Tips on Buying Cars: New car buy, confessions of a former car salesman, lexus models

Question
Ron,

Thanks for taking my question.  I recently wrecked my car of 7 years and I suspect the insurance company will rule the car "totalled."  If not I may rule it that way myself.  Although the wreck was minor in terms of impact the damage was pretty severe.. front passenger side wheel snapped at axel, both air bags deployed and broken front windshield and dash severely damaged on passenger side.  All that side my question is pretty subjective.. do you have any recommendations on a nice 4 door sedan?  I'm looking for something under $40k and while I've never bought used before would consider buying used from somehwere like Carmax etc..  Have looked briefly at the Mercedes and Lexus models.  Also, any thoughts on leasing vs buying... I've heard that leasing can be great but only if you own a business?

Tks much

Answer
Good Morning, Harrison,

Thanks for your question. I’m sorry to hear about your accident, and hope you’re ok.

Wow, there are so many choices of great vehicles in the range you’re considering that I couldn’t begin making an unbiased recommendation. If I did I’d personally lean towards something like BMW, Mercedes, Lexus, etc.: the quality of these (type of) brands, and the way they drive is different than the (somewhat) equivalent domestic brands.

Although I’ve never bought from Carmax, I did use them in the research for my book, $ave Thousand$ Buying Your Next Car: Confessions of a Former Car Salesman, www-Make-Me-Smarter.com. Their sales model is based on the price you see is the price you pay. While many people like this ‘no negotiating’ model, it also eliminates your ability to get a better deal. While it takes a little work and research, there’s a chance to get what you want for a lot less money than the single take it or leave it price.

Ok, now let’s talk about lease v. buy. When you buy a vehicle your loan amount is the same as the total price you bought it for (less any amount you put down), and the monthly payment is based on this amount. If you keep the car for the length of the loan, you will have paid the full purchase price, plus interest.

When you lease a vehicle the leased amount is based on how much of it you’re going to use during the lease term. For example, let’s say you lease a new $40,000 vehicle for three years; the leasing company, using industry determined figures, tells you that the value of the car at the end of the lease term will be $20,000 (these are guess-timate numbers.) During the three-year term you have used $20,000 of the value of this $40,000 vehicle, which is what your payment will be based on. There are, of course, some other differences in how everything’s calculated, but this is essentially how it works. So if you buy you’re monthly payment is based on $40,000; if you lease your monthly payment is based on $20,000, the amount of value you’re actually consuming.

Assuming identical three-year terms, at the end of a purchase you own the vehicle, which you’ve paid for with your higher monthly payments; at the end of the lease you turn the car back in and have nothing, but you have the extra money still in your pocket. There are other options, but they’re not important at this point. From this perspective, leasing comes down to cash-flow. For the same priced vehicle your monthly payment will be less on a lease; or for the same monthly payment you can drive a more expensive vehicle.

Note that nothing I said about leasing has anything to do with owning your own business. If you are a business owner you are still entitled to your normal business expenses regardless if you lease or buy; all of this should be left up to your CPA or tax advisor.

Well, I hope all of this helps you, Harrison.

Good luck.

Regards,


Ron