Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Op-Ed: Leasing a Car Means Driving Now, Paying Forever


Six reasons why leasing could be the worst financial decision you ever made.

Editor's Note: James Quinn is a senior director of strategic planning for a major university. James has held high-level financial positions with a retailer, homebuilder and a university in his 22-year career. He can be found online at

'Cause we all just wanna be big rockstars
And live in hilltop houses driving fifteen cars

"Rockstar," Nickleback

Americans love their cars. Americans are their cars. There's a strange belief rampant in the US, a belief that cars are a measure of status and achievement. If you want your neighbors, friends, and perfect strangers to think you're a success, just tool around in a Mercedes SUV.

But this recession is forcing these status-conscious auto-worshippers to forego their beloved cars. The result is that auto sales have plummeted from an annual rate of 16 million to a current rate of less than 10 million. These short-sighted people have allowed the temporary psychological benefits of driving a car they can't afford to outweigh their long-term financial future. Millions have made this choice. Now that the debt bubble has imploded, and the government is pouring billions of taxpayer funds into the auto-financing companies like GMAC (GM) to re-inflate the bubble.

The American consumer has changed their car-buying habits over the decades. In the 1970s, they saved up the 20% down payment, then financed the remaining balance over 3 or 4 years. With an average loan of $4,000 to $8,000, the burden wasn't great. After 4 years, they owned the car, free and clear. They would then drive their American-made car until it fell apart, usually at around 90,000 miles. In 2008, the average new-car loan topped out near $30,000. In comparison, the median home price was $17,000 in 1970.

The $30,000 average car loan was made manageable by the "creative" auto financing arms of the Big 3 (GM, Chrysler, and Ford (F)) extending loan periods to 6 or 7 years. This worked fine for the trader-uppers; they wouldn't be caught dead driving a 7-year-old car. Car buyers told themselves that debt didn't matter; car companies told themselves the loans would be repaid. A perfect combination to sell 16 million cars annually for all eternity.

When the return customer came into the dealership to trade up after 2 years, the dealers were perfectly happy to roll the unpaid loan balance into the new deal. Presto! Millions of people driving cars with a loan-to-value ratio of 140%. According to JD Power, there are now 6 million people who are underwater on their car loans. When this Ponzi scheme collapsed, car sales plummeted 40%, and GM and Chrysler have been revealed as bankrupt.
< Previous
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos