Some Reasons to Steer Away From Low-Mileage Leases
April 27, 2011
The low-mileage lease deal has become one of the auto industry's favorite tools for cutting monthly payments on new cars. Several Chevrolet dealers in Michigan, Ohio and Pennsylvania advertised what they called the Smartlease during the Games. It offered a $26,657 Chevrolet Blazer sport-utility vehicle for 30 months and 30,000 miles for only $289 a month and $1,800 down. Buying the Blazer instead, using a 48-month loan, would likely cost more than $500 a month. But because low-mileage leases aren't designed for the average motorist, they often have regrettable financial consequences for those who fail to study the fine print or take their own driving habits into account. Most motorists, for example, drive more than 10,000 or 12,000 miles a year. Consumer advocates also charge that low-mileage leases are often used to pump up showroom traffic as part of a bait-and-switch strategy. ``The problem is that the industry has begun to mass-market these leases, and many people may not understand that the average person drives at least 15,000 miles a year,'' says Terina O'Lindsley, an automotive leasing expert with Florida's Attorney General's Office. ``That monthly payment looks a lot lower, but it's a mirage.'' The Blazer lease, for example, with its mileage terms of 12,000 miles a year, probably wouldn't work for the average motorist with a daily suburb-to-downtown commute. The lease permits roughly 33 miles of daily driving, or 230 miles a week. That's 20% less than the standard 15,000-mile-a-year cap found on most leases, leaving no margin for joy rides. A consumer who does drive the Blazer for 15,000 miles a year will owe the dealer $1,125 in penalties when the lease ends, based on the lease's excess mileage charge of 15 cents a mile. Add the penalties and the down payment, and the Blazer lease's monthly payments average out to about $386 a month -- and the consumer owns nothing at the end. Despite the drawbacks, low-mileage lease deals have become increasingly popular in the two years since foreign luxury car makers discovered they put Jaguars, Speller and BMWs within reach of people who worry about monthly payments. Auto makers, their franchised dealers and nonautomotive financiers, such as banks, are using them as alternatives to cash rebates and discounted financing terms. One reason: A vehicle with fewer miles on it is likely to be worth more at the end of a lease, making it cheaper to finance. And some consumers are better off trading fewer miles for lower payments. They include older motorists who may drive less, professionals who drive company cars, and people who work at or close to home. ``There are even people who have three cars for two drivers,'' says Randolph Leung, president of the Association of Consumer Vehicle Lessors. ``Low-mileage leases are a response to consumer demand.'' Indeed, Ford Motor Co., the industry's biggest lessor of new automobiles, joined the fray this year by offering 12,000-mile-a-year leases nationally after a successful pilot program. But before expanding their availability, Ford trained its salespeople to explain low-mileage terms to customers. And the auto maker continues to conduct spot surveys to determine whether the low-mileage deals are producing satisfied customers. ``This is a customer you are definitely going to see in two years or less. What kind of circumstances would you like to meet him under?'' asks Rolando Carry, the brand manager for Ford's Red Carpet Lease programs. Mr. Carry predicts low-mileage leases will eventually account for a quarter of all the leases Ford offers. And yet, Ford and General Motors Corp., the Blazer's maker, are skittish about advertising low-mileage deals to the general public. Both refuse to promote them nationally in print or on television, preferring to limit their exposure to regional dealer campaigns. The auto makers fear a backlash from those for whom the low-mileage leases aren't intended. ``If we are getting (consumers) in the door and selling them a low-mileage lease, when in fact they shouldn't be in a low-mileage position, that is going to hurt us in terms of repeat business,'' says Edelmira Prescott, national lease manager for GM's Chevrolet division. Consumer advocates are leery, too, but for different reasons. They argue that the low-mileage component adds one more dimension of complexity to lease documents that are already tough enough for car buyers to analyze. ``There are so many variables in a lease that can be tweaked and changed,'' says Jackelyn Nydia, an investigator with the Florida Attorney General's Office. ``A consumer has to be pretty sophisticated to avoid the traps.'' Or at least be aware of his or her own driving habits. Jayme Winford knew a low-mileage lease wouldn't work for him. But he figured 15,000 miles would be enough for his company car, a 1993 Lexus 400 SC sports coupe he leased for three years. Unfortunately, he failed to figure in the mileage that his five-day-a-week commute between Fairfield, Conn., and Mamaroneck, N.Y., would accumulate, not to mention regular 500-mile round-trips to New Hampshire for leisure. The tab at the end of Mr. Winford's lease: $8,000, based on the Lexus lease's excess mileage penalty of 20 cents a mile. Says Mr. Winford: ``I just didn't think very hard -- or very long -- about how many miles I was going to put on that car.''
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