Car Lease - Does it make sense?

Not so long ago, leasing was the hot item in the automotive marketplace. Commercials touted lease deals that sounded impossible to refuse. Who could resist, say, a Mazda Miata roadster for $99 a month?

Residual Values
In 1998, well over one-third of new-car shoppers chose to lease rather than buy. Before long, that bubble burst. In their zeal to write more leases, manufacturers began to tinker with the figures—specifically with residual values. That's the amount a car is expected to be worth at the end of its lease term. After placing unrealistically optimistic residual values on their vehicles, the companies wound up in a financial mess as those cars came off-lease, worth considerably less than hoped for.


Early in the new decade, too, manufacturers came up with low-interest and zero-interest financing for new cars. Buying a car on time sounded so appealing that leasing began to fade away.


Leasing "doesn't look like it's going to go back to what it was in the '90s," said Art Spinella, president of CNW Marketing, a research firm. But it's "alive and well." Leasing accounted for about 19 percent of new-vehicle transactions in February 2004, but rose to 21.5 percent in June. All car companies are "trying to edge back into leasing to feed the certified [used car] programs" three years from now, Spinella said.


Two or three years ago, lease penetration was 30 percent, said Tom Kontos, vice-president of industry relations and analytical services at ADESA, a wholesale auction chain. Now, it "seems to have leveled at the 20-percent overall rate." In the future, "as interest rates start to rise again, people will start to look seriously at leasing."