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The Mystery Behind Strong Auto "Sales": Soaring Car Leases

Tyler Durden's picture


When it comes to signs of a US "recovery" nothing has been hyped up more than US auto companies reporting improving, in fact soaring, monthly car sales. On the surface this would be great news: with an aging car fleet, US consumers are surely eager to get in the latest and greatest product offering by your favorite bailed out car maker (at least until the recall comes). The only missing link has been consumer disposable income. So with car sales through the roof, the US consumer must be alive and well, right? Wrong, because there is one problem: it is car "sales" not sales. As the chart below from Bank of America proves, virtually all the growth in the US automotive sector in recent years has been the result of a near record surge in car leasing (where as we know subprime rules, so one's credit rating is no longer an issue) not outright buying.

From BofA:

Leasing soars: Household outlays on leasing are booming at a 20% yoy pace - a clear sign that demand for vehicles is alive and kicking. With average lease payments lower than typical monthly ownership costs and with a down-payment not typically required to enter into a lease, the surge in vehicle leasing is likely a sign that financial restraints are still holding back some would-be buyers. Thus, as the economy improves, bottled-up household demand for vehicles could translate to higher sales.


Chart 1: Households go for the low capital option: leasing soars 

(yoy growth rate, inflation-adjusted)


It could also translate into even higher leases, which in turn bottlenecks real, actual sales.

Of course, the problem is that leasing isn't buying at all. It is renting, usually for a period of about 3 years. Which means that at the end of said period, an avalanche of cars is returned to the dealer and thus carmaker, who then has to dump it in the market at liquidation prices, which in turn skews the ROA calculation massively. However, what it does do is give the impression that there is a surge in activity here and now... all the expense of a massive inventory writedowns three years from now.

Which is precisely what will happen to all the carmakers as the leased cars come home to roost. But what CEOs know and investors prefer to forget, is that by then it will be some other management team's problem. In the meantime, enjoy the ZIRP buying, pardon leasing, frenzy.


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Wed, 08/06/2014 - 10:06 | 5053636 q99x2
q99x2's picture

Good article.

Wed, 08/06/2014 - 10:44 | 5053837 hedgeless_horseman
hedgeless_horseman's picture



I personally know three young African-American males that earn between $2500 and $2850 per month, and each of them have car payments over $1100.

Two drive Lexus (Lexi?) and one a GM.

None of them have health insurance, because it is, "too expensive."

Wed, 08/06/2014 - 10:45 | 5053860 Headbanger
Headbanger's picture

Now what was the old term we used for that kind of car back in the '60s?

Same as it ever was...


Wed, 08/06/2014 - 11:19 | 5054072 mvsjcl
mvsjcl's picture

So now it's leasing? What about all those millions of cars just sitting in parking lots world-wide? Wasn't there a ZH article about that a few weeks ago?

Wed, 08/06/2014 - 11:32 | 5054152 toady
toady's picture

Piece of shit?

Seriously though, the wife crashed her car back in 11 and we went looking for a new (had to be a new car... women! )

We're at the dealership and they can't tell us how much the payment will be if we buy, only the lease payment. After an hour the dealership owners son brings the old guy from accounting in so he can produce buying numbers. Everyone else only knows how to do leasing.

This is at a major dealership in the Phoenix metro area, not some place in the sticks.

Wed, 08/06/2014 - 11:44 | 5054218 besnook
besnook's picture

that's sales technique to scare you away from buying. the f(inance) and i(nsurance) guy certainly knows the payment. they must get some vig from the leasing company.

Wed, 08/06/2014 - 12:37 | 5054512 Jack Sheet
Jack Sheet's picture

I mentioned this a few weeks ago but it's the same in the EU. In the big BMW dealerships they have dozens of big fat limousines in the showroom but the price tags only show the monthly leasing rate. If you have a magnifying glass you might find the cash purchase price in small print on the back of the tag.

Wed, 08/06/2014 - 14:55 | 5055220 JRobby
JRobby's picture

There is an app for that.

Don't these fucks have phones?

Wed, 08/06/2014 - 10:56 | 5053935 Oldwood
Oldwood's picture

And its no big deal to claim bankruptcy due to excessive consumer debt, but let anyone go broke trying to save their own lives through modern medicine, it a crime. Evil Pharma or insurance companies. Is it possible that our troubles come from what we value and what we do not? I'm not excusing the theft that occurs in medicine but only what we see as important in a relative way.

Wed, 08/06/2014 - 11:42 | 5054185 tickhound
tickhound's picture

The medical "industry" is no different from the auto industry or the mic or the prison industry. At near 20% of GDP it's busy creating your "choices" from trappings that are beneficial to it.

Those choices are marketed to you and a particular behavior is rewarded.

You're then conflicted cuz half of you wants to condemn the profit machines relentless behavior, while your other half may even admire the industry success.

Then the predictable and too often less than optimal outcomes are blamed on OUR behavior, or our value systems, rather than the machine that framed our choices and those values.

No different than Greenspan blaming human "nature" for economic bubbles.

Wed, 08/06/2014 - 14:41 | 5055131 Its_the_economy...
Wed, 08/06/2014 - 14:41 | 5055137 Its_the_economy...
Its_the_economy_stupid's picture

I just read in the past couple days that Spain has joined Japan, India, and France in lawsuits against Guardisil. It's probably the most dangerous vaccination on the planet, and being given to an entire generation of girls.

In USA, such lawsuits are illegal.

