New Car Leasing Companies

[Noah930]

Can someone explain the business model to me? (Just curious.)

I see a lot of new cars, which have been leased. Not from the dealer, but by some independent company. How does that work--for the leasing company?

Here in CA, when you get a new car, you don't have license plates at first. The DMV mails you metal license plates within a few weeks and you're supposed to put them on within something like 60 days of the purchase. In the meantime, you're often running a "paper plate" which is some sort of cardboard advertisement of the dealer who sold you the car. I see a lot of brand-new cars with paper plates advertising car leasing companies.

How does that work out? As a consumer, I just want the lowest payment possible; I don't care if I get it at the dealer (in which case my new car would leave the lot with paper plates advertising the dealer) or from some 3rd party (so now my car is running paper plates advertising the leasing company). But how does the 3rd party leasing company make a profit? 3rd party buys the car, then leases it out, thereby assuming the risk? How can they charge less for a lease than if the consumer leases directly from the dealership (or, rather, the leasing/finance company of the manufacturer)? I can't wrap my mind around how that's economically profitable.

[RKDinOKC]

First, you can either loan or lease from the dealerships financial department. You can also loan or lease from a 3rd party. It all looks the same on a title the loan or lease company.

Leases can be attractive because they are specifying a limit on miles for the specific length of time you are leasing. So you are basically paying the depreciation of the car plus their profit. At the end of the lease the residual is what the leasing company valued the car at at the beginning of the lease. Residual can end up higher or lower than the cars actual market value. If lower they make more money. Just depends on the market.

Where a loan is the total value of the car over a specific time to payoff.

There are companies that offer leases for cars that are not new. It is based no the value and the expected miles that will be added over the lease. Again depreciation plus a percentage in "rent."

Leasing is usually only costs less if you drive 10K miles or less per year. Going over that mileage can get expensive very quickly.

You want to make the best deal you can on the vehicle BEFORE you loan or lease to make sure they are not including any extra profits or internest in the purchase price.

You also want to pay as little down as possible after the deal is made. You loose any kind of downpayment if you have an accident and the car is totaled, i.e. insurance just pays off the loan or lease.

[wdfifteen]

I'll be interested in the responses Noah. What I don't get is if the leasing company buys the car they presumably pay sales tax on it, and when you lease it you pay sales tax again. If you lease from a dealer, do they pay sales tax?
I assume a leasing company is competitive by monkeying with mileage and residual values. Probably takes a rocket scientist and a lawyer to dig through the fine print and figure out the best deal.

[RKDinOKC]

With a lease you are "buying the car" like a loan in the eyes of paying the taxes.

Since you don't "Own" the car, and are expecting to return it there are only 4 considerations with a lease.

The Downpayment, if any (usually includes the taxes)
The monthly lease payement.
The number of miles per year you are allowed.
The cost per mile if you go over the mileage of the lease.

If you are going to return the car at the end of the lease the residual doesn't matter. It's all the lease payment and miles.
If you plan to keep the car "forever" you are spreading the total value of the car out over a longer period making leasing not nearly as cheap comparitively. It's really about how long you intend to keep that particular car and if you are not putting too many miles on it.

BMW had a thing on miles, at the end of the 3rd year you could buy the number of miles you were expecting to go over the lease mileage. If you were expecting to use 15K miles per year it was cheaper to lease 10K per year and buy the extra 20K miles to equal the 15K miles at the end of the 3rd year than doing the 15K lease.

It's a really big thing insurance payoff wise to not pay a bunch of cash down for a lease. If the car is totaled insurance pays the lease off and that's it. You would get none of your down back.

If the leased is offered by the manufacturer then you can trade for a newer car from the same manufacturer every couple of years without having to pay a penalty for leaving the first lease.

If you are one of those people that is always going to have a car payment, and doesn't put too much over 15K a year on the car, leasing is a no brainer.

If you are wanting to own the car outright. Get a much cheaper used car and drive the snot out of it.

[Steve Carlton]

I suspect you're seeing the license plate inserts of auto brokers, who make arrangements with dealers to lease cars to their customers. They often collect a fee from their customers for the service or a fee from the dealer, oftentimes both. Most of them make pretty large fees and it amazes me that people go through them, as any diligent shopping will reveal these middlemen aren't needed. Those that do use them are perhaps fed up with the stereotypical dealer experience and are willing to settle for a decent deal in exchange for the convenience, or may naively assume they are getting the best deal. Usually they're not.

The old days of independent leasing companies buying cars and leasing them directly to consumers is gone. There are such outfits that do large scale leasing to big companies- even Enterprise Car Rental does that.

[nota]

I don't get the down payment BIG part of most lease deals

if I want a car for say 300 a month for 24 months
why would I want to pay a large down payment

my brother who was a general manager at too many dealers
explained they the dealer wants to capture you trade in value
ok but why do the customers agree to that

to me a lease is so much every month
and should never have a BIG down payment

needless to say I doNOT buy from dealers or lease
and only ever hunt deals on used cars from private sellers

[Steve Carlton]

Down payments on leases drop the payments dramatically- around $30/mo on a 3 yr lease and around $45/mo on a 2 yr lease per $1,000. You can get to a target payment that sounds sexy with a substantial down.

[Noah930]

Originally Posted by Steve Carlton

I suspect you're seeing the license plate inserts of auto brokers, who make arrangements with dealers to lease cars to their customers. They often collect a fee from their customers for the service or a fee from the dealer, oftentimes both. Most of them make pretty large fees and it amazes me that people go through them, as any diligent shopping will reveal these middlemen aren't needed. Those that do use them are perhaps fed up with the stereotypical dealer experience and are willing to settle for a decent deal in exchange for the convenience, or may naively assume they are getting the best deal. Usually they're not.

The old days of independent leasing companies buying cars and leasing them directly to consumers is gone. There are such outfits that do large scale leasing to big companies- even Enterprise Car Rental does that.

Your response is what I was looking for. I don't get how inserting a middle man gives a better deal for the consumer. Kid (he's about 30) across the street recently leased an A5 for his sister. (How either of them can afford anything is a bit of a mystery to me, as no one in that household seems to have gainful employment, but I digress.) He's the kind of guy who's always bragging about how he can get an insane deal on anything and everything. So I know price was paramount in consumating the transaction.

[CynthiaPettit]

Yeah true. I also believe so.