Monday, March 20, 2023

Leasing a Car is More Costly In Post-Pandemic Year, 2023

Regular readers of this column know that I’ve always felt buying a new car was generally preferable to leasing. The main reason is that leasing is more complex than buying. The cost of a lease is based on the “lease factor” (analogous to interest rate), “residual value” (estimated value of the vehicle when the lease is over), “capitalized cost” (analogous to the purchase price), the down payment (just like the down payment when you buy), the lease term (number of months), “purchase option price” (lessor’s right to buy the lease car at end of the lease term), and the most important and obvious to the lessor, the monthly lease payment.
All the items listed above are not quoted or advertised to potential customers but hidden in the fine print of the advertisement. All the prospective lease customer hears from the salesman or learn from the advertisements is the monthly payment. Most of us are “payment buyers” whether we buy or lease. We a have regular income that we earn each month and monthly expenses. Balancing the income against the expenses is called budgeting. We too often fall for the trap of buying because a monthly payment will fit into our monthly budget without analyzing the consequences of the TOTAL COST of a lease or purchase. This is why car dealers can lure us in with a low monthly payment, when, in fact, their making a very large profit. Historically, dealers’ average profits on leases are about twice the profits on purchases.
Post pandemic, leasing has become even more costly. If you leased a car in the past 2 ½ years, you can or have, exercised your option to purchase your off-lease car thousands below the market price. Today, this advantage has disappeared because used car residuals are much higher and there is no monetary gain for you when you exercise your purchase option. Pre pandemic dealers leased about 30% of their new cars; Post pandemic this percentage has dropped to about 9%. Furthermore, with the high demand and low supply of new vehicles, manufacturers and dealers are offering no special incentives to lease. Dealers can make as much or more profit on a sale vs. a lease simply because he can charge you thousands of dollars above MSRP, but leasing companies won’t allow this when he leases you a car. Remember that the dealer “sells” your lease car to the leasing company.
My advice to you is ignore all car dealer and car manufacturer advertising but be especially leery of lease advertisements. I can guarantee you that you will never find a lease payment advertised that doesn’t have very large down payment hidden in the fine print.

Monday, March 06, 2023

How to Buy or Lease a New Car Confidently

Buying a car can be an exciting experience, but it can also be stressful and overwhelming. With so many different models, features, and dealerships to choose from, it can be hard to know where to start. But by following a few simple tips, you can make the process easier and more successful.

First and foremost, do your research. The most reliable and accurate source for researching the quality, reliability, safety, and value of a car is Consumer Reports. They offer detailed information on every aspect of a car, and they are completely unbiased. Take advantage of their website to research different models and make an informed decision on which vehicle is best for you.

Once you have an idea of what kind of car you want, it's time to start shopping for the best price. The internet is a great resource for this. Shopping online allows you to compare prices from dozens of dealerships and get the lowest, honest price for your chosen vehicle. You can also communicate with dealerships by phone and text, which can be useful in negotiating the price. But be careful not to visit the dealership unless you are test driving the vehicle or picking it up and paying for it. By physically going to the dealership, you risk playing on the salesman's home turf and relinquishing your control.

It's also important to shop around. Don't settle for the first dealership you find. Shop around and get as many prices as possible. The more prices you get, the lower the price you will pay. Shopping online allows you to compare prices easily and quickly, so take advantage of this resource.

However, be wary of third-party auto buying sources. While some are reliable, others allow their dealers to add thousands of dollars in hidden fees to the prices they post. Costco, TrueCar, and Consumer Reports are three exceptions that are known for their honesty and transparency.

Finally, if you finance your purchase, arrange that directly with your bank or credit union, preferably your credit union. If the company you work for doesn't have a credit union, there are numerous credit unions you can join, independent of where you work. This will help you get the best interest rate and save you money in the long run.

In conclusion, buying a car can be a daunting task, but with these tips, you can make the process easier and more successful. Research your options, shop around, and be careful when dealing with dealerships. With a little patience and diligence, you can find the car of your dreams at a price you can afford.

This article was written by an AI, ChatGPT, based on an article I wrote last year. The illustration was also made by AI, OpentArt.AI, using the prompt "confident people flying cars out of a car dealership and car salesmen are shooting laser guns at them as they escape."