Wed, 08/06/2014 - 11:15 | 5054033 world_debt_slave
world_debt_slave's picture

it's in the culture

Wed, 08/06/2014 - 11:15 | 5054034 DavidC
DavidC's picture



Wed, 08/06/2014 - 11:36 | 5054184 toady
toady's picture

I'm thinking Lexi, but I do the cacti thing over cactuses too.

Wed, 08/06/2014 - 14:53 | 5055199 JRobby
JRobby's picture

43% - 44% DTI. Don't think Fannie will touch that on a (theoretically) appreciating asset - house (laugh track deafening, painful, POP!)

Now back in '08 when I did a 65% DTI w Fannie...........................................................Why are we fucked answered.


Wed, 08/06/2014 - 10:07 | 5053639 NoDebt
NoDebt's picture

Owning things is so pre-2008.  If I don't owe a never-ending stream of payments for consumable goods that totals upwards of 110% of my monthly income, I feel unfulfilled as a human being.

Wed, 08/06/2014 - 11:01 | 5053955 RafterManFMJ
RafterManFMJ's picture

If I stop paying my musical utility, they will shut my music off.

Wed, 08/06/2014 - 11:38 | 5054191 MortimerDuke
MortimerDuke's picture

Now that's funny.  One upward pointing green arrow for you, sir!

Wed, 08/06/2014 - 10:07 | 5053642 souljaboy
souljaboy's picture

Everyone in Atlanta is driving a BMW, Mercedes, or Lexus. It's unreal.

Wed, 08/06/2014 - 10:20 | 5053707 jackstraw001
jackstraw001's picture

I know at least 10 people here in Atlanta who have leased the Nissan Leaf electric car because state and federal subsidies bring the actual cost of the lease to less than $100/mo. I heard somewhere that the Atlanta metro area is responsible for something like 20% of all Leaf sales/leases -- the perverse consequences of trying to modify consumer behavior through the tax code.

Wed, 08/06/2014 - 10:32 | 5053787 ejmoosa
ejmoosa's picture

And the ones I know driving one will tell you they are against subsidies in general, but this one was different.  

It's a free ride, they tell me.


Wed, 08/06/2014 - 11:14 | 5054027 Oldwood
Oldwood's picture

I say buy a van. A place to live when you can't make rent. I sure as hell wouldn't want to live out of a Nissan Leaf. Mileage isn't really important if you don't have to drive to work, and there is almost always plenty of parking at Walmart.

Wed, 08/06/2014 - 12:00 | 5054315 RafterManFMJ
RafterManFMJ's picture

One reason I bought my Element; and no, I'm not kidding.

Wed, 08/06/2014 - 14:56 | 5055228 JRobby
JRobby's picture

It is always different when it is "my habit"

Wed, 08/06/2014 - 10:27 | 5053748 ejmoosa
ejmoosa's picture

I just recently bought a used 2011 BMW in Atlanta.  The numbers I had to choose from were incredible.  They wre all cars that had been leased.  


Using Carfax, as I narrowed down my choices, they had come from all across the country, but primarily New York, DC, and Florida.



Wed, 08/06/2014 - 10:09 | 5053645 Wahine
Wahine's picture

My neighbor just got a new car.  It is parked outside the fence of our apartments because he couldn't afford the $75 parking pass.

Wed, 08/06/2014 - 10:12 | 5053664 PartysOver
PartysOver's picture

That is so 2014.  Bring on the parking pass entitlement program!

Wed, 08/06/2014 - 10:14 | 5053667 NoDebt
NoDebt's picture

Its a basic human right.

Wed, 08/06/2014 - 11:08 | 5054001 KnuckleDragger-X
KnuckleDragger-X's picture

California, leading the the cliff.

Wed, 08/06/2014 - 10:19 | 5053692 medium giraffe
medium giraffe's picture

Enormous stupid car, tiny apartment/house.  My favourite kind of comedy narcissists.

Wed, 08/06/2014 - 10:46 | 5053872 JRobby
JRobby's picture

"comedy narcissists" good one, and they are fun to watch in action.

Wannabee's really. The serious narcissists concentrate on preying on and wrecking economies through banking and legislative control and manipulation.

Those are the ones that need to be euthanized.


Wed, 08/06/2014 - 10:47 | 5053882 IANAE
IANAE's picture

...or to paraphrase in Texan - big hat, no cattle.

Wed, 08/06/2014 - 10:21 | 5053710 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

Lease your pass to him.

Wed, 08/06/2014 - 10:41 | 5053842 JRobby
JRobby's picture

Just get Liberty Mutual and total it within the first 2 years..................

Wed, 08/06/2014 - 11:17 | 5054049 Took Red Pill
Took Red Pill's picture

leasing also usually requires higher insurance

Wed, 08/06/2014 - 10:10 | 5053651 saveUSsavers
saveUSsavers's picture

This is the most corrupt time in all US history in my 63 years watching this country FLUSH.

Wed, 08/06/2014 - 10:12 | 5053663 doomandbloom
doomandbloom's picture

There is moar to come...

Wed, 08/06/2014 - 10:27 | 5053752 MartyFlesh
MartyFlesh's picture

Wasn't that the Old GM Mr Goodwrench Commerical?

Wed, 08/06/2014 - 10:11 | 5053658 Joe_in_Indiana
Joe_in_Indiana's picture

Reminds me of the old Fram commercial--


"Pay me now, or Pay me later!"

