Cars: Buy, Lease, Rent or Zip?

One topic that believe it or not comes up with nearly every client and prospective new client, no matter their age or level of wealth, is cars.
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For younger, city-dwellers, Uber may be an excellent (and cheaper) alternative to owning.
The conversation touches upon the following:
  • Buy or lease?
  • If buying, buy for cash or take out a car loan?
  • New or used?  (I nearly always suggest used, a.k.a. “certified pre-owned”.  Remember the book, The Millionaire Next Door?)
  • If buying, how often to replace?
  • If leasing* or taking out a car loan, what is a sensible payment amount?  With a lease, buy at the end of the lease?
  • For younger people perhaps living in or near a city, is it possible to not even own a car?  And take advantage of excellent (cheaper) alternatives as needed such as renting a car, Uber, or Zipcar?
Leasing is not often my recommendation for first cars, mostly because I prefer not to add another sizable monthly outflow of cash early on in life. Early on, own a car you can afford for cash or a small loan. The future will look brighter.

The reason this topic seemed timely was because of recent data citing a peak in record car sales (and prices). The peak has been followed– even more recently — by price declines for new and used cars (especially used) due to a major glut of rental cars in fleets like Hertz and Avis. These used cars, many of which feed into the leasing market, are putting pressure on the prices of new cars.  Also concerning, car loans have been allowed to extend to seven years (from the standard five). During this time the dollar value of the car has ample time to decline…possibly causing the borrower to owe more on the car loan than the car is actually worth.

Cars.  Have you noticed that more than one billionaire sports team owner made his wealth in auto dealerships? Heck, even Arnold Palmer was smart enough to put his name on a family of dealerships in his hometown of Latrobe, PA. There is A LOT of money to be made in cars (by sellers).

But with the introduction — and massive success — of services like Uber plus the near-reality of driverless cars, a major societal change is taking place.  People of all ages and levels of wealth are taking advantage of Uber. Car buying has gone online!  Especially for younger people living in cities with decent public transportation it may make less sense than ever to own a car than to take the train, subway or “L” or “T” to the bus. (Not forever but at least for a few years until savings can be built up.)  And how about Zipcar?? Their slogan is “Own The Trip, Not The Car™”.  Finally, owners of new cars are holding on to their cars for much longer than was typical 10-15 years ago.

All these factors have led to a recent decline in the prices of cars.

For those needing to own a car due to suburban living or those who can easily afford a car (or multiple cars) it seems that at least in the short-term the cost is coming down for both new and used vehicles.  “Certified Pre-Owned” has even more of a window of opportunity.  Food for thought on one of our most expensive items.

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