[ad_1]
Let’s talk about cars – specifically car leases
Average life of a car in the 60s – 6 to 8 years
The average life of a car manufactured today is 15 to 20 years.
So what – technology and innovation! As in the case of humans, this century has seen a rapid increase in the life of vehicles. Thanks to the convergence of various technologies such as computers, precision engineering and biomechanics. In addition, regulatory requirements on the maintenance of cars such as the California Smog Check Program are mandated and managed by the Bureau of Automotive Repair. someone who buys a new car today; One can expect the car to run trouble free into the 2030s. So why is 3 to 5 years the standard for a car lease?
Welcome to How Car Dealerships Make Money. Dealerships don’t make money on the spread between their buy price and sell price. Times are very competitive, plus the Internet has made value-shopping very easy for the buyer. This means that the negotiating power is now in the hands of the buyer and not the dealership. This has prompted dealers to re-invent ways to make money. They make money on repairs, warranty sales and financing – the core of this article is financing.
Financing Methods:
This works in one of two ways:
a) The buyer owns the car and finances the purchase price through a company affiliated with the dealer. Auto loans typically run from 5 to 10 years (as opposed to a home mortgage which runs from 15 to 30 years, with 30 years being the most common).
b) the buyer has never owned the car; In essence the buyer is paying “rent” for the use of the car. The leasing company owns the car.
Let’s look at the car lease issue mathematically:
Recognition:
Average age of a car 15 years.
Assume that a consumer drives a car for 60 years in his lifetime.
The average price of a car is $30,000.
Cost of ownership
Cars owned in lifetime = 60 divided by 15 = 4 cars
Cost of ownership = 4 times $30,000 = $120,000.
lease cost
Cars leased over lifetime = 60 divided by 4 years per lease = 15 cars
Lease amount = 60% of the total value = 60% of $30,000 = $18,000
Lease cost = 15 cars multiplied by $18,000 = $270,000.
The difference of $150,000 (lease vs own) is what an average consumer spends extra. This means that, an average consumer spends more than double the amount on leasing, as opposed to owning! No wonder my auto dealer was so eager to give me the “special” to make my decision for a new lease J
Granted, leasing gets new cars every four years – but looking at the life of the car, isn’t that a waste??
Now here’s where it gets really interesting – if you take the mid-point of savings ($75,000) and the mid-point of years (30 years); Reinvest the money at an 8% compound annual return – you’ll have an extra ~$500,000 in retirement!
Let’s get back to the topic of the article – The Biggest Wealth Destroyer in America – What Takes Half a Million Dollars From Your Golden Years – Car Leases!
[ad_2]