GMAC to stop offering lease incentive deals in Canada

[Winsor_Pilates]

Originally Posted by DementedReality

thats inconsistent... if the automaker is having a tough time owning a 4 year old used car, wouldnt it suggest the consumer would as well?

therefore making leasing a good consumer choice, since you get to dump a 4 year old car right and the challenges onto another party? and in the meantime, the

We had this debate in another thread the other day, but in this situation I agree with you that leases are good.
The residual values on these trucks is much lower then the dealerships expected, so the amount these truck leasers were responsible for was less then their fair share.
for example, they would have covered 14K in depreciation, and in reality the vehicle depreciated 18K.
With the dropping prices of trucks over the last few years, leasing in many cases could have been a good choice.

[DementedReality]

Originally Posted by kevman

I'm listening but still confused...Yes you have $15,600 invested but you have no car... For comparison a 4 year old Tacoma Double Cab is approx. $25,000+. For arguments sake we'll call this a wash but the leaser still has no car and isn't that the whole point of vehicle ownership? Now lets say you use that $20,000 lease another new truck. At the end of the next 4 years said investment will be pretty negligable where as the Tacoma should be worth approx. $15,000+. Now we can nickle and dime away that $15,000 to maintance and such, which in reality should be negligable after 8 years if it's a reliable vehicle. Anyways, again for arguments sake we'll say that after 8 years you have a vehicle worth ZERO dollars and after 8 years you have invested approximately the same into leasing a vehicle. However if you leased you still do not have a car...

a) i disagree that a vehicle after year 4 has neglegible maintainence. this is precisly when major components start to need repair. this can not be discounted.

b) so after 8 years, one person owns a worthless piece of metal that requires repairs and another own nothing but a growing bank account/investment. i would rather have nothing and not be tied down to an 8 year old car.

i guess it comes down to preference. i tried to go the used car route instead of leasing. 6 months into it, i had a $3000.00 repair. now my $8,000 car is worthless if I dont spend $3,000 to repair it.

i decided then to never buy a used car again. i will lease new, always have a warrenty and know exactly my car expense for the year. that $3000.00 repair is 10 months of lease payments. The 8,000 value of the car would be 27 months of payments. Id rather have the 8,000 in my hands and give it to the bank in 1/48 increments than to see it tied up in metal and declining each month in value.

like i said, comes down to preferance, but i see little downside to leasing and lots of risk with ownership.

[Bill Bumface]

Originally Posted by MoneyGuy

I could go into a lot more detail if you wish, but leases work like this. If you take a five-year lease and the new car costs, say, $40,000, they determine what the value will be after five years. If the five-year value is, say, $18,000 (not unreasonable) the payments are calculated as $40,000 - $18,000 = $22,000, so $22,000 divided by 60 months = $366.67 per month + interest and after five years you own nothing.

Bad financial move in most cases, IMO. I'd much rather buy a brand-new car (or used if you prefer) and own it for eight to 10 years. Yes, I know that I lose on depreciation, but over that many years it tends not to be a big deal. Lease and you pay the depreciation anyway, but you're paying the first years' depreciation when it's the greatest. If you don't want to buy new, then buy used. I buy new Toyotas because I can afford to, because they require little maintenance and if I take good care of them they last forever and hold their value better than the domestics.

That's a ridiculous analysis.

"Leasing is a bad deal because you can buy the car and keep it for 10 years instead."

No s___ Sherlock.

You could also buy out your lease and keep it for 10 years.

Buying a car and selling it after 4 years is where the comparison needs to be made, and in many cases the advantage went to leasing on this, especially because you have an out either way depending on if the vehicle depreciated more or less than you expected. This is why domestic manufacturers aren't so hot on leasing anymore. If the lease rate is equal to the finance rate, and you are only keeping the vehicle for 4 years (and other cases as well that I don't feel like going into) you are always better to take the lease. The big drawbacks are flexibility (sort of).

[MoneyGuy]

Originally Posted by hulkrogan

That's a ridiculous analysis.

"Leasing is a bad deal because you can buy the car and keep it for 10 years instead."

No s___ Sherlock.

You could also buy out your lease and keep it for 10 years.

