By Grant Yoxon
It’s no secret. Surveys and newspaper reports over the past year point to an undeniable trend. The Internet is having a profound impact on how people shop for a new car.
The research firm J.D. Power and Associates estimates that half of new car buyers will use the Internet to carshop by 2000, up from 16 per cent in 1997. Most of these shoppers will use online information to research current model specifications and pricing in preparation for negotiations with a local new car dealer.
But an increasing number of consumers are not buying new cars. They are leasing them instead. Leasing offers a number of advantages over buying, not the least of which is the ability to drive a more expensive car than would otherwise be possible by financing the outright purchase of the vehicle.
While there is a wealth of information on the Internet to help car buyers make a decision, Canadian pricing information is difficult to find. And reliable leasing information is practically non-existent.
Unlike in the US, where dealer invoice prices are freely available, no such information is available to Canadians. Buyers who want to determine a good opening offer on the purchase of a new car must use the Manufacturer’s Suggested Retail Price and published estimates of factors affecting the price of a new car such as the dealer’s mark-up, freight charges, the manufacturer’s incentives to the dealer and any rebates that apply. At best, Canadians can only make a good guess of what a fair price for a new car should be.
For the consumer looking to get the best deal on a lease, figuring out what the new car is worth is only the beginning. A variety of other pricing factors must be considered to determine if the monthly payment offered by the leasing company is fair or a cleverly disguised price gouge.
Principal among these is the “residual value”, what the leasing company estimates the vehicle will be worth at the end of the lease. The difference between the “capital cost” – that is the price of the vehicle if you were to purchase it – and the residual value, plus interest, will largely determine the monthly payment.
But a number of other factors can also affect the monthly lease payment. Paul Timoteo, who operates Leasebusters, a Toronto-based vehicle leasing brokerage, says “every leasing company has their own parameters as far as what they charge as interest, what they charge as administration fees, what they charge as over-mileage fees, what they project the car to be worth down the road. Those things factor into the monthly payment.”
Just as an insurance broker shops for the best price on insurance from a variety of companies, a leasing broker will seek out the best lease package from leasing companies such as GMAC – the finance arm of General Motors – banks and other lenders who are in the leasing business.
While a broker can help sort through the mystery of leasing, it is still up to consumers to make sure they are getting the best deal. The goal is simple – reduce the difference between the capital cost and the residual value of the vehicle, and minimize costs such as interest and administration fees. This should result in a lower monthly payment.
If you’re thinking about leasing, you should first find out if leasing is for you. While most manufacturer Web sites, and the Web sites of car dealers and leasing companies such as Leasebusters contain helpful information, often it is biased in favour of leasing. Why? Because from the retailers point of view, leasing offers a higher potential for profit and for return business.
Mr. Timoteo uses the example of a two year lease. “Two years down the road, when the lease is over, the car’s been under warranty the whole time, there haven’t been any problems with it and if the buy-back (residual value) is high enough they won’t want to buy it. So what are they going to do? Walk home? You’ve got a very captive customer there. Chances are he’s going to stay with the same company.”
For a more unbiased view of leasing, Edmunds’ leasing guide is a good place to start, as is MicroSoft’s CarPoint and Woman Motorist. For a point of view that is definitely anti-lease, have a look at CarBuyingTips.com. Another anti-leasing – the author calls it “fleecing” – site is Carinfo.com.
One of the best American sites for car leasing information is CarWizard, which supply car value information to such well-known sites as Netscape Netcenter, Excite, Webcrawler and Motor Trend, and its sister site LeaseSource. You can assess whether or not you are a good candidate for leasing using Car Wizard’s Lease Profiler or review 30 lease contracts in common use in the United States.
CarWizard is also one of the few sites on the Internet providing residual value information. While the values are American and expressed in US dollars, there are two good reasons why Canadians should not write this site off. First, CarWizard identifies the 30 vehicles in any category, such as vans, SUVs and sedans, with the highest current residual values. This will help you identify those vehicles likely to have lower lease payments because they command higher resale values.
Another good reason to visit CarWizard – the residual value is also expressed as a percentage of the vehicle’s original cost. This is information that can help you determine if the residual value a dealer or leasing company quotes is reasonable. You shouldn’t rely on this data – market factors and values are quite different between Canada and the United States – but it can help as a guide.
Just as consumers can get price quotes over the Internet from Internet buying services such as Autoweb and Autonet.ca, people shopping for a lease can get a lease quote from the same companies. The buying services will refer the request for a quote to a local dealer who will call the customer and provide the quote over the phone or by e-mail.,
Before buying or leasing a vehicle online, it is wise to shop and compare. Online buying and leasing is a viable alternative to traditional sales methods, but there is no substitute for the certainty that comes from comparison shopping. Visit dealers, brokers and online services, then lease the best value.
Leasebuster’s Paul Timoteo sums it up. “This is a very competitive business. If you went out and got ten quotes on one car, three or four quotes would be out to lunch, but the other six or seven, if they’re sharp, will all be within ten bucks a month.”
Grant Yoxon is an automotive writer and editor of Autos. This article first appeared in the Ottawa Citizen, April 30, 1999.