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Car leasing makes a comeback at local dealerships


Larry Martindale’s opinion about leasing an automobile changed not long after he became sales manager at Betts Lexus in 2001.

He was mystified at first when he saw that 50 percent of the dealership’s car transactions were leases. This had certainly not been the trend when he owned a General Motors dealership in Perry, where he recalls leasing out only about 15 cars in a six-year period.

“When I started here, I asked my co-worker, ‘Are these people overextended, is that why they’re leasing?’ And he said, ‘No, they could probably write a check out and pay for the car in full, but they don’t want to buy something that depreciates.’”

Martindale, a former Roosevelt High School principal who worked for the Des Moines Independent Community School District for 37 years before he joined Betts Auto Campus, decided he could learn something from his customers.

“I was not a believer in leases, but when I see people doing it who have the money to write out a check upfront for the entire lease term, then there must be something to this. So I decided to do it myself,” Martindale said. “I’ve learned that people with money tend to buy things that appreciate, like homes and property, but tend to lease things that depreciate, like cars.”

Like Martindale, more people across the country are opting for a lease instead of a loan. One reason is that climbing interest rates have made companies like General Motors Corp. eliminate zero-percent financing and similar promotions that had made car buying attractive.

David Mehman, the new-car sales manager for Karl Chevrolet, said the number of people signing leases at the Ankeny dealership is growing, especially over the past three months.

“The manufacturer has really gotten behind leasing, and with that, the advertising and incentives for leasing have gone up,” Mehman said.

In March and April, leases accounted for about 20 percent of Karl Chevrolet’s new-car transactions, Mehman said, compared with about 10 percent a year ago. Nationally, leases are expected to climb from 22 percent of the new-car market in 2005 to 26 percent by 2007. Leased vehicles’ market share had been as low as 20 percent in 2003, when factory rebates and low financing rates were the norm.

Mehman said SUVs are the most commonly leased vehicles, probably because of their higher price tags.

“Leasing allows you to have a little bit more car for the money,” Mehman said, referring to the lower monthly payments with leases compared with loans over the same time period. “Cars are not good investments. Their value drops off significantly after a year.”

Lease payments are figured by subtracting the car’s estimated value at the expiration of the lease term from the sticker price and factoring in interest for the time the lessee has the car. On a 2005 Chevy Trailblazer with a price of $33,000 and no money down, Mehman figured the monthly payments for a three-year, 15,000-miles-per-year lease to be about $455. In comparison, the monthly payments for someone taking out a three-year loan at 5 percent interest would be $928 per month, even after factoring in rebates.

“Most people wouldn’t be able to make that big monthly payment, so they’d have to go with a five-year loan, which would still make the payments $528 per month,” he said. “With leases, you never get into an inequity position. Say you come in and trade your car off and they’re going to give you $20,000 for your trade-in, but with interest, you actually owe $24,000 on it. The myth with leases is that you don’t own anything, when really, what do you own if you owe more than it’s worth?”

Mehman said lease customers who “only pay for what they use” also tend to be happier than car buyers because the car is always under warranty during the time they drive it, and they like knowing that they will have a new car in a few years. Car dealers also like knowing that customers who sign leases will return in few years.

“We get that customer back in three years, which is a good thing, especially a young person who starts out in a (Chevrolet) Cobalt, who might step up to more expensive model for their second lease,” Mehman said.

Brad Pietzsch, the sales manager for Jordan Motors in Johnston, said it’s not only younger people who are signing leases right now.

“I’ve leased a car for my wife since 1997, and she’s been able to drive a lot of nice cars,” he said. “Right now she has an Infinity SUV because we have twin boys and we needed the kid-hauler.”

Pietzsch said about 45 to 50 percent of Jordan’s business comes from leases, which he said is an increase of about 15 to 20 percentage points over last year. The vehicles being leased vary from Volkswagon Jettas for about $200 per month with a small down payment to Audi A8s for about $1,200 per month.

David Dean, the general sales manager at European Motorcars in Urbandale, said leases have also increased over last year at his dealership, accounting for about 40 to 50 percent of his business right now, and it results in a nice inventory of certified used cars on the lot.

“These are premium vehicles, and most of the vehicles we lease are returned to us in excellent condition,” Dean said.

Pietzsch said rarely does he caution someone against a lease, but people who would not be good lease candidates would be ones who want to trade every year – leases can be harder to get out of than purchases – anyone who knows they will drive between 40,000-50,000 per year and people who plan to own the car for five to 10 years.

“We’re probably never going to see zero-percent financing again, so I expect the trend will continue to edge back to leasing.”

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