Buying a car and selling it after 4 years is where the comparison needs to be made, and in many cases the advantage went to leasing on this, especially because you have an out either way depending on if the vehicle depreciated more or less than you expected. This is why domestic manufacturers aren't so hot on leasing anymore. If the lease rate is equal to the finance rate, and you are only keeping the vehicle for 4 years (and other cases as well that I don't feel like going into) you are always better to take the lease. The big drawbacks are flexibility (sort of).

Really? That's how leasing works. If you want to lease because you want a new car every year or two, go for it. I just think the othe options are smarter.

[DementedReality]

Originally Posted by MoneyGuy

Really? That's how leasing works. If you want to lease because you want a new car every year or two, go for it. I just think the othe options are smarter.

i am surprised, given your profession.

it doesnt bother you to turn 25k into 18k within minutes of making the purchase?

i just figured you could make better use of the capital, especially given your knowledge.

i respect your background and i wouldnt bet that you havent done the math. so your feedback is interesting.

i wonder what slava's take on it would be?

[Machiavelli]

Buy a 2009 Mazda 3 for about $22K with taxes included (I've worked it out already with negotiating).

Sell in 3 years for about $15K, loss of 7K plus interest on my LOC (about 3K) works out to a loss of 10K.

Lease at the current rate of 8.5%, bringing monthly payments of $405 per month on a 36-month lease term, paying $14580 over this term. However, if Mazda continues not to have this vehicle on a lease program (8.5% is with a third-party company), they may continue to offer $3200 in lease cash (money paid to the customer to off-set the ridiculous lease rate), bringing total loss to $11,380.

So in this situation it seems like it would be a better deal to lease, as the difference in money lost is not substantial, and the lease would improve cash flow.

Am I thinking properly on this, DR, MoneyGuy, and others?

[4X4]

You're thinking mighty proper, Machiavelli. A bird in the hand is worth two in the bush. How do you know that you'll get $15k for the car in 3 years? Maybe the thing is dented and scratched or there are alot of them for sale at that time. Now you're losing an unkown amout of money if that is the case. You may also gain money if the car is immaculate, but who knows?

In the lease scenario, you know your costs every month and in the meantime you have alot more money to play with (and by play with, I mean use wisely).

Cash flow is what makes or breaks everything. Wise use of money makes people rich. Buying things that eventually become worthless... Doesn't.

[Machiavelli]

Yeah, it's just too hard to predict what the car market will be like in 3 years with possible fluctuations of the Canadian dollar and automakers reducing Canadian MSRPs to compete with the American market.

Leasing at least protects you from greater-than-expected depreciation. For example, a lot of 08/08.5 Mazda 3 owners are apparently upset because Mazda Canada has lowered the MSRP of the incoming 2009 by $2000 on ALL TRIMS. So basically, the resale value of their cars has immediately fallen by about two thousand dollars. Tough to swallow.

[Bill Bumface]

Originally Posted by MoneyGuy

Really? That's how leasing works. If you want to lease because you want a new car every year or two, go for it. I just think the othe options are smarter.

If your buying a new car that you plan on keeping for 4 years and the lease rate is the same or better than the purchase rate, it's also far to your advantage to lease.

Of course the smartest option is to pick up a 1990 Honda civic, drive it until it dies, and repeat. That's pretty much common sense though that I think everyone in this thread is well aware of.

[4X4]

edit* re: Machiavelli

Yup. And in the meantime, you have way more available cash for investments that appreciate in value. Even if it's something frivolous. A car is never worth more later unless it's very high end or realllly old.

If you look at it this way: you're always going to need a car and your car is always going to cost you money, there are many ways to justify the lease. That financing has a light at the end of the tunnel is not totally accurate. You'll still own the car and you will have to pay R&M to keep it rolling. All it takes is one or two major repairs to put you right back in the same financial spot as the person who leases. Difference is that the guy leasing knows his costs every month and never has an unexpected $2500 repair bill.

I was a firm believer in financing up until I bought my last vehicle and realized that I can't really fix much of it myself. I have to take it to a mechanic for most things. Things that I would have done myself on all my old vehicles.

I guess I chalk it up as a cost of living expense that will never go away. A car is going to cost you $300 or $400 or $500 per month whether you like it or not. Might as well be driving a new car all the time if you're going to pay that kind of money.

Hell, my '97 Jimmy just cost me ~$3,000 last summer to fix a bunch of stuff and put new tires and get a new cd player because the old one wasn't working well anymore. Ball joints, water pump, odds and ends... That's 6 months of payments on the truck I'm going to lease in the next few weeks.

