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Home / Cars and Trucks
Lease That New Car First; then Buy it at a Discount at the End of the Lease
By:Ralph M
Carmakers are offering lease rates can’t be beaten. So lease a car today at these low rates and then buy the car at a discount at the end of the lease. This is a once-in-a-lifetime opportunity.
At the end of a lease the company financially backing the lease most likely will sell the car on the open market at a loss. Why not intervene at that point and buy the car for less than the residual value and put that “loss” into your pocket as money saved?
Because of the oversupply of cars of all kinds, from all manufacturers, it’s likely that rebates and discounts will be offered for several years to come.
Leases are attractive during over production.
To overcome this, leases will also reflect these discounts and end up being “subsidized” for a similar period by increasing the residual value of a car to make the lease price more attractive than a competitor’s offer. This lowers the monthly lease price.
Until labor contracts for the Big Three: GM, Ford, and Chrysler, can be significantly reduced, they have no choice but to continue subsidizing leases in order to spur sales. This is once-in-a-lifetime opportunity to minimize the cost of a new car by leasing it first, and then buying it at the end of the lease.
New cars will continue being a bargain.
In the past, the auto manufacturers moved cars by subsidizing leases. The monthly lease cost was lowered by increasing the residual value, thereby selling (leasing) more cars. But the value of the vehicle at the end of the lease was almost always less than the contracted residual and each of the off-lease cars then had to be sold in the wholesale market at a loss of several thousand dollars.
This means that at the end of the lease its used car value may also be less than the market value. It is unlikely it will ever be more. That is the time to buy the car at a discount from the contracted residual value.
Several of the big backers of lease financing, Chrysler, some New York banks, and others, each lost several hundred million dollars in each of the past several years because they had to sell the off-lease cars on the open market for less than the residual value.
Future trends favor the consumer
The Automotive industry is saddled with excessive employee benefits, i.e. health and welfare and pension obligations for current and retired employees. Worse, there are too many plants worldwide making vehicles.
If China’s car industry enters the United States in three or four years with the “Cherry” automobile, a talked about vehicle made in China with Chinese wages, the situation will only get worse.
Compounding the problem for some of the manufacturers is that their labor contracts are so juicy that they are better off continuing to give away cars rather than to close a plant continuing to pay benefits to laid off employees.
This situation will not change for several years until consolidation, plant closings, or bankruptcies have cured the problem. And plant closings will be a last resort. Therefore the glut of new cars will likely continue for a few years and the subsidized lease will continue to be offered.
A true-life example:
A business friend of mine had a three-year-old leased car with a contract residual value of $28,000. Looking at the used car lot he found he could buy one just like it for $24,000. He assumed the company that financed the lease would loose at least $2,000 in selling it. Through the dealer he offered $22,000 to buy the car and his offer was promptly accepted, including 3%, 3 year financing. His dealings, all by phone (no face to face negotiations needed) were with the company financing the lease.
So lease the car of your dreams today if you ultimately want to buy it. Let the companies financing the lease continue to subsidize your monthly lease payment. About three months before the end of the lease, cruise the used car lots and notice what your car is being offered at and then buy the car (no commissions paid to anyone on this transaction) at the end of the lease and keep several thousand dollars in your pocket.
Copyright Beacon Data LLC 2006 All rights reserved
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Article keywords: Buy, buying a car, buy a car, Lease, leasing, car, residual, leasing a car, residual value
Article Source: http://www.articles2k.com
Ralph Hoffmann, article author, graduated from the Univ. of Wisconsin, majoring in Applied Mathematics. He has ten years experience raising venture capital, ten years in manufacturing and business experience, and uses his math and business background to develop automotive program software to make customers how to save money when planning to lease or buy a new car. His web site: Calculate Lease Payments
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