Association of Consumer Vehicle Lessors Correct Consumer Reports Advice on Leasing

    LARKSPUR, Calif., Feb. 28 In its January 2001 issue,
Consumer Reports says:  "Unless you can claim tax deductions for the business
use of an automobile, leasing offers no inherent financial advantages over
buying."(A)
    "That's not the case," says Randy Brown, ACVL President.  "The total costs
of leasing a vehicle for a fixed period are generally LESS than for financing
because of:  (1) savings on depreciation; (2) gap coverage included in most
leases; (3) reduced sales/use tax in most states; and (4) the higher
investment rate or debt reduction rate for which your monthly payment savings
can be used."(B)  Consider just the depreciation savings.  In 1999, lessors
sold the average returned off-lease vehicle for $2,592 LESS than the residual
value.  Thus, consumers SAVED at least $2,592 in depreciation costs compared
to financing.(C)  By comparison, if the consumer owned the vehicle with a
14,000 loan balance and traded it, he or she would owe the full loan
deficiency of $2,592.
    The $2,592 depreciation savings by leasing assumes that the consumer could
get the same price for his or her trade-in as the leasing company could get in
professionally reconditioning and selling the vehicle at auction with dozens
of dealers from a radius of hundreds of miles bidding on the vehicle.  In
fact, most consumers are unlikely to get the full auction value for their
trade-in.
    Consumer Reports also asserts:  "A lease comes with lots of limitations on
how you can use your new vehicle... Will one of your children begin driving
over the coming few years?  If so, leasing may not be the right choice."
    "That's a misconception," responds Bernard de Souza, chairman of the ACVL
Customer Satisfaction Committee.  "There are NO restrictions among major
lessors for children driving leased vehicles."  Many consumers also
misconstrue the mileage and excess wear standards of leasing.  In order to
provide a guaranteed trade-in value and protect the consumer from excess
depreciation, the lessor has to project the end-of-term mileage and condition
of the vehicle.  If the consumer doesn't meet the lease standards, there is a
charge that reflects the reduced value of the vehicle (if the vehicle is
returned).  But if the consumer had purchased the vehicle and traded it with
the additional wear or mileage, the trade-in would also be worth less.  More
importantly, the lease's guaranteed value protection (worth $2,592 on average
for leases ending in 1999) doesn't end because of a $300 excess mileage or
excess wear charge.  The consumer still receives the savings from excess
depreciation even though he or she has to pay the cost of returning the
vehicle to the expected condition.
    Consumer Reports says:  "It takes a sharp-eyed skeptic to deconstruct a
lease advertisement."
    "Actually, lease ads do have consistent information," responds
Randy Brown.  "Lease advertising must follow federal requirements and
therefore includes the same basic information.  Most national advertisements
contain additional information.  We've reviewed dozens of lease advertisements
and created an exhaustive list of all of the different terms and phrases that
a consumer is likely to see in advertising.  We've posted the list in our web
site with an explanation of what each phrase means, as well as a definition
for any specific leasing terms.  With this information, consumers can fully
understand any lease ad."
    Consumer Reports provides a great service in trying to explain leasing to
consumers and compare it to financing.  However, the ACVL web site has much
more complete and accurate information on leasing and financing, including a
detailed commentary on many other leasing concerns raised by Consumer Reports.
To get the complete background on just about any leasing question, consumers
should visit ACVL.com.  The Consumer Reports Commentary is found at ACVL.com.
    About ACVL.  The ACVL, founded in 1993, is an association of the nation's
largest vehicle lessors.  Based in Larkspur, California, the ACVL is a
national trade association for the largest manufacturer and import distributor
captive finance companies, banks and independent leasing companies.  Its
primary goals include increasing consumer understanding of lease benefits and
responsibilities through improved disclosure.  Further information about the
ACVL and consumer vehicle leasing may be found on the Association's web site:
ACVL.com.  The association has been very active in many areas of consumer
lease education.  The ACVL has contributed significantly to the Federal
Reserve Board web site on lease education (bog.frb.fed.us/pubs/leasing) and
has often been asked to comment on both federal and state legislation designed
to improve consumer disclosures on leases.

    (A) "It's the lease you can do," Consumer Reports, January 2001.
    (B) Leasing offers a lower monthly payment than financing so the consumer
has the opportunity to use the savings in the monthly payment to pay down a
higher rate credit card debt or make an investment with a higher return such
as a company retirement plan that has a 25% or 50% company match.
    (C)Thus the vehicle depreciated $2,592 more than what was originally
projected when the lease began.  For example, on a $25,000 vehicle with a
residual value of $14,000, the expected depreciation is $11,000.  In fact, the
vehicle sold at auction for $11,408 ($2,592 less) --
- so it actually
depreciated by $13,592 ($25,000 - $11,408) instead of by $11,000
($25,000 - $14,000).  It is important to remember that only the projected
depreciation of the vehicle is paid over the term of the lease whereas a loan
must be paid down to $0.