I'll lease it for 4 years, pay $500 per month, and have a full warranty (including oil changes). Sure I wont own anything at the end of the 4 years, but that's ok because that'll be the point when a few of the big repairs start to trickle in. What the hell. I'd rather just have a brand new vehicle, one that is ever more technologically advanced and more efficient, and pay roughly the same as the guy that holds on to the vehicle until it is rusted out and worth nothing.

[jtfrogger]

I used to program software for a leasing company. It was a company that was purely leasing. Basically, all they did was finance purchases for businesses.

Without getting into a long winded post, let me tell you that there is a lot of profit in leasing. (And don't get me started on the insurance they offer.) I spent a lot of time talking to the CFO, Controller, and other VPs when working on the software. I got to understand the different types of deals very well.

Basically, they benefited because most people are unable to calculate the net present value of the payment stream and compare it with traditional financing. In all honesty, I would struggle doing it now after not having to do it for a few years. Many people just compare the monthly payment and pay little mind to the fact that they own nothing at the end of the lease. The company also benefited when they added little things that didn't appear to cost much such as insurance and administration fees (and my favourite, the insurance administration fee) that were 75 to 100% profit.

Now the car manufacturers are having issues because the residual values in the leases for some vehicles are higher than the actual values at the end of the lease. It was a very unusual situation that caused this, which other posters have already explained. I figured they would have adjusted their residual values to something more conservative and start shovelling in even more money. I'd wager that even if they continued with the same formula, they would make a lot of money. I can't imagine vehicle prices dropping in the next three years as much as they have in the last three.

[DementedReality]

Originally Posted by jtfrogger

Without getting into a long winded post, let me tell you that there is a lot of profit in leasing. .

i am not arguing about whether or not they make a profit, or how much of a profit. they are in business to make a profit, so its not a surprise

the point is leasing gives me better use of my capital

Originally Posted by jtfrogger

they own nothing at the end of the lease.

.

but as explained many times above, who cares if you dont own it? in fact, i see that as a HUGE value in leasing.

if you really like the car, you can buy it out. just think of it as a 4 year test drive. if its a lemon or your needs have changed, you are not tied to it. just walk away.

id rather walk away from a lease having pocketed 10,000 in cash flow savings than be stuck with a lemon and have to sell it to release that equity.

would you want to buy a 4 year old VW? or Neon? or Kia? etc ... how am I supposed toget my equity out if no one wants my dime a dozen car?

you go ahead and tie up equity in a car, id rather have mine liquid and let the car company own it when the warrenty runs out. speaking of equity, the car owners is always declining, the leaser who invests the difference, his equity is always increasing (and mostly liquid depending on what it is invested in)

[Dion]

Originally Posted by DementedReality

but as explained many times above, who cares if you dont own it? in fact, i see that as a HUGE value in leasing.

I'm the opposite as i see no value in leasing. Why continue to lease a new vehicle when the first 4 years are the highest depreciating rates for a vehicle?

if you really like the car, you can buy it out. just think of it as a 4 year test drive. if its a lemon or your needs have changed, you are not tied to it. just walk away.

You can do the research before hand and avoid getting a lemon. Comsumer reports and the Lemonaide guide are excellent resources. Have yet to own a lemon.

id rather walk away from a lease having pocketed 10,000 in cash flow savings than be stuck with a lemon and have to sell it to release that equity.

I prefer to buy my vehicles for cash and drive them for at least 10 years. Saves on the interest payments hidden in car loans and lease payments. Better for the interest payments to be in my pocket as opposed to the bank or dealership lease program.

you go ahead and tie up equity in a car, id rather have mine liquid and let the car company own it when the warrenty runs out. speaking of equity, the car owners is always declining, the leaser who invests the difference, his equity is always increasing (and mostly liquid depending on what it is invested in)

The money i save each month not making payments is invested and used to purchase another vehicle for cash 10 years down the road.

Yes owning a car is a depreciating asset. I buy them when they're 2 years old and let the original owner pay the bulk of the depreciation.

[Winsor_Pilates]

Originally Posted by hulkrogan

If your buying a new car that you plan on keeping for 4 years and the lease rate is the same or better than the purchase rate, it's also far to your advantage to lease.