Wed, 08/06/2014 - 10:12 | 5053662 Dr. Engali
Dr. Engali's picture

It always provide a good laugh when you drive around town and see a $50,000 car parked out in front of a $30,000 house. What a fucked up country we live in.

Wed, 08/06/2014 - 10:16 | 5053677 NoDebt
NoDebt's picture

Damn our country and its obsession with long-term thinking!  Doesn't anybody just live for TODAY?

Wed, 08/06/2014 - 10:25 | 5053726 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

Contemplating tomorrow is so, like, yesterday.

Wed, 08/06/2014 - 10:16 | 5053679 corporatewhore
corporatewhore's picture

or the lady in the mercedes convertble or landrover coming into the shop to use her EBT card to buy chips and a soft drink

Wed, 08/06/2014 - 10:25 | 5053737 Big Corked Boots
Big Corked Boots's picture

I had someone at my farm stand in an Escalade buy some peppers and eggplant. She presented an EBT card. I told her I didn't accept that, 'cause for me, it was like not getting paid at all.

Wed, 08/06/2014 - 10:50 | 5053904 Lendo
Lendo's picture

You can also tell her that you ain't got time for that. 

Wed, 08/06/2014 - 12:38 | 5054516 atomp
atomp's picture

ain't nobody got time fo dat!

Wed, 08/06/2014 - 13:06 | 5054643 General Decline
General Decline's picture

Are we playing "Guess That Race"? Cause I love that game.

Wed, 08/06/2014 - 11:15 | 5054035 thamnosma
thamnosma's picture

Seriously, an EBT card at a farm stand?   What sort of person was this?

Wed, 08/06/2014 - 15:01 | 5055254 JRobby
JRobby's picture

The kind that spent all her cash (Federal Reserve Notes) on scratch offs cause the lottery don't take no EBT cards ya know!

Wed, 08/06/2014 - 10:43 | 5053853 JRobby
JRobby's picture

Good one! Still laughing

Wed, 08/06/2014 - 10:17 | 5053687 Spastica Rex
Spastica Rex's picture

We are a society defined by automobiles and chain stores.

That definition is being defended at all costs.

Wed, 08/06/2014 - 10:35 | 5053803 ejmoosa
ejmoosa's picture

In my youth. my dad had a body shop.  I was amazed when I looked around and 90% of the businesses on the highway where he was located were either car lots, body shops, parts stores, or gas stations.

It seemed as if the whole local economy was centered around the car.  

I wondered what the hell would all these people be doing for a job if it were not for the automobile.

Wed, 08/06/2014 - 11:03 | 5053975 Oldwood
Oldwood's picture

Less and less. Repair shops are having a much harder time of it as parts are really expensive plus most are very difficult and time consuming to work on. The manufacturers have no interest in making serviceable units. They have done a good job with engineering to get longer life from most of them but when they break, they want you to throw them away and buy a new one. It seems more insurance companies are simply totaling more wrecks as a faster cheaper way of managing their losses. We used to see used cars 20 to 30 years old on the road but I think over the next decade we will see that go away...ten years and recycle.

Wed, 08/06/2014 - 11:16 | 5054041 KnuckleDragger-X
KnuckleDragger-X's picture

Unfortunately your right. I love working on old cars and motorcycles but the new stuff, while I understand them I'm not interested in spending a couple of hours just taking it apart far enough to actually fix the problem. Unless it belongs to a young, well built and generally not too bright blonde. ;-)

Wed, 08/06/2014 - 11:49 | 5054242 toady
toady's picture

Yep. The biggest thing with that is no bumper/fender anymore. It's all plastic. Just one little fender bender and it's totaled.

My kid just started driving. I bought him a 72 LTD and had heavy metal bumpers, like you see on 4x4s, put on it.

Does about 8 gallons per mile, and is ugly as hell, so he's not out cruising in it. Just back and fourth to work and school.

Wed, 08/06/2014 - 10:19 | 5053702 Its Only Rock N Roll
Its Only Rock N Roll's picture

What's even funnier is the $70,000 one parked in the garage you don't see

Wed, 08/06/2014 - 10:19 | 5053703 game theory
game theory's picture

Why is that f-ed up? With school and local taxes being so insanely high in some parts of the country, it almost seems smarter NOT to have an expensive tax liability in the form of a house. 

Wed, 08/06/2014 - 10:31 | 5053780 Uchtdorf
Uchtdorf's picture

Dude, the taxes are included in the rents paid to the landlord. No escape from death or taxes.

Wed, 08/06/2014 - 10:48 | 5053887 JRobby
JRobby's picture

In NJ you have to fund hundreds of absentee GOV apointee jobs. So tax on a 1,600 sf house in an unremarkable neighborhood is $8,500.

Wed, 08/06/2014 - 11:13 | 5054022 Frostfan1
Frostfan1's picture

Don't forget our pensioners and of course our double and triple dippers.

Wed, 08/06/2014 - 11:18 | 5054055 thamnosma
thamnosma's picture

Honestly, why does anybody remain in New Jersey?   Even with a high paying job, can't you find one elsewhere?

Wed, 08/06/2014 - 10:21 | 5053713 SheepDog-One
SheepDog-One's picture

That's nothing Dr Engali, I just saw a 1 bedroom apartment with 2 new Escalades parked in front.

Wed, 08/06/2014 - 10:27 | 5053755 turtle777
turtle777's picture

Not strange at all. It's a stash house.

Wed, 08/06/2014 - 10:32 | 5053781 Uchtdorf
Uchtdorf's picture

With personalized license plates.

