Buy, Lease or Share
By Louis Rumao
The global light vehicle production has reached 85 million units per year, and is projected to increase to 100 million+ units in the next few years. A car gives you freedom to get anywhere you want, the way you want and, depending on the car, it will get you noticed! A lot of people desire attention and are willing to pay for it. There are three legal ways to enjoy the freedom and the convenience made possible by car ownership, excluding a gift from in-laws, willing or otherwise! These are: Outright purchase, leasing for a specified time, and the new trend of car-share.
In the US, a vast majority, about 80%, of auto consumers “own” a vehicle either by paying cash or by financing their purchase with a loan. There are several advantages of vehicle ownership. You OWN the vehicle, you can use it any way you please, there is no mileage limitation and you can sell it at any time. But there are disadvantages as well! You have to pay the full purchase price upfront or a large deposit with subsequent cost of financing the balance. After purchasing your vehicle, it will immediately depreciate in value.
A vehicle can be leased for a fixed period of time at an agreed amount of money for the lease. It is commonly offered by dealers as an alternative to vehicle purchase but is widely used by businesses as a method of acquiring (or having the use of) vehicles for business, without having to pay the full purchase price upfront. The key difference in a lease is that after the primary term (usually 2, 3 or 4 years) the vehicle has to be returned to the leasing company and you have zero equity in the returned vehicle.
Vehicle leasing offers advantages to both buyers and sellers. For the buyer, lease payments will usually be lower than payments on a car loan would be, and qualification is often easier. Some consumers may prefer leasing as it allows them to simply return a car and select a new model when the lease expires, allowing a consumer to drive a new vehicle every few years without the responsibility of selling the old vehicle. A lessee does not have to worry about the future value of the vehicle, while a vehicle owner does. For a business, there are tax advantages of leasing to be considered.
Let us be realistic – most cars sit idle 90% of the time. You may drive one hour each-way to work and back, and may do a couple hours of actual driving over the weekend. Hence the vehicle is just sitting unused 22 out of 24 hours each day. That is one argument for car sharing, rather than car ownership; the former is often just a lot more efficient and cost-effective. Among the other forces pushing car-sharing further into the mainstream are the rising costs of gas and car ownership, as well as indications that today’s younger generations are less interested in cars, many for environmental concerns.
Average US household paid $4,155 fueling up their cars, and when gas, insurance, depreciation, vehicle payments, and other expenses are tallied up, the average car costs $8,776 annually. These costs are only likely to increase now that prices for gas and new cars have risen substantially. There’s an obvious alternative to owning a car—not owning a car—and the rise of car sharing makes it increasingly feasible.
Full text in PTA December-January issue