How often is that the case thought? I've been looking at a lot of leases lately, and very few have rates even comparable to the finance rate. Unfortunately the ones that do are car's I'm not interested in.

[DementedReality]

Originally Posted by Dion

The money i save each month not making payments is invested and used to purchase another vehicle for cash 10 years down the road.
.

you are entitled to your own strategy, but this one caught my attention.

how are you saving money by not making payments? you made all 48 payments up front!

a 25,000 car

you pay cash - out of pocket 25k

i lease -- costs me 12k, paid out in 1/48 increments

in 4 years, your car is worth 13 or 14k .... and i am ahead by 13k. mine is cash plus interest, yours is a piece of metal

4 years later, i have completed another lease, have probably close to 30k in cash and no car and you have an 8 year old car. you telling you havent spent a penny on R&M in years 4, 5, 6, 7 or 8?

chances are you are thinking of another car by now. your 25k is now worth say 5 or6k BUT you have to sell it to see that.

ok, i concede, if you own a good car for 10 years, you will most likely do better than leasing. id prefer the known factor and not need a 10 year timeline to guarantee it working out for me.

for me, i dont want the hassle of no warrenty nor do i want to drive the same car for 10 years. i see a much better value in leasing.

to each his own.

[DementedReality]

Originally Posted by Winsor_Pilates

How often is that the case thought? I've been looking at a lot of leases lately, and very few have rates even comparable to the finance rate. Unfortunately the ones that do are car's I'm not interested in.

my VW rate on an 08 Jetta is .9%.

cant beat that right? why not keep my money and give it up 1/48th at a time?

i am not advocating leasing at 8.8%, thats dumb too. you have to shop and shop and shop to find the right deal, but thats goes without saying doesnt it?

[GoinAllTheWay]

Originally Posted by DementedReality

you pay cash - out of pocket 25k

i lease -- costs me 12k, paid out in 1/48 increments

in 4 years, your car is worth 13 or 14k .... and i am ahead by 13k. mine is cash plus interest, yours is a piece of metal

Ok, off the bat I have to admit I'm terrible at these types of things, but... that would be making the assumption that the money you save over him during those 5 yrs is used for nothing other than at the very least putting it in your bank and never touching it, is that really possible? That freed up cash could very easily be used as well, would it not? Don't think I have seen the temptation to have some fun with freed up money in any calculations so far.

I'm asking purely out of curiosity.

[DementedReality]

Originally Posted by GoinAllTheWay

Ok, off the bat I have to admit I'm terrible at these types of things, but... that would be making the assumption that the money you save over him during those 5 yrs is used for nothing other than at the very least putting it in your bank and never touching it, is that really possible? That freed up cash could very easily be used as well, would it not?

I'm asking purely out of curiosity.

of course ... thats the point .... would it be better to tie up that money on a declining basis in a car?

two people, same car, one has cash flow to spend or invest and the other doesnt.

which person is better off?

[Dion]

Originally Posted by DementedReality

you are entitled to your own strategy, but this one caught my attention.

how are you saving money?

a 25,000 car

you pay cash - out of pocket 25k

i lease -- costs me 12k, paid out in 1/48 increments

in 4 years, your car is worth 13 or 14k .... and i am ahead by 13k. mine is cash plus interest, yours is a piece of metal

4 years later, i have completed another lease, have probably close to 30k in cash and no car and you have an 8 year old car. you telling you havent spent a penny on R&M in years 4, 5, 6, 7 or 8?

You are forgetting that i'm not buying that new vehicle worth 25 grand, but a 2 year old model that worth a lot less due to depreciation. For example in 07 i bought a used 05 Ford Escape XLT for $22,000 - originaly it was worth around $30,000. Saved 8 grand in depreciation - money i can use elsewhere.

It also works for me as i pay cash and have no interest payments to make.

As for R&M.....if you are diligent with maintinence it won't cost you as much. Plus that 8 grand saved in depreciation will help with some of those costs.

chances are you are thinking of another car by now. your 25k is now worth say 5 or6k BUT you have to sell it to see that.