Wed, 08/06/2014 - 10:36 | 5053815 ejmoosa
ejmoosa's picture

And thousand dollar rims....

Wed, 08/06/2014 - 11:34 | 5054165 Bunghole
Bunghole's picture

You can lease rims too.

This country is fucked

Wed, 08/06/2014 - 12:26 | 5054449 RafterManFMJ
RafterManFMJ's picture

Funny how fake money and a manipulated economy lead to all sorts of economic and social distortion, no?

If you think the eventual readjustment of industry is going to be hairy, just wait for the epic cull of non-productive classes...

When you start seeing the practice of leasing breast implants become widespread, you'll know the end is near.

Wed, 08/06/2014 - 12:57 | 5054601 lasvegaspersona
lasvegaspersona's picture

cuz a car without cool rims don't go...right?

Wed, 08/06/2014 - 13:27 | 5054751 de3de8
de3de8's picture

And tires.

Wed, 08/06/2014 - 15:03 | 5055262 JRobby
JRobby's picture

Bling it!

Wed, 08/06/2014 - 10:51 | 5053909 Yen Cross
Yen Cross's picture

  Was there the ubiquitous sign in the window that reads, "My sisters friend makes $15k per month working part time"?

Wed, 08/06/2014 - 10:14 | 5053665 IANAE
IANAE's picture

Leases can be a form of stealth subprime lending due to the assumption-driven nature of the lease payment calculation ...higher lease resids (an assumption) increase causing the monthly payment to drop improving 'affordability'...flashback to '07-'08 when the US automakers threw everything they could at the retail customer to drive sales - just before the end.


Wed, 08/06/2014 - 10:18 | 5053674 all-priced-in
all-priced-in's picture

I was the CFO of a large finance company - we did a thousand or more leases / loans a month in the $5K to $50K range.

We always made more off our lease portfolio VS straight loans -

We used conservative residual values - and on average had gains not losses on the asset disposition at lease end.

People are so dumb they think lower monthly payment means they are saving money.




Wed, 08/06/2014 - 10:36 | 5053804 Omen IV
Omen IV's picture

I have been waiting to buy a vehicle for 18 months for cash -  anticipating a correction in the car market from mass repos and lease cancelations

I want to buy at 20% below blue book - how do you see the market shaking out?


Wed, 08/06/2014 - 10:54 | 5053924 pods
pods's picture

Save your cash for when you can buy for 20% OF bluebook.


Wed, 08/06/2014 - 11:05 | 5053985 FeralSerf
FeralSerf's picture

Isn't the bluebook supposed to reflect what cars ARE selling for?

If the seller is only getting 20% of what the car IS selling for, isn't someone getting fucked?

Wed, 08/06/2014 - 11:13 | 5054023 IANAE
IANAE's picture

You want blackbook for auction prices...bluebook is OK in a pinch but not the right baseline for market prices.

As with any trade it is a zero sum game.

Wed, 08/06/2014 - 15:47 | 5055484 yellowsub
yellowsub's picture

I sold my car to a private car buyer, he used a book called Galves.  For the most part it is wholesale pricing it seems.  This is why dealer trade in offers are low.

It doesn't care for the most part of what options are installed like KBB, Edmunds and those others for profit car price guide websites...mainly condition and mileage.  Those sites just make you feel good about your car purchase like when you hear your home value rising...

For the most part I drive my new cars to the ground just a first that I sold this one.  

Wed, 08/06/2014 - 22:34 | 5057171 IANAE
IANAE's picture

dealer trade-in is typically low(er) because the new car sales dept receives what the used car sales dept offers them and, if they can paper the deal with you for less, they keep the spread.

doesn't necessarily matter what wholesale or auction (or blackbook or galves) is...e.g. used car dept may have a buyer lined up already and is looking for the metal to deliver.


Wed, 08/06/2014 - 15:04 | 5055266 JRobby
JRobby's picture

So Satan does pay his Comcast bill?

I got some bad info.


Wed, 08/06/2014 - 10:17 | 5053680 IANAE
IANAE's picture

At the height of the stupidity in '07 I had a 27 month lease on a Yukon Denali (MSRP >$60K) for $325/month...practically couldn't turn it down. 

Wed, 08/06/2014 - 11:47 | 5054234 Zerozen
Zerozen's picture

Two words for you: private party

I switched out my ride in Feb this year. I shopped my car at the time around to various dealers. Best bid I got was $15k. I went with Craigslist instead and sold it for $22k (Autotrader showed an implied value of $22-$24k) in under 2 months. So, I did $7k better than doing business with the dealer.

The new car I bought was being offered on dealer lots for $55k or so. I got mine for $48k on eBay in about 2 weeks. I used an AIM inspector to check it out for me, and it was a 1 year old car so came with factory warranty plus a prepaid maintenance plan that the seller transferred to me.

So, by using Craigslist and eBay I saved about $14k total. That's 20% of the total $ involved in the two transactions ($22k + $48k = $70k).

Never again will I deal with a dealer.

Wed, 08/06/2014 - 12:59 | 5054609 IANAE
IANAE's picture

...secondary markets for leases include LeaseTrader and SwapALease.

Wed, 08/06/2014 - 15:06 | 5055273 JRobby
JRobby's picture

Nor could you drive it cross country like Clark W Griswold can.

Wed, 08/06/2014 - 10:16 | 5053683 SheepDog-One
SheepDog-One's picture

I live in a big military town and all the GI's are driving new Camaros in the comic book character colors.

