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sjfotos

Well-known member
Joined
Apr 22, 2010
Messages
667
Location
Mechanicsburg, PA
I copy below the best recent posting I found on the topic of leasing. The poster is WK4P over at the GM Volt forum. I also posted the forum reference below as well. Might be helpful as you make decisions.

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As one who spent 18 years as a finance manager in a GM dealership maybe I can clear up a couple of things about Nissan’s Leaf lease, and leasing myths in general.
First, unless the lease is an open end lease, which is seriously doubt, then the customer will NOT be responsible for any variation in actual depreciation vs. residual value. In a closed end lease, which the vast majority (>98%) of all leases are, the leasing company (NMaC) will set the residual and be on the hook for any actual variation in value at lease end. It’s actually a great deal for the consumer, especially for a vehicle whose depreciation is questionable. The advantage for the customer is if the Leaf’s end of lease value in 3 years is less they simply hand over the keys and walk away, if it’s more than Nissan a smart customer can buy the vehicle at the end of the lease for the predetermined price and could actually pay a lower lease payment AND end up with equity at the end of 3 years. I’ve seen it happen folks.
Secondly since the term of the lease is less than a typical finance contract (36 months vs 60 or 72 months), the $7500 tax credit/rebate will have roughly twice the effect on the lease payment that it would a purchase payment. 7500 divided by 36 means a $208/month reduction in the depreciation part of the payment, whereas in a 60 month purchase the principal part of the payment would only be reduced by $125/month and only $104/month over a 72 month term. BTW, either way you look at it the tax credit/rebate is going to the person leasing the car in the form of a reduced payment spread out over 3 years. Nissan is just the middle man in the process.
Thirdly, the payment is most likely based on what is known as an “ultra low mileage lease”, probably 10,000 miles/year. I wouldn’t be surprised if the per mile charge after 30k miles is upwards of $.20/mile. Of course most people will be hard pressed to put over 10,000 miles/year on a car they can’t drive over 80-100 miles in any one day, no long road trips here. With the Volt we can put unlimited daily mileage on the car, thus an ultra low lease may not be quite as attractive.
Besides the residual factor we also don’t know what the lease’s money factor (often incorrectly called APR) will be. The money factor also plays a bigger role in a lease, as it is multiplied by both the capitalized cost and the residual to get the monthly finance charge. If Nissan tweaks the money factor a bit it can make a large difference in the lease payment.
Personally I feel a lease on a gen 1 new technology car, be it a Leaf, Volt, or whatever, would be a great idea, as long as you can stay within the mileage limits of the contract. The leasing company will take all the risks in depreciation, not the consumer. Remember, you can negotiate those mileage limits. If the advertised lease calls for 10,000 mpy and you need 15,000 simply have the dealer change the contract mileage. It will cost you more per month, but you won’t be stuck with a huge mileage charge at lease end, and you can buy the car at a cheaper price at lease end if you choose to do so.
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Taken from:

http://gm-volt.com/2010/04/08/how-nissan-can-lease-the-leaf-ev-for-349-per-month/
 
Good explanation of the calculations.

http://www.edmunds.com/advice/leasing/articles/48365/article.html

Here is what I can calculate. You can vary the Residual factor & rate (money factor) to get the needed $349 lease payment.

 
A view of leasing from 'our side' - from Diane Kennedy, a Phoenix CPA that specializes in small business planning...

"Now for my opinion: I have never seen a lease that makes economic or tax sense. If you are considering that option, weigh your alternatives carefully. Read everything thoroughly and then have a professional read it thoroughly, too. If you still think it makes sense, send me a copy and I'll read it thoroughly."

Page 52, Inc. and Grow Rich, 2002, ISBN 0967187109

Free advice from a sales person: Never ask an insurance salesman if you need insurance. The answer will always be 'yes'...
 
Hello AndyH, Kennedy offers some very good advice and there are many people who enter into leases that are not suitable for their situation. However, leasing can make sense in some limited applications. My interest in it in this case mainly has to do with 'technology risk'. The lease, in this case, transfers a significant amount of the technology risk to Nissan. Still, your reference makes the very important point that it is not a panacea and most often isn't even the cure for whatever it was proposed to fix.
 
AndyH said:
"Now for my opinion: I have never seen a lease that makes economic or tax sense. If you are considering that option, weigh your alternatives carefully. Read everything thoroughly and then have a professional read it thoroughly, too. If you still think it makes sense, send me a copy and I'll read it thoroughly."..

Well, bean counters - what do they know :mrgreen: The same kind of advice has been given about owning homes.

What is missing is risk analysis. For a traditional car the risk is low. Residual value can be fixed quite accurately. There isn't a huge part of the vehicle that is fast depreciating AND likely at the bottom of the technology explosion curve.
 
sjfotos said:
Hello AndyH, Kennedy offers some very good advice and there are many people who enter into leases that are not suitable for their situation. However, leasing can make sense in some limited applications. My interest in it in this case mainly has to do with 'technology risk'. The lease, in this case, transfers a significant amount of the technology risk to Nissan. Still, your reference makes the very important point that it is not a panacea and most often isn't even the cure for whatever it was proposed to fix.

Hi Steve,

Thanks for the post and the link back to the Volt forum. I read thru the thread last night and learned a few things - and that's always good. :D

Some of the later comments - by WK4P and others - pointed out a couple of other potential 'gotchas', and seemed to conform my belief that if one plans to keep the car for a long time a lease probably isn't the best way to go.

Thanks again,
Andy
 
Hi Andy,
Yes, thank you for your comments and the reference to the later comments on the GM Volt forum. I was too lazy to post the rest of the GM Volt ones! However, anyone planning to lease should pay attention to your comments and follow your reading along as well. Let's hope we both get a chance to decide lease versus buy soon!
Steve
 
evnow said:
Well, bean counters - what do they know :mrgreen: The same kind of advice has been given about owning homes.

