Auto leasing lifestyle just dents your wallet
By Michelle Singletary
Is auto leasing really dead?
Oh, I so hope so.
But, alas, that question was just a headline on a news release from the National Vehicle Leasing Association amid news that some automakers are drastically scaling back on leasing because it isn't so lucrative anymore.
General Motors blamed a sharp decline in lease demand and in prices of used SUVs and trucks in the U.S. and Canada.
Chrysler announced it will "repackage" its auto incentives to make it more affordable for customers to buy than to lease.
Hallelujah.
For years I've been trying to get people to see the financial folly in leasing a vehicle. It's taken a convergence of economic events — rising gas and food prices, a slow economy, job losses — to park auto leasing as a lifestyle.
Beginning in the 1990s, the percentage of consumers who leased their vehicles began to significantly rise. People who couldn't afford to buy luxury vehicles found they could lease a better ride.
Many consumers bought the marketing hype that leasing makes sense if you have to have a new car every few years, and that monthly payments are lower than car loan payments.
About 19 percent of vehicles driven out of showrooms last year were leased, according to Edmunds.com. Leasing expanded 21 percent between 2005 and 2006.
One of the key factors in a lease contract is what's called its "residual value" — what it would cost you to buy the car at the end of the lease.
As gas prices have surged past $4 a gallon, used SUVs and other gas-guzzling vehicles have become increasingly difficult to sell. So leases on such vehicles will become more expensive, according to Automotive Lease Guide.
Many auto finance companies are taking huge losses because they "did a bad job of projecting that the residual values were going to be down," said Sergio Stiberman, founder of LeaseTrader.com, a site that matches people wanting out of a vehicle lease with individuals looking for a short-term lease.
People who are coming to the end of their leases for SUVs and other vehicles with poor fuel economy aren't opting to buy them because of high gas prices, contributing to the lease losses, Stiberman said.
Now if you still think leasing can work, let me try to dissuade you:
In its release, the National Vehicle Leasing Association says "leasing is inherently good for the consumer, affording them more options and less financial risk than ownership, especially when compared to a long-term finance agreement."
I agree with one point. I wouldn't buy a car with a loan term of more than 48 months.
But I hope the association is dead wrong that leasing isn't dead.
Long term, paying off a car and keeping it for years are better for you financially. If you want to be rich instead of riding around looking like you're rich, don't lease.
Write to Michelle Singletary at singletarym@washpost.com.