Wed, 08/06/2014 - 10:30 | 5053775 headhunt
headhunt's picture

That is just being young and a regular paycheck

Wed, 08/06/2014 - 12:45 | 5054546 Georgia_Boy
Georgia_Boy's picture

Yesterday I was in line at Walmart and there was a military couple in front of me buying milk and cheese with a WIC voucher.

Wed, 08/06/2014 - 10:17 | 5053685 Sudden Debt
Sudden Debt's picture

It's not about the "owning" part.



You actually pay for the car in 4 to 5 years time. And mostly, you can buy the car at the end for about 15 to 16% extra.

But by leasing a car for 5 years without the downpayment, most cars go for about 600 to 700 euro's.

So if you can't afford the downpayment.... that lease... is to expensive for you to.

And mostly for 600 to 700 euro's, the fuel is not included.


Leasing should only be for self employed people who can deduct it from their taxes. My car is deductible for 100%. Whatever I drive, in a way it's for free.

But if you are a employee and you do that shit... that's just stupid...

Wed, 08/06/2014 - 10:23 | 5053725 IANAE
IANAE's picture

"Leasing should only be for self employed people who can deduct it from their taxes."

Would agree in general, however if a deal comes along that is cheaper than owning? It's practically immoral not to arb mispriced deals.

Wed, 08/06/2014 - 10:45 | 5053843 Sudden Debt
Sudden Debt's picture

In the end, math wins and you lose.


Do you know how I read a contract? I skip the normal text and go straight to the small print.

Wed, 08/06/2014 - 10:50 | 5053899 IANAE
IANAE's picture

math wins, always...

Wed, 08/06/2014 - 10:58 | 5053943 Sudden Debt
Sudden Debt's picture

When talking about 40 to 60K cars... they're never mispriced.

And when it looks to good to be true, especially in the car business... IT IS REALLY TO GOOD TO BE TRUE.

Car salesman are a very strange kind of salesman. And they're no dumbasses.

If it would really be to go to be true, those businesses would be long out of business.

Wed, 08/06/2014 - 11:57 | 5054295 IANAE
IANAE's picture

Mispricing is usually driven by manufacturer incentives some of which are economically rational e.g. '0% interest' and others which may not be economically rational such as aggressive resids on leases which are essentially bets on future vehicle values. 

As with other businesses automakers and captive fincos can be susceptible to unrealistic and cyclical optimism - because it's different this time - until it isn't.

Exhibit A from last time around is the BK of both GM and Chrysler.

Wed, 08/06/2014 - 15:11 | 5055292 JRobby
JRobby's picture

Interest is not in your best interest.

Sex and banking used to have a relationship: when you withdraw, you lose interest.

Now there is no interest and you pay them to clear check and debit card transactions for you.


Not sure where I am going with this but marriage keeps coming up?

Wed, 08/06/2014 - 11:16 | 5054037 FeralSerf
FeralSerf's picture

Seems I remember a ZH article recently about the vast quantities of new cars in storage lots.

Isn't it better to get less via a lease arrangement than to send the cars to the scrap metal yard?

Manufacturers' sales to leasing companies are often at MUCH lower prices than dealer wholesale. I once setup a small leasing company and used it to convert new GM cars to used cars and then sold the (very low mileage) used cars at a substantial profit. The cost of the new cars were about 20% BELOW dealer invoice at the time. The cars were actually sold and delivered by a GM dealer, but there had to be a manufacturer's (GM) agreement so the dealer could get the extra 20% discount from GM.

Wed, 08/06/2014 - 11:24 | 5054113 Took Red Pill
Took Red Pill's picture

That turned out not to be true

Wed, 08/06/2014 - 12:36 | 5054505 RafterManFMJ
RafterManFMJ's picture

The good news is when you really do own the car and have it paid off you can drive it anywhere you want at any time with no meow expenses other than gas, oil, and maintenance.

You need not worry about registering your device, buying a license, or participating at gunpoint in some kind of insurance cartel as you use the roads and drive merrily on your way.

Many states do not charge an annual fee based on the value of 'your' car, and many HOAs do not hassle you if 'your' car is left outside your Mexican Garage overnight.

Yessir, you own your car just about as much as you own anything in this Fascist Shithole America.

Wed, 08/06/2014 - 10:17 | 5053690 IronShield
IronShield's picture

If you can't pay cash, without upending your lifestyle, then you should probably pass.  Cash is definitely king right now; silver, not so much.  ;-)

Wed, 08/06/2014 - 10:28 | 5053762 headhunt
headhunt's picture

Cash is king if you are buying, if you have it sitting in the bank you are being charged for them to hold your money

Wed, 08/06/2014 - 11:01 | 5053961 IronShield
IronShield's picture

Bank; WTH is that?  Perhaps you are referring to an 'investment' account (aka Casino)?

Wed, 08/06/2014 - 10:18 | 5053695 orangegeek
orangegeek's picture

drive the leased car that you can't afford to Canada - sell it to a chop shop


catch the bus back to the US and report your car stolen


everyone wins - except maybe the insurance company, or the bank, or the economy

Wed, 08/06/2014 - 10:25 | 5053739 IronShield
IronShield's picture

Yeah, and don't let all the electronic gizmos tracking you to/at the border and beyond dissuade you.

