Leasing has become a popular way for consumers to get their hands on a car that's a bit more expensive than they can afford. It's also a way for dealers to make sales they wouldn't otherwise make. So everybody's happy, right?
Everyone is presumably happy for the three years or so that most leases last, but, like all things good or bad, the lease eventually comes to an end. The consumer must then buy or lease another car. And the dealer must dispose of the car the consumer has just turned in.
Leasing's popularity took off a few years back as the new car prices soared into the mid-$30,000 range, and now all those cars are about to come flooding back onto dealers' lots as the leases expire.
Hoping to avoid drowning in used cars, Toyota is rolling out a program to offer more leases on its "certified" used cars and trucks, Automotive News reports. It's estimated that 275,000 Toyotas will be coming off lease this year, the highest number ever. Other manufacturers are in the same fix.
Toyota has been leasing used cars for years but only in very small numbers. The company says it is stepping up dealer education this year in hopes of writing more business and moving more cars.
Most of the used-car leases are for 24 to 36 months and allow 15,000 miles per year.
Some auto industry insiders have been warning that manufacturers are creating a leasing bubble and Toyota's move could be seen as an attempt to deal with a glut of cars that aren't worth as much as the company had anticipated three years ago.
“You don't want to do too much leasing because the cars aren't really sold,” former GM, Ford, and Chrysler exec Bob Lutz warned recently. “Your lease rate is essentially a bet on the residual value of the vehicle after two or three years. If you get that residual guess wrong, you can stand to lose a lot of money.”
Leasing the returned lease cars is a way for manufacturers to cover their tracks and recover more of the value than they might otherwise do if the cars were sold outright.
What to do
So is leasing a used car a good idea? Maybe, but consumers should keep in mind that manufacturers are eager to lease used cars because in many cases they can get a higher return than if they sold it.
Buyers with good credit and some ready cash may be better off doing a purchase rather than a lease.
While leases may appear to offer more car for the money, consumers don't have anything to show for their monthly payments at the end of the lease and often find themselves facing lots of unexpected costs, including excess mileage, charges for minor damage, and the ubiquitous "end of lease fee," which is just what it sounds like, a fee for nothing.