Can Third-Party Middlemen Save You Money on a Lease?
Check out the facts first
Caveat emptor - buyer beware. Since Roman times, consumer prudence has always been the wisest course of action and it is particularly true when you are planning on leasing a new car. That is what Ken Shaw Jr. of Ken Shaw Lexus Toyota, Toronto, cautions people contemplating lease deals through a third-party leasing company.
"Often third-party firms claim they can save potential buyers substantial money on a lease deal, compared with new car dealerships. A little research, however, often proves the opposite to be true," says Shaw, who is also a member of the Board of Directors of the Toronto Automobile Dealers Association.
Dealerships Offer Substantial Lease Savings Top
Shaw says that in April 1999 his company compared the leasing rates for a 1999 Toyota Corolla CE 'B' offered by his firm and a leading third-party leasing company. The study showed that on a 48-month lease, the consumer would save about $1,172 leasing from his new car dealership.
"Our lease rate was more than $17 per month less, totalling $842.40 over the term of the lease. Plus, we saved customers #330 on the lease buyout value - what consumers pay to purchase the automobile when the lease expires," explains Shaw.
He adds that on a Sienna CE'B' 1999 model, the consumer would save $1,413 compared to the same third-party leasing company's offer - again over the full 48-month term of the lease.
"These examples help illustrate why it's always a good idea to shop around. If a leasing firm offers you what looks like a great deal, my advice is to take that offer to a new automobile dealer and see if you can do better. More often than not, there is a very good chance the dealership will offer superior value," he says.
Shaw stresses that leasing companies are middlemen, who first must purchase new cars from a dealer.
"Therefore, the price paid by consumers to lease the vehicle will already include the markup paid to the dealer. On top of that, the leasing company adds its profit. That is why by eliminating the middlemen, consumers are often better off doing business directly with dealers."
Additionally, the auto industry is extremely competitive, Shaw says. Dealers have to keep pace in terms of overall price options, and financing plans - or they risk losing customers.
Better Financing Terms Top
When using a third-party leasing company you will be typically paying standard bank rates that are currently about 8.1 percent, says Shaw.
"Dealers, by contrast, not only have access to the same kinds of rates, they frequently can arrange much lower ones - called factory-leasing rates - from their major automobile manufacturers. Therefore, they are often in a position to offer financing rates at about half of what the banks charge. Independent leasing companies do not have this kind of access to low-cost manufacturer financing."
Beware of Advertising Claims Top
Shaw is particularly concerned that third-party radio and Internet advertising may be making savings claims that cannot be substantiated in fact.
"Too many people are willing to believe these ads, then end up paying a premium by going through a leasing company. Some leasing firms, in fact, claim savings up to $2,000 per vehicle, or around $50 to $60 per month. We now know that by comparison, as demonstrated in our April study, new dealers can save people money.
"It is important for consumers to realize there are no lease disclosure laws in Ontario. As a result, the Toronto Automobile Dealers Association and its sister organization, the Ontario Automobile Dealers Association has adopted a policy to provide full lease disclosure, so you know exactly what you are paying. No consumer should ver sign a lease without full disclosure."
He recommends using the Internet as a resource tool to obtain information, but warns that it cannot replace the benefits of face-to-face dealings in a showroom environment.
"You need to get that all-important firsthand look at a vehicle, its options and price. And when you're going through a dealer, our product representatives have the necessary expertise and direct technological links to manufacturers so you always get the latest product features and benefits," Shaw advises.
Going that Extra Mile Top
Dealerships tend to offer certain intangible benefits not normally associated with most leasing companies, Shaw maintains.
"If you are a regular customer at a dealership, we'll tend to pay special attention to your needs. For instance, if something goes wrong with your car after the warranty period expires, we are usually in a position to intervene on your behalf with the manufacturer - and that doesn't happen as often as in third-party situations," Mr. Shaw says.
In general, not only is a dealership lease less expensive then that of a third party, new car dealers will go that extra mile for their direct customers in order to keep their business.
Above all, Shaw urges today's consumers to compare and compare again, before making any lease deal on a new car.
"It makes sense to find out as much as you can, and be as thorough as possible."
From an article in MacLean's Magazine by, Ken Shaw, President, Ken Shaw Lexus Toyota, TADA President 2004 - 2005.
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