A while back I got into an email discussion with my fellow authors about leased automobiles. The simple truth of the matter is that higher end new cars sold in America should cost about $6,000 instead of the $60,000 most automakers seem to be pushing the market toward. For those who haven’t been regular and devoted readers of this blog, I’ve discussed why new car list prices are north of $45,000 for most anything a person would really want to drive. The reason is simple. Management at the major auto manufacturers is non-existent. Every car you think you buy comes with 6-10 vehicles you paid for but didn’t get to take home.
No, that’s not a sporting even. That is new car disposal. It’s the hundreds of thousands of vehicles which were manufactured and could not sell at “list” so Detroit paid to let them rot somewhere until a car crusher can dispose of them. They can’t possibly let new cars into the hands of buyers at far less than the prices already set on vehicles they’ve already made! Nobody would ever pay more than $6,000 for a new vehicle again!
This gets us to the other wonderful truths about leased vehicles.
- You can’t get out of paying for a lease even if you return the vehicle.
- That “due at signing” fine print you see on television commercials is the actual cost of your vehicle when it’s not also covering the 6-10 left to rot on a lot somewhere.
- Your lease turn-in doesn’t get sold as a used vehicle. The vast majority, if not all of them, are crushed.
Financially, a lease is always a shit deal for the average Joe Consumer. It’s even a shit deal for the self employed with billing rates so high they have cash spewing from their posterior. No financial advisor worth listening to would ever tell you to lease a vehicle unless they couldn’t find anything else for you to piss that money away on.
The ultimate stupidity is leasing a car you “love to drive.” A “low mileage lease” (come on, you’ve all heard that term on the commercials but didn’t really listen to it!) used to be 7,000 miles per year. Some leases now allow you up to 12,000 miles per year. Why so little? Because of all the additional profit for “excessive miles.” If you love to drive that car you are definitely putting more than 12,000 miles on it the first year.
So, you’ve taken a multi-year consulting contract and are billing at a healthy 3 digits per hour. After a couple of months, instead of paying cash for a nicer car, you lease that genitalia enhancing status symbol which only impresses you and 3 of your closest friends. Disease free chicks won’t be wowed into mating with you. Yes! You-da-man! You got it all!
Then the Wall Street bank you are working for gets caught bilking the global economy out of a trillion dollars with a mortgage fraud scandal and the CEO who hired you goes to prison . . . Oh wait . . . they just pay Hillary Clinton $750,000 in “speaking fees” to speak to the Justice Department so they take prison time off the table. Let’s just say, 18 months into your 3-digit-per-hour consulting contract it “suddenly ends.” The reason don’t matter. You didn’t pay cash for a car you could afford and now you have another 18 months of lease payments you can’t cover. You can’t sell the car, you don’t have a title. If you turn the car back in you still have to make the lease payments. Even if the leasing company repossesses it you still have to make the lease payments, read the fine print in your lease agreement.
If you were making payments on a vehicle you “could, possibly, maybe” find someone willing to pay some amount of money for the vehicle. You would have to come up with the difference between what they are willing to pay and the amount you still owe __and__ your lender would have to agree to a two party payoff with title transfer, but you “might” get out of it.
Had you paid cash for a car you could actually afford you would only have to worry about having put enough aside to cover insurance, gas, license tags and maintenance. If you really did hit hard times you could sell the car to anybody for whatever you could get.
A vehicle lease is always a sucker’s bet.
The only time you should __ever__ consider buying a brand new car is when you are on that 3-digit-per-hour consulting contract __AND__ can pay cash for it __AND__ can take expenses plus depreciation for your business __AND__ you have another vehicle to drive for your personal miles which isn’t titled to your business. Most people don’t think about that last part. They buy a car they “love to drive” and title it to their business thinking they can write everything off. Then they go on vacation, driving their friends all over the place and come tax time they have less than 51% business use and the IRS says “no-siree-Bob.” It’s a double screw and it usually happens during the first year. You spent beyond your means counting on being able to expense most of the vehicle and now you have to deal with higher taxable income and more taxes with no money to pay.
The third point from above is actually where the bulk of my email exchange centered.
I had a coworker some years ago looking to by a low mileage Jeep. It had been just over 3 years since the body style changed so they figured their should be quite a few on the market. They went to one of the major Jeep dealers in the area looking for vehicles with under 40,000 miles. Despite the massive lot there was a choice of 3. Naturally the sales rep kept steering them to a new vehicle and pitched a lease. This coworker wandered around to another part of the lot and found a huge fenced off area which had many of the Jeeps they wanted to see.
“What about one of those?” they asked.
“Oh, we can’t sell those. They are lease turn-ins and the factory is coming to pick them up” responded the sales rep.
“Well what’s the factory do with them?”
“I don’t know, they never come back” responded the sales rep.
They “never come back” because they are crushed. If the market was ever flooded with those 3 year old vehicles having under 40,000 miles they would all sell for way less than half of list.
If federal law required automakers to cut the prices on those unsold cars until they were all sold rather than park them until a crusher can come by, nobody would pay north of $6,000 for a Mercedes and way less for every other vehicle. On what grounds could such a law get passed? Environmental destruction. Manufacturing hundreds of thousands of vehicles which will not sell at your set price simply because the market isn’t big enough (or your vehicles really suck) is not environmentally sound. Even if you wish to make the argument about recycling the metal, there is still all the paint and other chemicals which has to get disposed of somehow.
You who shop at Whole Foods buying only responsibly sourced food kind of shoot that in the ass when you lease a vehicle. You also shoot it in the ass when you buy a brand new vehicle and don’t drive it for the 300,000 mile life most new cars have.
While we are at it “responsibly sourced” person reading this, quit buying a new cell phone every few years. The toxins from your idiot phone which ultimately will end up in a landfill despite all of the recycling claims does more damage to the environment than a million miles put on a 6 MPG SUV.