I don't expect to get much for my vehicle that is 10 old. I also keep my vehicles well maintained inside and out and i service them on a regular basis. Good used vehicles are not that hard to sell.

ok, i concede, if you own a good car for 10 years, you will most likely do better than leasing. id prefer the known factor and not need a 10 year timeline to guarantee it working out for me.

for me, i dont want the hassle of no warrenty nor do i want to drive the same car for 10 years. i see a much better value in leasing.

to each his own.

I can appreciate that as my late father never owned a vehicle for longer than 4-5 years. He didn't want the hassle of car repairs and all. Plus he could afford a new vehicle every 4 years.

[kevman]

Originally Posted by Winsor_Pilates

We had this debate in another thread the other day, but in this situation I agree with you that leases are good.
The residual values on these trucks is much lower then the dealerships expected, so the amount these truck leasers were responsible for was less then their fair share.
for example, they would have covered 14K in depreciation, and in reality the vehicle depreciated 18K.
With the dropping prices of trucks over the last few years, leasing in many cases could have been a good choice.

I can support that, but a lot of that is based on the rise in fuel prices and the unexpected fall in the demand of larger vehicles.

Originally Posted by DementedReality

a) i disagree that a vehicle after year 4 has negligible maintenance. this is precisely when major components start to need repair. this can not be discounted.

I'm making the assumption that lease or own major components are under warranty after 4 years.

b) so after 8 years, one person owns a worthless piece of metal that requires repairs and another own nothing but a growing bank account/investment. i would rather have nothing and not be tied down to an 8 year old car.

Worthless is a little extreme, I used it for arguments sake, but most modern cars still have a lot of life left in them after 8 years.

i guess it comes down to preference. i tried to go the used car route instead of leasing. 6 months into it, i had a $3000.00 repair. now my $8,000 car is worthless if I don't spend $3,000 to repair it.

i decided then to never buy a used car again. i will lease new, always have a warranty and know exactly my car expense for the year. that $3000.00 repair is 10 months of lease payments. The 8,000 value of the car would be 27 months of payments. Id rather have the 8,000 in my hands and give it to the bank in 1/48 increments than to see it tied up in metal and declining each month in value.

like i said, comes down to preference, but i see little downside to leasing and lots of risk with ownership.

It's true, if the latest and greatest car is what makes you happy than so be it. As for ownership costs nothing beats purchasing a vehicle and owning it for a prolonged period of time.

What I fail to understand is the fact that vehicles biggest depreciation occurs in day 1 followed by year 1, year 2, etc. Why continue to pay for year 1 depreciation? What was $40k new, is $25k after 4 years, $15k after 8 years, $7k after 12 years, $4k after 16 years, etc.

Originally Posted by DementedReality

you are entitled to your own strategy, but this one caught my attention.

how are you saving money by not making payments? you made all 48 payments up front!

a 25,000 car

you pay cash - out of pocket 25k

i lease -- costs me 12k, paid out in 1/48 increments

in 4 years, your car is worth 13 or 14k .... and i am ahead by 13k. mine is cash plus interest, yours is a piece of metal

4 years later, i have completed another lease, have probably close to 30k in cash and no car and you have an 8 year old car. you telling you havent spent a penny on R&M in years 4, 5, 6, 7 or 8?

OK let me get this math straight.
Purchase, spend $25k right away, worth $13k after 4 years.
Lease, spend $12k over 4 years, have $13k cash after 4 years.

You say after 4 more years you'll have $13k more...but in my mind after 4 more years you have to spend that original "saved" $13k on your next 4 year lease.

Originally Posted by jtfrogger

Basically, they benefited because most people are unable to calculate the net present value of the payment stream and compare it with traditional financing. In all honesty, I would struggle doing it now after not having to do it for a few years. Many people just compare the monthly payment and pay little mind to the fact that they own nothing at the end of the lease. The company also benefited when they added little things that didn't appear to cost much such as insurance and administration fees (and my favourite, the insurance administration fee) that were 75 to 100% profit.

Perhaps my math was wrong but my NPV calculations showed a SIGNIFICANT cost advantage to purchasing. However they were based on long term vehicle ownership.

How about factoring in insurance? Can you neglect the fact that if you're leasing you MUST cary full coverage where as if you're driving your own car you can dictate your insurance level.

Over the last 5 years (years 10-15 of my vehicles life) I've averaged about $1,000 a year in maintenance. My insurance premiums are about $700 a year. Perhaps my costs in years 1 through 5 were more but my low costs now easily make up for it.