Six percent of U.S. households have one or more leased vehicles, according to vehicle registration statistics from Hedges & Company. However, as the household income increases, that percentage goes up. The percentage of households that lease vehicles is 13 percent if the household’s income is $100,000 or more.
“Leasing is designed for the person who always wants to have the newest product out there,” says Jon Boardman, general sales manager at O’Gara Coach Co.
An automobile lease also can help a business owner receive some tax benefits, while dismissing any loss you may incur if the vehicle is damaged in an accident, as long as the vehicle is repaired to manufacturer specifications, he says. A bad Carfax report will not affect you when turning in a leased vehicle.
Smart Business spoke with Boardman about lease options, high-end vehicles, potential tax breaks and how to most effectively lease an automobile.
Why do higher income households lease cars more often?
Luxury cars are more likely to be leased. At O’Gara Coach Co., 87 percent of the luxury cars are leased, mainly because there’s a tax advantage. And let’s face it, there’s not a lot of tax breaks anywhere anymore.
However, mostly it’s a status thing. Generally, although not always, and even if people won’t admit it, you’ve got to have a nicer car than the guy down the street, your next door neighbor, the guy in the office. If you have a higher income, then you want people to know that you have succeeded. You are patting yourself on the back for succeeding, while you’re getting tax breaks.
A high-end luxury car is not sold because someone needs it. At a minimum, you need four wheels and a steering wheel and that will get you to and from wherever you may need to go. Super highline cars are not a necessity; they are desired. Society has dictated that a super highline car indicates that you are someone to be noticed, or that you are successful. People put that thought into their own heads, saying, ‘I have made it because I have a Rolls Royce or a Lamborghini.’
Does the market for leasing luxury cars change based on factors such as interest rates?
If you were to finance a car right now, on a super highline, you could get 3 percent, easily, and a lease is still calculated out at 4.5 percent. Four and a half is good for a lease, but relative to financing a car, it’s not.
If you go down a notch into Mercedes and BMW, then yes, interest rate specials are done on leases. Let’s say a car dealer has a loaded inventory of one particular model that it wants to move. So it throws a rate out there that comes out to be fairly low, it moves the extra 200 cars that it needs to, and then the rates come back up.
When shouldn’t you lease a luxury automobile?
A person’s use of the vehicle will help determine if leasing is right for them. If a luxury automobile is your lifelong dream and you only plan on buying one to fulfill that dream, then leasing may not make much sense. Again, you want to look into any tax benefit that you may be able to take advantage of, but if the car is going to be kept for a long period of time, the best bet is to get it paid off and owned free and clear.
Why are mileage limits so important, and how should you pick your limit?
Leases are designed for you to rent the car for finite usage. When getting into a lease, one must decide the months or term you are looking for and mileage you intend on driving — this way when the lease is over, there are no fees due from the lessee. When picking your limit and your fixed time usage, you need to consider:
• The length of warranty on the car;
• Number of miles you have been driving for the last few years; and
• Payment you are willing to make, as it usually goes down the longer you lease.
What financial advantages are available when leasing a car for business?
The only way to know if you can benefit financially from a lease is to speak to your CPA. Some businesses have the ability to write off the entire payment, any maintenance performed and fuel, while others cannot write off anything.
Are there certain luxury brands that are better to lease for your company?
No brand is better than another to lease when you are looking for a tax benefit; you either can use a car as a write-off or not. Again, talking to your CPA is a must. Depending on the size and income of the company, the government may not see an issue with a $1,000 payment, while a $5,000 payment opens quite a few more eyes.
What should or shouldn’t be included on your lease?
A lease should include Guaranteed Auto Protection (GAP) insurance; if it is not on the lease, then you need to buy it. GAP protects you, in case of an accident or if the insurance company comes up with a replacement value less than your payoff.
Other than GAP, everything else on a lease is very cut and dried. There are no surprises that can come up during a lease term; what you see on the contract is what you get.
