Published on Friday, 09 September 2011
Between 2008 and 2009, auto leasing declined dramatically in Canada, mostly as a result of lower residual values, a tightening of the credit markets and weaker consumer demand.
Today, auto leasing is experiencing a rebirth. Auto data provider, ALG Inc., predicts auto leasing in the luxury sector “will expand by nearly 43 per cent this year over 2010, while leasing of mainstream vehicles will rise 26 per cent.”
At our dealerships, we’ve seen a growing demand for leasing in the past year. Recent Wheels ads have also reflected this trend, as manufacturers are offering attractive loyalty incentives and low lease rates.
For consumers looking for an affordable monthly payment, minimum maintenance costs and no long-term financial obligations, leasing is a viable option. Maintenance costs on leased vehicles for three years are obviously much less than a vehicle owned for five years or longer.
There is still a belief that this form of ownership is only suited to business owners and professional types, who are able to deduct lease payments for tax purposes. In fact, leasing attracts customers from all walks of life and socio-economic backgrounds.
Our lease portfolios include full- and part-time students, college and university graduates, private and public sector employees, senior citizens, healthcare providers, independent contractors, etc. Lease programs on new and pre-owned vehicles can be tailored to suit any lifestyle and budget.
There are two types of leasing options available to consumers — open-end and close-end. Most consumers have moved away from open-end leasing, where the customer is responsible for the residual value amount. If the vehicle is returned and sold in an auction for less than the residual value, the customer is still liable for the difference.
Closed-end leasing is a more flexible option for the customer. The customer retains the option to purchase the vehicle with no obligation to buy it. Closed-end leases make it easier for the customer to get into a new vehicle without having to worry about the market conditions that affect resale values, which is best left to the leasing companies. The customer also has the option of walking away and trying a different brand for a change.
For any auto lease, consumers still need to understand their rights and obligations. Many excellent websites explain the pros and cons of leasing versus purchasing, and dealership salespeople are a reliable source of information as well.
One of the primary considerations for lessees should be their expected driving patterns. Will the vehicle be used mostly for business and subjected to extensive kilometres? Accommodating a growing family? As a pleasure vehicle driven only on weekends and holidays?
Determining a vehicle’s primary usage should allow you to estimate your mileage and the condition of the vehicle after the lease period ends. In short, know your driving requirements and plan ahead.
If you wind up with excess kilometres, your “additional” financial obligations could be significant. To avoid this, consider a higher kilometre allowance, which results in a slightly higher monthly payment and/or a higher down payment.
Leased vehicles that are returned with excessive wear and tear will also result in additional financial obligations, so it’s in the lessee’s best interest to perform regular maintenance.
If you drive a leased vehicle and are involved in an accident, always notify your dealership or leasing company as soon as possible. They could help you to expedite your repairs. Don’t leave this important detail until the lease has expired.
For a growing number of Canadian consumers, auto leasing is a win-win scenario. It gives them an affordable driving option with great flexibility, and the attractive incentives available now make this an extremely good time to lease a vehicle.