Wed, 08/06/2014 - 10:44 | 5053864 orangegeek
orangegeek's picture

just visiting my friend Jeff in Toronto

Wed, 08/06/2014 - 10:58 | 5053945 IronShield
IronShield's picture

Yeah, that's never been done before.  ;-)

Wed, 08/06/2014 - 11:35 | 5054182 MrButtoMcFarty
MrButtoMcFarty's picture

Canada? Fuck that.

Philly/Trenton is car theft hot zone.

Wed, 08/06/2014 - 10:20 | 5053708 SoDamnMad
SoDamnMad's picture

Wait until one of those illegal immigrants (democrats) slams his uninsured car into your lease and totals it. Your insurance company will give you half of the loan value. You can pay the other half to the leasor out of your pocket. Winning

Wed, 08/06/2014 - 10:53 | 5053915 JRobby
JRobby's picture

Always buy the GAP insurance.

don't drive over 10,000 miles a year (7,500 for the "full retard" I want the lowest payment customer)

A great deal!!!!!!

Wed, 08/06/2014 - 10:20 | 5053709 wagthetails
wagthetails's picture

Refi'ing 30 year mortgages out long and 6 year car loans aren't buying either. Just renting from bank.

Wed, 08/06/2014 - 10:21 | 5053716 Spungo
Spungo's picture

It's not a bubble until I see spinning rims on school buses

Wed, 08/06/2014 - 10:22 | 5053722 all-priced-in
all-priced-in's picture

When "auto sales" are reported --

Is that really cars manufactured and shipped to dealers - or actual retail customers driving new cars off the lot?



Wed, 08/06/2014 - 10:41 | 5053841 Toolshed
Toolshed's picture

They are considered sold when the vehicle is shipped to the dealer. It's called channel stuffing when this is used as a ploy to atificially increase reported sales figures. This ploy is frequently used by the manufacturers.

Wed, 08/06/2014 - 10:23 | 5053730 Svetoslav Tassev
Svetoslav Tassev's picture

"It is renting, usually for a period of about 3 years. Which means that at the end of said period, an avalanche of cars is returned to the dealer and thus carmaker, who then has to dump it in the market at liquidation prices"

Is this a fact?  Why would you return a car after you are done paying for it? I leased my car 12 years ago.  After I was done paying all the monthly lease payments at the end of the second year the property of the car was transfered to me.  Help me out here.  I don't understand why whould anyone be returning their cars back to the dealers at the end of the leasing period when they should be becoming the owners of the vehicles at that time.

Wed, 08/06/2014 - 10:35 | 5053801 Uchtdorf
Uchtdorf's picture

Because the buy out price is too high in most cases.

Wed, 08/06/2014 - 10:37 | 5053824 Toolshed
Toolshed's picture

Interesting. I have never seen a lease like you describe. Every lease agreement I have seen has a buyout at the end of the lease. In other words, at the end of the lease period the vehicle still belongs to the leasing entity, and if you want to keep it, you have to buy it. That is why the payments are lower than if you purchased the vehicle at the outset. What you descibe would require higher payments than an outright purchase unless the lease period was at least as long as an outright purcase agreement. Your payments on a 2 year "lease" that transferred ownership at the end of the period would be MUCH higher than a 5 year financing agreement. That is not like any lease I have ever seen. Doesn't mean they don't exist, but what is the advantage of an agreement such as that? Tax avoidance perhaps? Please enlighten us.

Wed, 08/06/2014 - 13:31 | 5054754 all-priced-in
all-priced-in's picture

I wrote a lot of leases with a $1 buy out option - and even more with a straight 10% of the cost of the car (after 36-38 payments).

It was essentially a loan with no down payment.  

I always figured it was a person using the vehicle for business and - instead of messing with depreciation they were just writing the lease payment off as an expense.

THIS WAS NOT PROPER treatment for them - for the $1 out or 10% option - but it was a case of - I will not get caught because the documents all said LEASE agreement on the top - and we did a separate form for the buyout - so I will bet the IRS would never see that second form.

We recorded these transactions as a loan for both book and tax accounting. We got audited almost every year.

I wish I could get all the hours I spent answering stupid questions from some IRS rookie that didn't know enough to pour piss out of a boot if you told him the directions were printed on the heel.  


Not sure anyone cares - but almost every lease that is a year or more long - is recorded as a loan on the lenders accounting records. So when a payment comes in it is broken down between principal and interest. But the payment is treated as rental income for income tax accounting.




Wed, 08/06/2014 - 14:24 | 5055023 IANAE
IANAE's picture

For tax need to distinguish between a Capital Lease and an Operating Lease - both are offered - however most retail leases to consumers (not businesses) are operating leases.

Edit to add: referring to USA tax treatment and definitions 

Wed, 08/06/2014 - 10:49 | 5053891 MassDecep
MassDecep's picture

Is the milege limited? I drive on average 60 miles a day. how does that work out? roughly 20000 a year. Is that allowed?

Wed, 08/06/2014 - 11:41 | 5054207 I Write Code
I Write Code's picture

It's mileage-priced, say a standard lease allows 12k miles/year, if you drive 20k miles/year and turn it in after three years, they charge you another 15 cents/mile for the overage, about $360.  Or you can probably buy an 18k miles/year option for another $10/month or so, same difference.

Leases work best when you drive an average number of miles per year, 12k-15k, but depending on the make, they might work on a wider range too.  Honda and Toyota have had the best rates for many years, but even Mercedes and BMW can have excellent lease rates, all of these because there is just a huge market for the three-year used vehicles.

