Getting More Car for Less Cash

By William J. Mitchell/Detroit

When Carol Inkley went shopping for a new car earlier this year, she faced a supply-side problem: a pending divorce had left her with little to spend and nothing to trade in. Inkley, a Chesterfield, Mo., interior-design coordinator, solved her dilemma by signing a four-year auto lease that avoided the hefty down payment a normal car loan would have required. Cost of the lease: $239.04 a month. She drove home in a new white Honda CRX complete with automatic transmission, air conditioning and AM-FM radio.

Taking a cue from Corporate America, more and more people these days are shopping for cars the same way that Inkley did. For decades automobile leasing has been popular among firms anxious to protect their cash flow and capital from the kind of rapid depreciation that car-fleet ownership entails. Now individual consumers are taking up the same practice for roughly similar reasons. Last year, according to the American Automotive Leasing Association (A.A.L.A.), a lobbying group, individual customers leased nearly 2 million of the 11.4 million new cars delivered in the U.S., a record. That 17% market share compares with 12% ten years ago. Experts predict that personal leases could account for more than a third of new-car deals by the early 1990s.

Why the switch? Rising sticker prices and the phaseout of income-tax deductions of sales taxes and the interest on consumer car loans are major reasons. Says Bill Willis, fleet and leasing manager for Ford Motor's Ford Division: "Leasing permits people to drive upscale cars, complete with options, without making any initial investment."

Richard Shapiro, 28, chief financial officer for a chain of outpatient health centers based in Los Angeles, likes that notion. He began leasing in 1982 with a Toyota Celica and moved up to a Mercedes-Benz, later a BMW and now a 1986 Porsche 944. Shapiro pays only about $450 a month for the Porsche -- considerably less than the $800 a month he figures a conventional auto loan would cost him. Tom and Dede Spencer of Kirkwood, Mo., a suburb of St. Louis, decided to lease their 1987 Dodge Caravan for $367.50 a month. They can spend the money they would otherwise use for a car down payment for new carpeting and the delivery-room bills for their new baby.

Car leases are increasingly available from auto companies and dealers, as well as from financial institutions. While most showroom personnel still push first for sales, two-thirds of the nation's 25,150 auto dealers now arrange leases as well. The Consumer Bankers Association says 53% of its member banks leased cars last year, up from just 26% in 1983. General Motors Acceptance Corp. (1986 assets: $90.78 billion) says the number of leases on its books has increased from about 50,000 in 1982 to about 600,000 last year. GM's Pontiac Division last month introduced 50-month cut-rate leases. Example: under the special offer, a 1987 Pontiac Grand Am that ordinarily leases for about $240 a month is now going for as little as $199.

Under many leasing plans, drivers can apply the monthly payments toward the ultimate purchase of the car. However, the customers often wind up paying more than if they had taken out a loan to buy the auto in the first place. Nonetheless, Edward Bayer, vice president of Enterprise Leasing in St. Louis, points out one clear advantage: "With leasing, you can make the buying decision after test-driving the car for three or four years."

For all its newfound popularity, leasing remains a stepchild in the family of auto-finance plans, according to John Fitch, executive director of the A.A.L.A. In his view, Americans still have a "cultural bias" toward owning their major necessities. But if interest rates rise sharply and auto-sticker prices continue to climb, the long-term rent-a-car may become an even more popular American choice.