one week before the debate. If they cannot agree on an attorney, he or she will be decided by the toss of a coin. 

For those unfamiliar with my position on dealer fees and/or unclear on exactly what the dealer fee is, I refer you to my numerous blogs and newspaper articles on this subject, http://oncars.blogspot.com/search?q=dealer+fee