Used luxury car? Think lease

With the average price of a new car topping $22,000 these days, many car buyers choose to lower their payments through leasing. Others may just buy used. Now they can lower payments even more by combining the strategies into one, and leasing a used car.

Yet buying vehicles coming off two- or three-year leases can also be expensive option. Just check the ads in your local paper. Most of these cars run in the $10,000 to $15,000 range.

Used-car leasing is finding a new niche, especially among so-called entry-level luxury cars - low-end BMWs, Cadillacs, Lexuses, Jaguars, and Audis - that many aspire to own, but can't afford to buy.

The biggest growth in used-car leasing comes in "certified used cars," trade-ins backed by a manufacturer's extended warranty. BMW leases many of its new cars twice - once when they are new, and a second time as used, with less than 60,000 miles on the odometer.

As cars become more reliable, this equation becomes less risky for consumers.

Three years ago Lisa Lund leased a used 1997 Audi A4 for $320 a month for three years. "I only drive about 10,000 miles a year, so this way I can drive a more expensive vehicle," she says.

Ms. Lund, who runs Majestic Wholesale Outlet, a family-owned used-car dealership in Bay City, Mich., says the leasing business there has dropped off from almost 50 percent of sales to only 5 percent. Reason: Banks have lowered the residual value of vehicles, raising monthly payments to the point where buying a new car can make more sense.

"Two years ago we could lease a Jaguar for $299 a month. Now you can't lease a Grand Am for that," says Lund. Today that Jaguar would cost $461 a month to lease, or $595 a month to buy, she says.

Whether used-car leasing will expand or contract depends on whom you ask.

Many banks are getting out of the business after being soaked with inflated residual values in the late 1990s. GE Capital abandoned leasing altogether. Bank One spokesman Tom Kelley says the bank is trying to cut its lease business to about one-quarter the size it was two years ago.

But BMW is successfully re-leasing many of its originally leased vehicles, complete with extended warranties. For example, when the first lease expires on a 1999 328i with 30,000 miles on it, the company may lease the car again to another customer for three more years and a maximum of 60,000 miles. The monthly payments may be less than $400. Since these "preowned" cars are certified by BMW, they come with warranties to cover most major mechanical problems.

Dennis Magers, Internet sales manager at Advantage Auto Leasing in Plano, Texas, is also bullish on used-car leasing. His customers inhabit a rarefied stratosphere - with incomes high enough to afford $135,000 Mercedes-Benz S600s.

Page: 1 | 2