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Posted by Keith in Washington on Wednesday, February 18, 2009 at 16:43:17 :
In Reply to: OT Leasing posted by copey on Wednesday, February 18, 2009 at 15:46:30 :
I have never been in favor of leasing. You pay a lot and have nothing to show for it. You need to make sure that you have insurance on the residual value as if it is lower that the calculated residual value (done at lease inception) you pay the difference. Now your friend has to pay the high price to buy it back or fork out more money for a new one. After a couple of years of payments and fees he has nothing. He can't even use his truck as a down payment. Yes his payments may have been lower but I bet if you look long term it would have been a lot cheaper to buy and plan on keeping it for more than 2 years. If he bought it he might at least get some money out of it. Hopefully, he can scratch up enough money to get another truck.
From the auto makers point. They are fine leasing as long as they are in a strong economy and people are "buying". The down side, well, that is what were seeing when the economy is down and they can't sell much of anything that comes off lease. So they are left holding the bag. They have to sell cheap and take the loss. Why do you think they stopped leasing recently.
The auto companies are also in trouble with lots of bad loans. People are defaulting and not paying. When they reposess they again have something that is not selling. Again they take it in the shorts.
I am not sure if I feel too sorry for the auto industry. They superheated the auto market for the last decade. They basically got people to buy early with low interest rates, and cash backs. They also leased vehicles as the vehicles got too expensive as they made everthing top of the line and people could not afford them. They did all to drive sales up. Then they basically financed it all. Just like the housing boom the auto industry went south much more than it had to as the car manufactures were so leveraged.
They got greedy and artifically drove up auto sales over that last decade or so. Quite a while ago, when they all started the cash backs and low interest games, I realized they were moving future sales in. They encouraged people to buy a year or two earlier that they normally would have. But the problem with their thinking was that people would continue to buy and the economy would stay strong. Guess what? Used car sales have been in the dumps for years due to the overselling of new cars. Now just like the housing boom, the auto boom has gone bust. The interesting thing is that unlike the housing boom where a lot of people got screwed, in this case the auto manufactures took most of the brunt. They lost their sales, lost a whole bunch of money on leases, and lost a lot of money by financing buyers. There house of cards seems to have collapsed.
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