Cashing in: tempting cash-back deals and rebates could make buying a great option

Entrepreneur, Dec, 2003 by Jill Amadio

WHETHER THEY'RE CALLED incentives, rebates, bonuses or cash allowances, these tantalizing discounts, which are proliferating year by year, are causing auto leasing to lose its luster. Why? Many incentives and rebates are not applicable to leased vehicles, and even for those that are, the savings can get swallowed up in the variables of lease financing programs.

Three years ago, leasing accounted for 25 percent of new car sales. Today, that figure has decreased to 13.3 percent, according to Jesse Toprak, senior analyst at Edmunds.com Inc., which provides automotive information for buyers. While leasing usually means free maintenance, commercial vehicles are more often purchased rather than leased because commercially used trucks and vans rack up high mileage, which means stiff penalties in leasing contracts. Even the used-car market has been affected by incentives and rebates on new vehicles because lower new-car prices are pushing used-car prices down.

Which to choose? It's a daunting task requiring serious research. Fortunately, manufacturer and automotive Web sites are loaded with information, color graphics, optional features and comparison prices to help you figure out which fleet and commercial vehicles are best for you. GM dealerships even offer a free 24-hour overnight test drive. Call (800) 508-1050, or visit www.gm.com/24hours for details.

When buying or leasing a fleet of vehicles, factor in size, function, capacities, mileage, life cycle cost analyses, insurance and maintenance, warranty coverage, and driver feedback. Keep in mind that light-duty trucks depreciate less than cars. To find the right vehicle for your business, ask yourself:

* How much cargo space is needed to make deliveries efficient?

* How heavy are the products your business delivers?

* How many people need to ride up front in your pickup?

* Are deliveries mostly stop-and-go or long hauls? Figure out fuel economy for both situations.

* How big is your budget?

Automakers have been designating their incentive dollars for cash rebates and low APR purchase programs rather than toward subsidized leases, and that trend is expected to continue in 2004. "Currently, there is no special lease program that includes a rebate amount that can be applied to leasing a vehicle, but some programs include a cash incentive, called 'lease cash,' that is automatically applied as a cash down payment toward the lease," says Toprak.

Some carmakers, such as Ford, Lincoln and Mercury, offer special fleet incentive programs for fleets using alternative fuel vehicles. While incentives are subject to change, and regional programs may vary, manufacturers post the latest incentives on their Web sites. At press time, for example, Ford was offering incentives ranging from $1,000 to $3,000 on various trucks and vans. GM gives you a $4,000 cash allowance on its S-10 and Silverado pickups, and GMC offers $3,000 on the Savana, Sierra and Yukon.

But don't let a tempting incentive blind you. Your final decision should be determined by net depreciation. You may save more upfront with incentives and rebates on new vehicles, but lose it when it's time to sell or trade in your vehicles. To help you assess the big picture, Edmunds.com has a tool called "True Cost to Own" that allows you to calculate the five-year estimated costs of owning a vehicle. (Visit www.edmunds.com/apps/cto/ctointrocontroller.)