Wed, 08/06/2014 - 10:56 | 5053933 JRobby
JRobby's picture

Because they don't have the buy out $$ and can't qualify for a buy out loan is logical.

But the reality is probably more like they beat the shit out of the car and have to keep up with the Jones' or suffer a psychotic episode (reality)

Wed, 08/06/2014 - 11:01 | 5053962 ThaBigPerm
ThaBigPerm's picture

What you're describing is, in effect, just an installment loan and not a lease.  Not to say someone out there doesn't package a loan and call it a "lease" that way.  I did get hooked into an auto fleece a while back, in '06, and noted how screwy they were structured, basically beating the shit out of the definition of a "lease". 

A used (3 year old at the time), fleece-returned Accord.  It was well appointed and in great condition, and new was about $39k or thereabouts.  The used price was in the neighborhood of $29k-30k.  They took my Mustang in trade and knocked it bit of that off.  However, it got screwy after that.  They had to "sell" the fleece to a bank, who footed the entire fleece up front, with interest.  So, in effect, you are forced to borrow money with interest to fleece a vehicle (at least here), so the fleece company is paid in full up front.  You then pay back the bank who lent the money for the fleece.  No other lease that I'm aware of works that way.  By the time I added up the payments, including the interest, I was pretty much right back up to the original price when the vehicle was new (and that included deducting for the trade).  But when done, they get the vehicle back to sell or fleece again.  It was a horrible deal I never should have gotten into. Want a good laugh?  The Mustang I traded was a good car and was only about 12 payments away from being paid off.  But now I was stuck in a four-year fleece hell-hole.

By the time the fleece was coming to a close, I added up the miles I had driven over the fleece term (another drawback of an auto fleece) and realized that I would get a bill equal to the residual just to pay the mileage penalty.  And they would *still* get the car back.  So now I would be paying well over sticker WHEN IT WAS NEW to rent a 3-year old Honda.  I made the best out of a stupid deal and did a "fleece-to-own" after the original fleece was up.  Basically spreading the residual over another 24 months, and then it would be mine.

Fuck auto fleeces.  Fuck them in the asshole with a big rubber dick.

Now I have two vehicles and no car payments.  Paid cash for a 20-year-old 4x4 to go camping/adventuring with (just got back from CO).  I used to be a mechanic by trade, so it just costs me parts to keep them in tip-top shape.  Turns out practical life skills can replace a car payment.

Wed, 08/06/2014 - 11:43 | 5054216 I Write Code
I Write Code's picture

At the end of a three-year lease on an Accord, my total payments have only paid for about 40% of the price.

Wed, 08/06/2014 - 10:26 | 5053743 gatorengineer
gatorengineer's picture

Well we will see what 2015 brings if this is true, then there should be alot comming off of the classic 36 month lease by then

Wed, 08/06/2014 - 10:29 | 5053771 PeeramidIdeologies
PeeramidIdeologies's picture

I can't believe how many of those new corvettes are leaving the GM dealership across the road. I am shocked, honestly, on how good the times are these days.

Wed, 08/06/2014 - 10:59 | 5053951 JRobby
JRobby's picture

"those new corvettes"

When Viagra / Cialis stacking doesn't even work anymore

Wed, 08/06/2014 - 11:25 | 5054122 KnuckleDragger-X
KnuckleDragger-X's picture

Vettes are a special class of animal bought for other reasons than transportation.

Wed, 08/06/2014 - 10:30 | 5053772 NEOSERF
NEOSERF's picture

So would appear that Q3 2015 might be an extraordinary time to buy a used vehicle...note to self.

Wed, 08/06/2014 - 10:58 | 5053942 JRobby
JRobby's picture

I think Q4 2014 should see "additional incentives"

Wed, 08/06/2014 - 10:31 | 5053786 world_debt_slave
world_debt_slave's picture

yeah, been mulling this over, been driving the same 1998 Chevy Astro Cargo for 12 years now, been a good vehicle. I have a loan from my credit union for 18k but when looking at new cars, they all look the same, too much tech, too expensive. I'm going to go with a 66 Dodge Dart with a 225 Slant Six, low tech and reliable.

Wed, 08/06/2014 - 11:17 | 5054051 Falling Down
Falling Down's picture

You'll be glad you did, after the EMP blast.

I'm seriously considering a /6 car for a back up, just in case.

Wed, 08/06/2014 - 10:33 | 5053792's picture

All I buy are 3 year old off-lease vehicles. Can't wait to see what turns up from all this. Only problem is I only buy a car every 10 years. Might have to rethink that if the market is right.

Wed, 08/06/2014 - 10:34 | 5053800 Peanut Butter E...
Peanut Butter Engineer's picture

Americans are low on money, we are only one paycheck away from
Bankruptcy/poverty. So big three automakers consider yourself luck that you got a piece of my paycheck.

Wed, 08/06/2014 - 10:48 | 5053885 CoolBeans
CoolBeans's picture

Working Americans are in big trouble.

If they are contemplating bankruptcy or have the IRS after them - they aren't going to purchase a car.  They will lease it...the IRS can't take a leased car from you, obviously (not an asset).

Wed, 08/06/2014 - 10:35 | 5053809 p00k1e
p00k1e's picture

Ford offers 0% for 72 months on a buy.

That’s only around $850.00 a month on a new truck with zero down. 

Wed, 08/06/2014 - 11:03 | 5053977 JRobby
JRobby's picture

$61,200 before sales tax on a product it costs them less than $40,000 to make. Great deal.

