I have seen dealers try this and it never works. The leases are never cheap enough to make sense compared to a new car and then you have to factor in potentially large maintenance expenses and repairs. It also tends to attract those with less than stellar credit and low budgets. It makes it tough to get anything bought by banks unless you are doing it all in-house. Now you are in the repo business. To have a profitable business, you either have to have low RVs and high MFs to counter any repairs or an open-ended lease where they are on the hook for the depreciation.
I have seen this model work with exotics and highline cars as open-ended leases with low RVs. That makes it so that the MF does not have to be sky high to make money off leasing a $200k+ car and they are not responsible for the true depreciation.
I recall Hertz atttemtping a subscription service and it was atrocious. Not sure if they still offer it, but it was like 1400 a month to drive a Nissan Altima. The cheapest subscription service I saw was actually the Volvo program which was pretty competitive at 750 a month for an XC40 with maintenance, warranty, and insurance included. Just buy gas.
If leasing used cars cheaper than new cars was a viable option I think we would have seen some success with it already. I don’t think it’s a matter of “well they just didn’t think of the right way to do it, yet” type of situation.
I lease primarily for peace of mind. If it breaks, the dealer gives me a loaner and fixes it for free. I don’t have to worry about unexpected maintenance costs or some service advisor trying to sell me blinker fluid. I stick with 3 year leases because of this.
Also when you return a lease to the dealer, the independent dealer has no reason to upcharge any wear and tear. I would be a worried about returning the vehicle to a used car dealer
Thanks for your input. The way I see it, the whole idea is just a financing scheme but done differently to give the customer a better experience. But in order to do that I have to go through some steps.
To illustrate, lets say a used Altima 2020 costs 20k. After 5 years it will be around 10k. I will estimate it to be 8k to be on the safe side.
Customer will pay 300$/m for 60 month which includes maintenance and repairs.
I saw in the signed section a 2022 altima lease for 315$/m + 1500DAS so effectively 380$/m
The residual values in leases are not realistic so I doubt if anyone benefits from them (correct me if I am wrong)
But in my startup, if the customer keeps good care of the car it is highly likely to recover some extra money at end of 5 years. Lets say 1k extra returns. So effectively the true cost is 283$/m vs 380$/m for a brand new lease. Is this worth it?
Tagging some of the folks which wanted an example. Would love to hear your thoughts again thanks @mllcb42 @parkville @roguelighter
How about if you are leasing a used car under warranty + maintenance but for cheaper than the brand new lease? Would you consider it?
Let’s say 100$/ month cheaper.
Thanks for tour input.
What do you mean by substantial savings? Is 100$/m substantial?
The cars will have an extended service contract to cover for unexpected breakdowns. Possibly a limited warranty not bumper to bumper. I need to study this further.
So lets say you should not worry about car repairs and the price is 100$/m cheaper, is this a good value proposition? (Of course it will vary woth car make/type). I wrote an example as it applies to an altima please check it. Thanks
It’s great to think this through with examples - it’ll help you find blind spots.
How would your business recoup those expenses for maintenance and repairs with only a $300/mo payment? In a ‘normal’ lease for a new car, a manufacturer’s repair costs during the warranty period is far below market price because they control the labor and part supply. Also, the cars themselves are newer and in theory require less maintenance.
Your firm, by contrast, would be on the hook for paying market price for parts/labor and dealing with aging vehicles - that could eat away any profit quickly. Or, alternatively, you leave maintenance in the hands of the customer - but in that case, why would anyone go with a lease instead of simply financing a used car the traditional way?
$300/mo total cost is really $275/mo going to you after tax.
You’re saying over 60 mo, the value of your asset is going to drop by $12k, so if we factor that in, $200 of that $275 is straight to depreciation.
So now you’re playing with $75/mo. What’s your cost of capital for floating that $20k asset? How much is your warranty coverage? How much are you holding in reserve for people that don’t pay?
Perhaps a better thought exercise here is to say “how much would you have to charge per month to simply break even?”
Good point about the brakes and tires. One of the biggest advantages of leasing is giving the car back before having to pay for that. Having to put in new tires and brakes would wipe out a good portion of the savings in getting a used car.
I am not sure why anyone would want to lease a used car for 5 years when people don’t really want to lease a new car for 3 years (I would prefer a 2 year lease).
The car will need tires and brakes. Will also need maintenance which a lot of the new cars have included.
In the US ‘scheme’ is associated with a criminal or otherwise negative or predatory construct.
In other parts of the world, like England, it really means something along the lines of a ‘structure’. Think of the word ‘schema’ as used in tech or business.
It’s called buy here pay here and often it works out to be more like a lease than a purchase with the maturity date often being whenever the car stops working or the buyer skips town.
Watch enough British TV and they speak all day about finance scheme, insurance scheme, tax scheme. It’s jarring before you realize it’s just how they say plan/construct/structure as it relates to matters financial.
