Wednesday, June 25, 2008

Certified Pre-Owned and Leasing

I'm getting ready to replace my car. I've had it for 6 years and nearly 110K miles. The backseat is getting too small - something about how the special car seats for kids force their legs forward at an angle - yet another reason why Americans want larger cars.

I've been told leasing is a lot better because of the tax benefits. I don't completely understand, but I want to work with that. It hasn't worked out how I expected.

A lot of car companies have certified pre-owned (CPO) programs. This is a special approach to used cars, where they do a "rigorous" inspection. More important, getting a CPO vehicle means a substantial warranty.

So I had an idea. How about leasing a certified pre-owned vehicle? The logic is fairly simple. When you lease a car, you are paying for the amount that the car depreciates in the time you have it, plus some interest. So if you lease a $36K car for 3 years and it's worth $18K when you give it back, you used $18K of value in the car. That'd be $6K/year or $500/month, plus a bit for interest.

So I was thinking of leasing a CPO vehicle, maybe 3 years old. In many cases the car will have lost about half its value already, and so the depreciation over the next three years would have to be less. And in my experience a car with 50K miles on it usually feels and drives like brand-new.

So here's my rough math. Figure a 3-year-old $50K car (hey, I think big) is now worth $30K, and if I lease it for 3 years it'll be worth $15K when I'm done with it. So the lease payment should be lower than a new version of the same car, somewhere between 2/3 and 3/4 of the new car payment, right?

Wrongo Mary Lou!

This has been a frustrating experience. First I was looking at Audi. Right now they have a Audi Certified Pre-Owned special. It says there are "Excellent leasing rates on 2004-2005 A6, allroad, A8 and 2007 Audi Q7 models."

Following the instructions I called my local Audi dealer for details. They didn't know what I was talking about. They quoted me a lease rate on a 2005 Audi A6, around $800/month. It was a lot more expensive than leasing a brand new one, which is around $630/month. I called a few other dealers and got similar results - not just in Albany, but even in NJ and CT. I tried to follow up with Audi through their website, but they just gave me a run-around.

The problem is not limited to Audi. I had similar problems with Acura. They have a current lease deal for $499/month for a new Acura RL (which seems like a pretty good deal by the way), and the quotes I was getting for a 2005 model were up in the $650 range.

Right now it looks like I'll be leasing a new car in the fall, maybe a 2008/2009 Acura RL or perhaps the 2009 Audi A4 Avant - it's supposed to be getting bigger. And even though I'm annoyed by their false advertising about lease rates, they still make good cars.

1 comment:

Anonymous said...

Funny to see your reasoning. Went exactly through the same calculation for a BMW650 and got the same response "You don't lease a used car". However, the tax benefit is too good to pass up not to lease. I'll let you know if I found the secret key to lower lease payment of CPO!