Wed, 08/06/2014 - 10:42 | 5053847 Snoopy the Economist
Snoopy the Economist's picture

I don't see the problem. I NEEDED a new car recently and investigated leasing options - leasing is much more expensive. than buying a barely used auto. So unless the leasers are defaulting then the dealers are making out on the leasing programs - sure they have to sell the car after the lease but it should be pure gain for them.

Wed, 08/06/2014 - 10:53 | 5053919 the grateful un...
the grateful unemployed's picture

the problem for them is that they're mandating how much you use your car, which is counter productive. as a dealer i want you to run the wheels off this car, trash it, when you're finished call ecology autowrecking, and come see me again in three years. new car dealers dont like a lot of nice clean used cars sitting on the lot so they farm them out to independents. (my own guess is a lot of them are going overseas) and its very likely they have tax write off loopholes on these lease return cars, but some industry insider will have to step up and blow the whistle.

Wed, 08/06/2014 - 11:11 | 5054019 Oldwood
Oldwood's picture

I wonder if these leasing companies are packaging and selling these leases to other companies that are securitizing them. As with the subprime mortgages, how many would question the rosy returns projected when so many are starved for returns. Pension funds anyone?

I don't know, just asking.

Wed, 08/06/2014 - 11:52 | 5054260 LoneCapitalist
LoneCapitalist's picture

And with the Mark to Market rule no longer enforced, even with missed payments, the leases are still valuable assets.

Wed, 08/06/2014 - 10:43 | 5053856 directaction
directaction's picture

Auto leasing was created to make money off people who are poor at math. 

Wed, 08/06/2014 - 11:04 | 5053978 Pesky Labrador
Pesky Labrador's picture

hmm, I guess I am bad at math. 2013 Honda Civic, zero down and $219 a month. 12k miles a year and it is under warranty the entire time. I am renting the car, an object which depreciates day by day. Taking the additional funds it *would* of cost to purchase said vehicle and pay off debt. For a paycheck to paycheck lifestyle, I cannot see how the math fails.

Wed, 08/06/2014 - 12:29 | 5054462 Snoopy the Economist
Snoopy the Economist's picture

It's all about total cost. What was your upfront initial cost? This is usually what kills the deal assuming you drive less than the 12k miles/yr. Most cars have no mechanical issues for the first 36k miles - that's your 3 yr, 12k mile lease timframe.

I did the math and buying is much cheaper - unless you found some killer deal.

Wed, 08/06/2014 - 12:32 | 5054484 directaction
directaction's picture

" ... a paycheck to paycheck lifestyle .." 

There you go! A few more math classes and you might have avoided that situation.

I mean nothing personal because you're in the same boat as most people.  

Wed, 08/06/2014 - 10:45 | 5053861 ihatebarkingdogs
ihatebarkingdogs's picture

I'm perplexed as to how the EBT'rs affoard the mandantory limits of liability insurance payments that the lessors require. Plus the Collision / Comprehensive on a $70K Escalade. Particularly if they are low FICO's as well, as insurers consider them higher risk, therefor higher premiums charged.

The monthly insurance payment is probably at least the amount of the lease payment on the Escalade. How da fuq do dey do it?


Wed, 08/06/2014 - 10:46 | 5053874 the grateful un...
the grateful unemployed's picture

lease plans are various, the really low monthly rates require more money up front. for someone with the cash on hand (take out a payday loan?) who can stay under the mileage cap (senior and retired) they represent value. the incentive for the car maker is to sell you a car you won't use, which turns the old planned obsolescence theory on its head. in three years the dealer gets a barely used car, in perfect shape, with low miles. unless you are loading them on barges and burying them at sea to make an underwater reef you are stocking the system with more supply. it very similar to the reverse mortgage gambit, which in times of deflationary collapse of prices is a winner for the consumer. if the same car you lease this year which wholesales for less in three years its a winner as well. if in three years the same car costs a lot more the buyer will exercise the option to keep the car, but the car makers will do anything to get those cars out the door. makes no sense at all

Wed, 08/06/2014 - 10:47 | 5053881 slightlyskeptical
slightlyskeptical's picture

If you don't drive a bunch of miles, leases are a good deal.

$30,000 car = $500 mo. at zero interest to buy

$30,000 car = $275 mo. lease payment for 36 months

So after 5 years you have paid out $16,500; so $14,500 in the bank.

Assume after 9 years you need a new car:

After 9 years the total lease payments will be $29,700. Still less than buying and with a new warrantied car every 3 years, repair and maintenance expenses are much lower than under the buying scenario.

leasing instead of buying costs no more and allows you to be driving a new car for much of the period you would be driving a rather used one under the buying scenario.



Wed, 08/06/2014 - 10:59 | 5053946 GubbermintWorker
GubbermintWorker's picture

Fuck that! I've never spent $30,000 for a car in my life!

Wed, 08/06/2014 - 11:17 | 5054046 world_debt_slave
world_debt_slave's picture

2nd that, and I won't

Wed, 08/06/2014 - 13:43 | 5054809 all-priced-in
all-priced-in's picture

In my experience as a guy writing leases (we were the lender)

The dealership will on average get a BIGGER sales price on a leased vehicle - and the finance company will on average - earn a higher rate of return.

You got to help me figure out - if you have 3 parties involved - a "buyer" (you) , a seller (dealer) and a finance company (me). 


If the seller and finance company on average make more from a lease - how is it that the guy "buying" the car pays less?


Not saying it can't happen - but most of the time leasing a car costs you more.




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