Is Auto Leasing Healthy For America?
I am a retired economist and businessman who has seen auto-sales terms progress from all cash (plus a bribe above price control) after World War II to 50% down and the balance in one year to ever less down and more payment time, until debts exceeded residual values. Despite this reckless credit strategy to "move the metal," there was always a clear-cut buyer and seller. In other words: A sale was a sale.
Nowadays, since Detroit can't dream up even easier credit schemes, it can't sell its cars--so it's renting them. They call it leasing. ("Leasing Fever," Cover Story, Feb. 7). In the old days, a car rental was dot considered a sale. Yet you seem convinced that by some voodoo financing magic, production can be whisked from inventory to sales and voil --we have a boom.
What worries me is who owns this inventory and what happens in the next cyclical downturn? Will lease-default losses hit the factory, the dealer, or a third party? I suspect Detroit will bear the brunt and leases won't be termed sales after the ensuing brouhaha.
Henry Fogel II
Leasing, whether of cars or other durable goods, has another benefit. By reclaiming the product, a manufacturer "closes the loop," reducing environmental impact while simultaneously creating customer loyalty and (potentially) improving quality and repairability.
If you take a product back, planned obsolescence is no longer a smart strategy. A durable product with classic styling retains more value, can be refurbished, and sold or leased again--and it is less likely to have a premature rendezvous with the shredder.
Smart manufacturers integrate leasing with "design for disassembly," making it easy and advantageous for makers to take back, disassemble, and sort the parts of their products. A number of durable parts such as alternators can be remanufactured and reused. Other items can be recycled into new parts.
In an age of little consumer loyalty, tighter environmental regulation, and short product-development cycles, an integrated licensing/design for disassembly strategy that brings the customer back pays off financially and environmentally.
W. David Stephenson
The arithmetic of auto leasing failed to bring out a very important point: There is generally no rebate for not using the allotted miles on a lease. A lease with $250 a month for 24 months with 30,000 allotted miles comes to roughly 20 cents a mile. If one uses the car 10,000 miles a year for two years and returns the car, $2,000 worth of mileage goes unused. A consumer may be better off buying the car and keeping it over a longer period of time if the annual mileage expected to be driven is much less than the allotted miles.