Luxury Car Leasing

Doing my regular car price scanning I noticed something that I hadn't seen in a while.  Leasing rates for luxury cars seem to be coming down, especially for those with new models on the horizon.  Leasing fell out of fashion for a couple of years but it seems to be making a comeback in a big way.  I have leased several cars in the past and never had any trouble, the Pilot was my only lease where I was charged lease end costs.  I had two Saturns and a Focus with no return trouble whatsoever.

BMW are currently offering 0.9% 3 and 4 year lease rates on any remaining 2013 3 Series.  Of course the residuals have gone down on these so the payment has not gone down that much overall.  Even new 3 Series rates are not bad at 3.9%.  Check out my post on leasing basics here: http://nlcarblog.blogspot.ca/2011/10/leasing-basics.html

Mercedes are offering 2.9% lease rates on C Series, there is a totally new C Series coming in the spring so they have to make sure they get rid of all older models before the new ones appear.  Audi are also offering 2.9% rates on A4 Komforts and 3.9% on the other A4 models.

The lower rates combined with traditionally solid residuals mean you can really save on the monthly payments compared to purchasing compact luxury sedans.  The 3 year residuals are normally in the 58% - 60% range with four year residuals around 50%.  Of course leasing is not for everyone, if you like holding on to cars for a long time it won't work but if you're like me and switch cars every three or so years it can work out well.

I'll be doing a few follow up posts to provide more detail on the deals above.

Leasing Basics

Car Leasing Basics

Once you decide on a vehicle you will need to figure out if you want to buy or lease the vehicle.  Traditionalists will always go with the buy but leasing has maintained popular over the past 15 years or so.  If you are someone who likes to have a new vehicle every 3 to 4 years, doesn’t drive over 24,000 km and year and maintains your vehicle well then leasing may be for you.  If you are someone who keeps vehicles a long time or puts on a ton of km’s per year then leasing is not for you. 

When you lease a vehicle you pay for the portion of the vehicle you use.  There are three basic components to the payment you will make:

Vehicle Price

Interest Rate

Residual Value (Value of vehicle at the end of the lease)

Term

What you pay for is the difference between the vehicle price and residual value taking into account any interest charges.  Of course vehicles depreciate more quickly in their first few years than in later years.  With a four year lease, the residual is normally between 35% to 50% of its original price with vehicles I have compared, meaning your vehicle is predicted to lose anywhere from 50% to 65% of its value after four years.  I have found Honda, Toyota and Volkswagen (especially diesel models) to be near the 50% mark in residual with Ford’s being on the lower end closer to 40% and Hyundai way down around 35%.  As a result Honda’s and VW are often good lease deals as long as the interest rates are reasonable, Hyundai not so much.  I also found Hyundai and Kia (really the same company) to be actively promoting against leasing in the dealership; they also currently have 3.49% lease rates compared to 0% purchase rates on most of their vehicles. 

If you think leasing may be for you make sure you get details on residual value (you want this to be as high as possible, for a four year lease you are aiming for 50% of purchase price) and interest rate being charged, if they seem reasonable then leasing may be the way to go.  One thing you will find is that as a model year ages the lease rate will normally drop BUT the residual will also drop because the vehicle is aging and may not be worth as much in 4 years as it would have been 8 months ago.  So while it may seem like the lease deal is getting better it may not be or at least not by as much as it seems.

The problem I ran into with my last lease was excess wear and tear charges (see End of Lease Time on my Pilot post).  I will be posting a video of my Pilot in the near future and show you what they were trying to charge me for.  With my previous three leases I was not charged any excess wear and tear.  So my only advice may be not to lease a Honda because they try to screw you in the end, although the actual lease deals from them up front are pretty good.  I think things are after being tightened up a bit on the lease end process in recent years.  If anyone has had end of lease wear and tear charge stories please let me know about them.

About three years ago when car companies started having financial difficulties they increased lease rates to sway the customer away from leasing and into purchasing.  One of the results of this is a current lack of good 3 to 4 year old off lease used cars right now.  A good deal on a used car is not as easy to find as it once was.  Lease rates are very competitive right now, still slightly higher than purchase rates in most cases but not by much.

So to summarize, if you want to drive a new car every few years, don’t drive too much and look after your vehicle then leasing may be for you.  If you do not fit this profile then leasing is not for you.  If you have any questions please let me know.

Note:  I am not going to get into leasing for business purposes here, this post is intended for regular people like you and me. 

End of Lease 2007 Pilot - Excess Wear and Tear

Excess Wear and Tear-

So I received a letter from Honda in February 2011 reminding me that my lease was soon due to expire and I should consider my options.  Of course you have 2 options.... Keep the car or give the car back.  If you want to keep the car you simply send a cheque for the buyout amount to Honda Finance or if you want to return it you arrange for a post-lease inspection and they send you a bill for any excess wear and tear.  I downloaded the Honda wear and tear guide to get an idea of what I would be in for and figured I would definitely get nailed for a few small dents and scratches but didn't think there would be anything major.

At that point I really had not made my mind up about keeping or returning the Pilot, I really liked the Pilot but it is a bit hard on gas (to be discussed in a later post) and I had absolutely no luck with used cars in the past so I was a but gunshy.  On the upside I knew it was well maintained and cared for and the residual was less than I would have to pay for a used 2007 Pilot on the open market.

