Leasing's Gift to Buyers

Kiplinger's Personal Finance Magazine, Dec, 1998 by Ed Henry

A record number of well-cared-for used vehicles with sturdy warranties will come onto the market in 1999.

Here's a rock and a hard place for you: You're a dyed-in-the-wool car buyer--so leasing is out--but there's no way you can fit new-car payments into your budget. Now you have some extra wiggle room: the chance to buy someone else's leased car.

A record number of two- to five-year leases will end in 1999, dumping more than 3.5 million cars and trucks back into dealers' laps. With mileage caps written into the contracts and drivers worrying about excess wear-and-tear charges if they don't pamper the vehicle, your chances of finding a cream puff are better than ever.

Theodore Aveni did. The 47-year-old owner of a Holbrook, Mass., cleaning business was tired of never-ending car payments on a series of Lincoln Town Car leases. "Whenever my lease was up," he says, "and I had to lease again, they'd try to pack a bunch of hidden charges into the new lease."

Because high new-car prices had driven him to leasing in the first place, he began searching for what is euphemistically called a "preowned, nearly new car" coming off-lease. Aveni focused on a Lexus LS 400, searching the Internet and nearby dealers. He found 11 Lexus 400s in Massachusetts, but only five fit his criteria. Some were priced too high, and others were not "certified," a designation that, as discussed below, promises peace of mind. "If I found a car I liked on Saturday and planned to look at it Tuesday, by Tuesday it would be gone," he says. Ultimately, he hooked up with a salesman at Lexus of Norwood (Mass.), whose diligent search turned up the right car ... in Florida.

Lexus of Norwood is owned by Herb Chambers, a former office-equipment supplier who sells cars the way he sold copiers--at no-haggle prices. "The most difficult part of this business is the negotiation," says Chambers. "The salesperson tries to get as much as he can while the customer tries to pay as little as he can." To simplify things, Chambers prices cars below the numbers set by the National Automobile Dealers Association (NADA) used-car guide.

For his three-year-old Lexus with 35,000 miles, Aveni paid $36,000, some $12,000 less than our target price for a 1999. The car carries a manufacturer's warranty for three additional years or up to 100,000 miles.

"Originally, the dealer extended coverage for three years and only 60,000 miles," says Aveni. "But Lexus came up with a program that boosted the mileage an additional 40,000 miles, saving me the $1,800 it would have cost to buy extended-warranty coverage."

What made it an even better deal was that NADA figures are prices for average cars, and Aveni's car was an above-average automobile even without the added manufacturer's protection.

Aveni loves his car, as does his wife, Barbara, who quipped to her husband, "The next time you buy a car, if it isn't a Lexus, I'm calling my lawyer for the divorce."

Better than used

Many manufacturers, including Cadillac, Honda, Infiniti, Mercedes-Benz and Nissan, certify the off-lease cars they sell at retail, which guarantees that you're not buying someone else's problem. Engines, transmissions, suspensions, steering, brakes and air-conditioning are checked closely, as is every door, window, seat, gauge, latch, button, switch, lamp and cup holder. Anything out of whack is adjusted to return the vehicle to a like-new condition. Worn parts, such as belts, brakes and tires, are replaced with new equipment. Fluids and filters are changed. Some used-car programs come with all the trappings of new-car promotions, such as low financing and free roadside-assistance services.

With so many cars being leased these days, you'll find plenty of good-value, top-condition cars. Recently, Lexus dealerships in California were selling almost 400 1993 to 1995 model cars that had been leased. Prices generally ranged from 17% to 36% below original list.

Not all of these vehicles are low-mileage cars. Peter Lunsford, an aerospace supervisor from San Diego, is convinced he got a good deal on a six-year-old Nissan Altima that came with the manufacturer's backing and warranty. He paid about $9,000 for the car, which had 89,000 miles on it.

Leasing expert Art Spinella of CNW Marketing, in Bandon, Ore., expects real bargains in 1999 on off-lease Toyota Camrys and Ford Tauruses. Scads of those vehicles were leased three years ago with inflated residuals built into the contracts to hold down monthly payments. The high residuals mean high buyout prices at the end of the leases, so it's likely that a higher-than-normal percentage of lessees will turn in their cars. That should result in a glut on dealers' lots, Spinella says, and great bargains.

Among the deals we recently spotted:

* For $9,288, almost $4,000 less than a 1999 Hyundai Elantra GLS, you can buy a 1993 Saturn SL2 that has passed a 150-point inspection.

* A 1999 Cadillac DeVille has a target price of $36,588. But for $12,713 less you could buy a 1996 "preowned" Sedan DeVille with a comprehensive bumper-to-bumper warranty.