Car Biz: What about leasing? Rent what depreciates; buy what appreciates.

Significant disclaimer: I get paid a flat fee-per-vehicle. I make no more (or less) on a highly profitable transaction than on one at minimum profit; and I make no more (or less) on a lease than a purchase. My motivation is to provide exactly the right vehicle at the lowest cost possible. Leasing can help with that, especially as cost of living and motor vehicles goes up.

I've been an educator most of my adult life, and an Air Force officer before that. I bought a lot of vehicles before I became a car salesman, and spent way too much buying them (based on my experience and learning since I've had some exposure to the sales side).

But one thing that struck me when I began selling Hondas in 2003 was that nearly all the long-term, successful 'car folks' I encountered were leasing their personal vehicles. That caught my attention because when I was mainly a car customer, leasing was a black hole into which many ventured and from which few returned--at least, few returned happy.

So, I wondered, were the car pros getting sweetheart lease deals that customers couldn't access?

As it turns out, they were not. In the period between my main car-buying days and my more recent car-selling era, leases have changed significantly. Some quick points:

First-generation leases were a travesty, particularly for customers. They were 'open-ended,' meaning that the customer was not buying a specific proportion of the value of the vehicle, nor was there any guarantee of how much the vehicle would be worth at the end of the lease period.

Early leases put nearly all the risk on the customer. The payments seemed low, but when the customer returned the vehicle, s/he was often clobbered with surcharges for wear and tear and mileage that made the lease more costly by far than a purchase would have been. And the ones who leased the car to the customer were also the ones who decided what it was worth (and what the customer owed) when the lease was completed. No wonder leases got a bad name!

In current leases, the company bears more of the risk, and the customer's interests are much more fully protected. In Honda's leases, there is a $1500 allowance for normal wear and tear, with up to $500 for each instance--so if a leased vehicle were returned, let's say, with a damaged windshield and a damaged side mirror, and each repair cost $480, the charge to the customer would be...zero.

Several auto companies have pulled out of the lease market since the recent economic downturn and credit crunch. The main reason: their vehicles' rapid depreciation can't be hidden in the current market, and no one would want to pay the high lease payments required if the customer were actually to pay the 60-70 percent of their inflated purchase price--the depreciation that occurs during the term of an average lease.

Hondas depreciate more slowly, and Honda lease payments, both before the current credit crunch and now, accurately defray the amount of value used in the first two or three or four years of ownership. The feature of guaranteed value is even more advantageous to customers in a bear market--so Honda leases not only have less competition, but offer even greater advantage than before.

MILEAGE is a concern for some folks. One of the sales managers in my company was leasing three vehicles, all at the minimum mileage (12,000 miles in a Honda lease). Two were driven around the allowed mileage, but one was driven an average of 23,000 miles a year. I did some quick figuring: if he completed his four-year lease with 44,000 miles beyond his allowance, he would owe Honda $6600 (15 cents per mile beyond his 12k/year allowance)! When I asked him about this, he smiled and said my math was correct, but my information was incomplete. He had no intention of turning the vehicle in at the lease's termination date. Instead, he chose an opportune time prior to the end of the lease, traded it in, took a minor hit for relatively high miles, but was forgiven any administrative fees or the security deposit (as a repeat customer), and paid no mileage penalty at all. That is assessed ONLY when the vehicle is turned in at the lease's conclusion.

You can do anything with a leased vehicle that you can do with a purchased one--and more. In a purchase contract, the buyer is obligated to buy the vehicle; in a lease, s/he has that option. You can refinance the car, pay it off and drive it, trade it in (with positive or negative equity), or sell it yourself. You can do all these with a leased vehicle--AND you can decide to complete your lease and turn the car in. The leasing customer changes vehicles more often, pays less per month (and over the period of the lease), reaches positive equity sooner, and has more options.

Probably that's enough for one post--if you're interested, or have questions or objections, let me know, and we'll go into more details and carry on the discussion.