So I arranged for the inspection guy to come, he came to my house after work which was actually very convenient.  He was nice enough but not friendly mind you.  I felt like he was violating my vehicle, checking for every scratch and bump, being critical at times but that was his job.  Still, I didn't like it.

He pointed out some surface rust by the bottom of the door where you step into the vehicle I didn't notice before; I knew that would be a few hundred bucks for sure.  Overall the only thing to fix on the vehicle was one broken door lock, other than that just the two rust spots and some dents and scratches.... I figured no big deal.  So he went over the inspection with me, I signed it and waited for the bad news.

I was reasonably expecting a bill for five or six hundred bucks at which point I could go to a local body shop and get everything fixed up for half that price.  Well I got a bill for over $1,800, plus $500 allowance for the door lock!   I was aggravated beyond belief.

I was totally peeved at that point, but it did make my end of lease decision quite easy….. I was keeping the Pilot.  Seriously almost 2 grand for some minor dents and dings! Subsequently to this I received an email from Honda asking how my end of lease experience was and I told them exactly what I thought of their lease end experience.  I felt like I was being robbed is how I felt and I told them so.  I could have probably gotten everything fixed up for less than a thousand but that wasn’t the point.  I was looking at maybe going in to Honda to see if they could cut me some slack if I got a CRV but I was so aggravated at everything Honda I never bothered.  Also, the CRV didn’t appeal to me at all, it’s just too boring looking and underpowered in my opinion (more on that in a later post).

So shortly thereafter I went to the bank, got myself a loan and bought the Pilot.  Before and even after this I visited almost every car dealership in the St. John’s area looking for a new vehicle.  My posts over the next couple of weeks will discuss everything from the dealerships, interest rates, sales tactics and miscellaneous info related to new car buying / leasing.  I am still considering getting a new vehicle but I have the feeling I won’t be getting rid of the Pilot any time soon.   Below is the actual end of lease inspection report, you will notice the $500 extra was to fix a broken door lock.

Abnormal Wear

<><> <><> <><> <><> <><> <><> <><> <><> <><> <><> <><> <><> <><> <><> <><> <><> <><> <><> <><> LN Action Description of Abnormal Wear and Condition Mech Hours Lbr/REF Hrs Paint Hours Parts Sublet Reserve Photo 1 N/C Exterior Bumper/cover-rear Scratch Thru Paint 1/2 inch 2+x 0.0 0.0 0.0 0 0 0 2 Repair Exterior Rocker Panel-left Rust 12 inches or more 1x 0.0 0.0 0.0 0 $ 250.00 0 3 Repair Exterior Rocker Panel-right Rust 12 inches or more 1x 0.0 0.0 0.0 0 $ 250.00 0 4 Repair Exterior Quarter Panel-right Rear Dent Thru Paint 4 inches 4x 4+ 0.0 0.0 0.0 0 $ 250.00 0 5 Repair Exterior Quarter Panel-left Rear Dent Thru Paint 2 inches 4x 0.0 0.0 0.0 0 $ 250.00 0 6 Repair Exterior Bumper/cover-front Scratch Thru Paint 2 inches 3+x 0.0 0.0 0.0 0 $ 180.00 0 7 Repair Exterior Door-left Rear Chip Thru Paint 1/8 inch 9+x 0.0 0.0 0.0 0 $ 75.00 0 8 Repair Exterior Door-left Front Chip Thru Paint 1/8 inch 9+x 0.0 0.0 0.0 0 $ 75.00 0 9 N/C Exterior Door-left Front Scratch Not Thru Paint 2 inches 2+x 0.0 0.0 0.0 0 0 0 10 N/C Exterior Hood Chip Thru Paint Less than 1/2 inch 5+x RUSTY 0.0 0.0 0.0 0 0 0 11 Repair Exterior Fender-left Front Scratch Thru Paint 2 inches 2+x 0.0 0.0 0.0 0 $ 180.00 0 N/C Exterior Door-right Front Ding Not Thru Paint 1/2 inch 2+x 0.0 0.0 0.0 0 0 0 13 N/C Exterior Door-right Rear Scratch Not Thru Paint 2 inches 5+x CAN BE BUFFED 0.0 0.0 0.0 0 0 0 14 N/C Exterior Door-left Rear Scuffed Not Thru Paint 2 inches 5+x CAN BE BUFFED 0.0 0.0 0.0 0 0 0 15 N/C Exterior Quarter Panel-right Rear Scratch Not Thru Paint 2 inches 3+x CAN BE BUFFED 0.0 0.0 0.0 0 0 0 16 Repair Exterior Rear Gate Dent Not Thru Paint 1 inch 1x 0.0 0.0 0.0 0 $ 250.00 0 17 N/C Exterior Rear Gate Scratch Not Thru Paint 1 inch 3+x CAN BE BUFFED 0.0 0.0 0.0 0 0 0 18 Check/Inspect Interior Power Door Lock Inoperable NA 1x rear door 1.0 0.0 0.0 0 0 $ 500.00 <><> <><> <><> <><> <><> <><> <><> <><> <><> <><> Mechanical Hours 1.00 @90.00 90.00 Body REP/REF Hours 0.00 @45.00 0.00 Paint Hours 0.00 @45.00 0.00 Labour Total 90.00 PARTS 0.00 SUBLET 1,760.00 TOTAL RECONDITIONING $ 1,850.00 RECONDITIONING CHARGES ARE SUBJECT TO APPLICABLE TAXES TOTAL RESERVE $ 500.00