Buying a it first, buy it later and save money

by : Ralph Hoffmann

How to minimize car ownership

Lease the car you always wanted...............................then buy it later.

Pity the automotive industry. Whereas the airlines are hurtingunder unsustainable wages and benefits, i.e. health insuranceand pension contributions, they are likely to reduce them bothin coming negotiations, whereas the Automotive industry issaddled not only with these same problems, but worse, not enoughcustomers and too many plants worldwide making vehicles.

If China's car industry enters the United States in three orfour years with the "Cherry" automobile, a talked about vehiclemade in China with Chinese wages, the situation will only getworse.

Compounding the problem for some of the manufacturers is thattheir labor contracts are so juicy that they are better offcontinuing to give away cars rather than to close a plant andpay continuing benefits to laid off employees.

This situation will not change for several years untilconsolidation, plant closings, or bankruptcies have cured theproblem. And plant closings will be a last resort. Therefore theglut of new cars will likely continue for a few years.

And the subsidized lease will continue to be offered.

During that time, new cars will be a real bargain.

Question: How best to minimize long-term car ownership.

Simply it now, buy it later.

In the past, the auto manufacturers moved cars by subsidizingleases. Without getting into the math, the monthly lease costwas lowered by increasing the residual value, thereby selling(leasing) more cars. But the value of the vehicle at the end ofthe lease was almost always less than the contracted residualand each of the off-lease cars then had to be sold in thewholesale market at a loss of several thousand dollars.

Hence several of the big backers of lease financing, Chrysler,some New York banks, and others, each lost several hundredmillion dollars in each of the past two or three years becausethey had to sell the off-lease cars on the open market for lessthan the residual value.

So why lease a car now instead of buying one right now?

Because by initially leasing a car, the maker is essentiallyoffering a price that can't be beat. It's actually lower thanthe "employee cost" widely advertised. Then buy the car at theend of the lease.

At the end of the lease the company financially backing thelease most likely will sell the car on the open market at aloss. Why not intervene at that point and buy the car for lessthan the residual value and put that "loss" into your pocket asmoney saved?

A true-life example:

A business friend of mine had a three-year-old leased car with acontract residual value of $28,000. Looking at the used car lothe found he could buy one just like it for $24,000. He assumedthe company that financed the lease would loose at least $2,000in selling it for less than the contracted residual value.Through the dealer he offered $22,000 to buy the car as is andhis offer was promptly accepted, including 3%, 3 year financing.His dealings, all by phone (no face to face negotiations needed)were with the company financing the lease.

So lease the car of your dreams today if you ultimately want tobuy it. Let the companies financing the lease continue tosubsidize your monthly lease payment. About three months beforethe end of the lease, cruise the used car lots and notice whatyour car is being offered at and then buy the car (nocommissions paid to anyone on this transaction) at the end ofthe lease and keep several thousand smackers in your pocket.