What is missing is risk analysis. For a traditional car the risk is low. Residual value can be fixed quite accurately. There isn't a huge part of the vehicle that is fast depreciating AND likely at the bottom of the technology explosion curve.

Yeah - silly bean counters. :D

Houses... That's more about marketing than numbers. Americans get a constantly reinforced message that their house is an asset - which is true. The problem is that the homeowner thinks the house is HIS asset - and it's not. An asset puts money in our pocket. This makes a house with a mortgage the mortgage holder's asset because he pockets a piece of our house payment every month. And to make it more fun for him, he gets more of his money back (interest) early in the loan, while we agree to build almost no equity early on.

As I see it, it's the same thing for car leases. Nissan builds a car and sells it to the dealer. When we lease, the car is sold to the lease agency - and we 'rent' the car from the leasing company. For most people, this process guarantees that Nissan profits, the dealer profits, and the leasing company profits while we often pay more for a vehicle than we have to. They have plenty of bean counters on their side to ensure they maintain their cash flow. ;) While every lease is a benefit to the leasing company, it's not necessarily in our best interest. If I take it a step farther, uncertainty or fear about the battery brings the leasing company more customers...

I take it that you are concerned about the battery depreciating? Because the basic car is old-tech, synchronous motors last almost forever, and inverters and battery chargers are tried and true. As for the lithium battery - Nissan fielded their first lithium powered pure EV in 1997. As far as I can tell, no automaker - and no DIY EV owner - has more experience with lithium EVs than Nissan. I'm more concerned about the terms of the lease than the perception of risk. ;)

It'll be interesting to watch the Leaf, ah, unfold, toward the December rollout. :D

Andy
 
sjfotos said:
Hi Andy,
Yes, thank you for your comments and the reference to the later comments on the GM Volt forum. I was too lazy to post the rest of the GM Volt ones! However, anyone planning to lease should pay attention to your comments and follow your reading along as well. Let's hope we both get a chance to decide lease versus buy soon!
Steve

Not lazy - there's a LOT to slog thru to pull the lease nuggets!

I'm one of the weirdos that generally buys used and keeps cars for the long haul; it would take quite a lease to win me over to the 'dark side'. ;) But it's certainly possible.

I will say that I'm not the person to listen to about the lease/buy option. On good days I can run my small business - other days not so much. :D

Have a great week,
Andy
 
For me, and I have never had a lease in 30 plus years of vehicle ownership, it all comes down to the battery warranty. If less than 7 years, I lease. If 7 years or longer, I buy.

I plan to only have my LEAF 2 or 3 years....so a lease could make sense. But that is unusual for me. I usually run my cars forever and then give to one of my kids.

But I plan to buy a Fiat 500ev in a couple of years...so leasing is a fairly ok option. But if the battery warranty is good, I will probably buy and then give the LEAF to my eldest daughter when the 500ev hits the states.

Gavin
 
as I have said before, once the ACTUAL residual of the Leaf is know, then a comparison can be done. You cannot GUESS at the residual, or the mileage allowed per year. These will be fixed concrete numbers in a contract, and they are not yet known.

Once they are, take the $1999 deposit, the 35 additional payments of $349.00 / month, add in the residual buyout at the end, and you have the final Leaf cost if you lease it for 3 years, then buy it out.

You can then take the cost of the Leaf and run it through finance numbers, and compare the total cost of leasing, versus financing, versus paying cash, and see what the 3 numbers are, then each person can make their own decision, based on their personal preference and how much "risk" they are willing to accept.
 
What will add to the residual other than mileage?

If mileage is the only unknown at this time, well some of us can "run the numbers". I myself will put less than 5k a year on it...actually it will be hard for me to put 15k over three years.
Currently I only put 5k a year now on my scooters, a thousand or so on my bikes. And I won't be selling those. So the LEAF will be one more ride for me (2 scooters, 2 bicycles). And I won't give up riding the bikes or scooters, so the LEAF could easily only get a couple of thousand miles on it. Winter riding. Rainy day riding. Bags of grocery riding. Taking dogs to the park riding. Those will be LEAF days.
But basic work commuting on pretty days (and we get 300 a year here :) ) will likely still be bike and scooter days.

At that point the residual is kinda a moot point. Unless there are other cost factors to consider.

Gavin
 
mitch672 said:
as I have said before, once the ACTUAL residual of the Leaf is know, then a comparison can be done. You cannot GUESS at the residual, or the mileage allowed per year. These will be fixed concrete numbers in a contract, and they are not yet known.

Once they are, take the $1999 deposit, the 35 additional payments of $349.00 / month, add in the residual buyout at the end, and you have the final Leaf cost if you lease it for 3 years, then buy it out.

You can then take the cost of the Leaf and run it through finance numbers, and compare the total cost of leasing, versus financing, versus paying cash, and see what the 3 numbers are, then each person can make their own decision, based on their personal preference and how much "risk" they are willing to accept.


Hi Mitch and Gavin,
I quoted Mitch above because he gives a very good and concise summary of the basic calculation. Given the low mileage that Gavin expects to accumulate, the unknown number is the residual value. We will have to wait to see the actual lease document before knowing that. God knows hows Nissan will calculate that. That residual value is probably the decade's most unknown lease number.

So, as outlined by Mitch.....if you want to see a absolute dollar comparison you will calculate:

1. Total Amount if you pay Cash
2. Total of initial lease payment/deposit/fees+total monthly payments+residual value
3. Total payments made via any car loan.

This all assumes that cash flow and risk assessments on the technology are not factors that are most important to you.

Thanks to both of you, good discussion and helps me think through my own decisions as well.
 
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