Since 2008, sales and leases of new vehicles have dramatically declined, which has led to a shortage or lack of supply of late model, good condition, used vehicles. Having fewer used vehicles in the marketplace has kept used vehicle values relatively strong
The debate over buying versus leasing an automobile has raged for ages. When you purchase a new vehicle you have pride of ownership, not to mention equity when you decide to replace the older model with a newer one.
But what about those lower monthly payments that accompany a leased vehicle, as well as the peace of mind that comes from having a new model every three years that’s always under warranty?
It’s a conundrum for sure. But Alec Gutierrez with Kelley Blue Book says that in today’s marketplace, the decision is pretty cut and dried.
“Today, leasing is especially attractive, probably more so than at any time in the last four or five years,” Gutierrez says. “Anyone who engages in a new lease contract today has a pretty good chance of beating their lease, or coming out ahead two or three years down the road."
The reason, he says, is that since 2008, sales and leases of new vehicles have dramatically declined.
“Earlier this decade we were selling between 16 and 17 million vehicles per year, whereas in 2010 we only sold along the lines of 10.5 million vehicles, and last year we improved slightly to 11,” Gutierrez says.
The dramatic pullback in sales has led to a shortage or lack of supply of late model, good condition, used vehicles. Having fewer used vehicles in the marketplace has kept used vehicle values relatively strong, especially for one- to three-year-old vehicles.
Since 2008, these used vehicles have experienced annualized increases of between 10% and 12% per year. And the expectation is that since sales have remained at this depressed level that used values are expected to remain strong at least for the next year or two.
“The expectation is that even with an attractive lease, when your lease contract is up two or three years down the road, you’re likely to be in a good position,” Gutierrez says. “And in some cases, you might actually have an equity position in the vehicle at the end of your lease, which is certainly not as prevalent in the past five or six years.”
For physicians who are waffling over whether to buy or lease their next luxury vehicle, Gutierrez says it makes even more sense to lease. Luxury vehicles, he explains, are notorious for having pronounced first- and second-year depreciation.
“If you buy a new Mercedes Benz E-Class or a BMW 5 Series and put down a large down payment, the likelihood of having equity in that vehicle two or three years down the road is pretty low,” Gutierrez cautions. “You’re probably going to be stuck with that vehicle until the end of your finance contract when you’ll be able to sell it and not take a loss.”
If you’re considering moving into the exotic car category, the benefits of leasing outweigh ownership as well, says Alan Weiss, Ph.D., president of Summit Consulting Group. And Weiss should know. He’s owned three Ferraris, an Aston Martin and is currently on his fourth Bentley.
“These cars are so expensive that you don’t want to be in a position where you have a big loan to a bank or you bought the car outright and you get into a fender bender or something worse,” Weiss says. “Moreover, sometimes these cars can become outdated.”
Weiss explains that most leases either allow you to return the car and wipe your hands and walk away, or sell the car at the end of the lease, and if you can make more money from it, fine. Or, you can return it against a new lease.
For example, when he drove the Ferraris, he would get about $25,000 to $30,000 back in a check after two years because the Ferraris lost no value. So, if he leased a Ferrari and it was worth $165,000 at the start of the lease, two years later it was still worth $165,000.
“All my payments became equity,” Weiss says.
But, he cautions, exotic cars experience a “retooling” every three to five years, so physicians should be careful not to lease a car near the end of its model run.
“Let’s face it, you don’t buy these cars for transportation,” he says. “You’re buying them for ego. Physicians want to be perceived as successful; they want to be seen driving the latest technology. And most dealers at this level will be pretty honest with you. They see you as a partner, not a customer.”
In addition, don’t discount a leasing arrangement on a certified used exotic car that might even come with a one-year maintenance agreement. Those who have owned a Bentley, Rolls Royce or an Aston Martin tend to take good care of those cars.
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